How DriveWealth Has “Democratized” US Stock Trading for Global Digital Investors
Founded in 2012, DriveWealth offers technology that allows companies to offer fractional trading services. Pioneering in this kind of trading and embedded finance, this company has effectively built the plumbing for some apps to offer stock-trading and investing products. It also has helped power the rise of easy-to-use personal finance apps.
So-called fractional shares are offered by many brokerages, actually letting investors buy a slice of a share instead of the whole thing. Over the past few years, DriveWealth has launched partnerships with firms on six continents. It has developed innovative investing technology and a customizable suite of APIs that partners can use to provide investment capabilities to their clients.
The Founding Story of DriveWealth
Robert Cortright – DriveWealth’s founder had spent his entire career with large banks and investment banks on the trading side, specializing in risk management. In late 2000, early 2001, he jumped off his banking career and created a company called “FX Solutions,” the first retail foreign exchange trading solution available around the world. This was when people were first starting to get into electronic trading, and it was also his first experience building fintech before it was called “fintech.”
While he was building this company, he realized that most people around the world didn’t have access to buying stock in an efficient way. Only the top 2 percent or so could actually access the stock market outside of the United States. After the financial crash of 2008 and 2009, people started building companies like Betterment, Wealthfund or Robinhood. These B2C companies were trying to democratize or disrupt the legacy firms. However, many of these applications were sitting on top of old technology infrastructure.
“I felt that, as this industry progressed, the old legacy systems weren’t going to have the right infrastructure to provide a great user experience. What people need is a significant modern infrastructure to plug into to bring engaging financial products to the retail customer.” – said Cortright.
So far, we have seen some really good products in the digital wallet and individual financial services industry. Cortright thinks the next big thing is savings and investment infrastructure. And that is what DriveWealth is built from the ground up to service: all these different new applications and experiences for people to get more involved — at a much earlier stage in their financial life — into savings and investing. DriveWealth is now getting a lot more exposure, now that it is powering a lot of these new, interesting financial apps around the world, like the Cash App and MoneyLion.
“We see this as a rapidly evolving micro-lend finance trend.” – Cortright talked about DriveWealth’s potential.
DriveWealth’s mission is to democratize investing globally by working with partners to invent new ways to use its API-based technology to provide emerging investors with cutting-edge embedded experiences, often first-time access to U.S. markets, and the ability to begin investing with as little as $1. DriveWealth is committed to empowering consumers around the world to become owners by delivering the most modern brokerage infrastructure, unparalleled industry expertise, and a culture of continued evolution.
“Fintech is growing globally and we saw a real need to rebuild the plumbing for the infrastructure for these retail digital operations,” said Robert Cortright.
“We’re like Intel Inside,” Cortright said, borrowing the tech company’s branding. “We are the plumbing, we serve up brokerage capabilities through APIs, all cloud-based. If you are a large player in financial services and you want to add brokerage, you can plug and play with DriveWealth. It’s like what Stripe does for credit cards.”
Empower Companies to Engage Investors
Cortright’s first product was a fractional shares one, and it was a way to demonstrate that people could buy stocks even if they couldn’t afford a share in a dollar amount. He always thought that people thought in terms of dollar amounts.
“But what if you could rationalize the product and allow people at any stage of their wealth and finances to get involved?” – Cortright wondered.
The thing about the youth market is they have time on their side; the biggest asset of a young person is time. The idea was that they had to save up a bunch of money before they could make something of it. They lost a lot of time, and they lost experience doing it themselves.
“So we wanted to engage them early, allowing them to really take advantage of compounding, dollar cost averaging and diversification around the portfolio, no matter what investment, whether it’s $25 a month, or $45,000 a month, or $25,000. The earlier you start, the more you’re engaged with it, the better off you’re going to become over the long term. It’s a mechanical process, but the idea is that you could rationalize investments. Someone could buy a portfolio of their 10 favorite stocks for $100.” – Cortright explained.
From that initial idea, he wanted to disrupt and change the way people interact with brokerages, and so he – along with his team – developed the fractional shares product. They built their own API cloud-driven infrastructure. They made it very efficient and affordable for companies to offer small, different types of investments.
“So you could do a robot product, you could do a self-directed product, you could do stock back, you could do all kinds of things that will allow a person to be engaged in their savings and investments or their financial life.” – said Cortright.
So, for instance, you go to Starbucks, and you buy a $5 latte. Companies are coming up with products where you’ll get 50 cents back, that can be put into a savings or investment portfolio. If you think about a young person, an avid consumer of Starbucks, Netflix, Amazon, Apple, Facebook, and they are getting cash back, right there, you have a pretty good portfolio. That is how DriveWealth has evolved.
In the very product-centric past, the bank would sell us a product. At the bank, the orders department doesn’t know what the investment department’s doing with a customer. There’s no dialogue. But now, what Cortright called “embedded finance” is very holistic around the customer. It knows how we’re behaving. And it uses data intelligence to make a customer’s financial life a lot more efficient.
“The way you connect to consumers is by building portfolios around their consumption. Over the years, 50 cents each time you buy a latte adds up. And now you have an investment in Starbucks stock. But more importantly, it gets you over the hurdle of fear of investing, the intimidation of investing. You are engaged in the process, and you start to see diversification and compounding at work. It educates people, I think, at a lot earlier stage in their lives.” – Cortright talked about what problems DriveWealth is solving.
The Concept Behind the Real-time Fractional Trading
The company’s management is proud of the essential functionality they provide – fractional trading – which is extremely important considering that a significant portion of their customers are from countries with emerging markets.
“We offer real-time fractional trading. We can trade securities down to a ten-thousandth of a share and accept notional based orders. This allows our partners to build very granular portfolios with small investment sizes, thus reducing any barriers to entry.” Harry Temkin – Chief Information Officer of DriveWealth – explained.
To enable customers to buy fractional share products and through a low monthly subscription service, they reduce the commission for transactions almost to pennies a share, and this is where they feel the paradigm shift is coming. Cortright emphasized that they are going to move away from commission-based transactional pricing to subscription-type pricing – customers will pay a small monthly subscription fee and will have a very low transaction cost. In this way, they may build diversified portfolios.
Cortright is definitely pleased with how their platform is evolving in terms of behavioral impacts and customization around the individual’s needs and wants.
“The system may ask the person many questions well beyond what’s their age, risk tolerance, and retirement goals. We’re starting to see goal-based investing and it’s going to power the platform in terms of real, specific individual interests.”
The platform not only builds customized portfolios, but also protects customers from certain regulatory issues. Temkin explained:
“We believe we are the only broker to offer real-time margin. We calculate clients’ excess buying power based on the market value of their leveraged securities throughout the day in real time. We’re calculating exactly how much leverage they’re using at any given time and as they approach points that could potentially put them into a call, the system dynamically cancels outstanding limit orders or reduces leverage.”
“When we built real-time surveillance for good-faith violations and pattern day trades, we wanted to ensure that a customer could never trade themselves into a condition where they couldn’t trade anymore because of a violation. We wanted to build a system that would enable a new generation of investors from anywhere in the world to have economical and easy access to the US markets without worrying about rules and regulations, or the price of a stock. The technological combination of dollar based investing and real-time surveillance provides such an experience.”
With regard to their competitors, Cortright said, “We’re competing with the legacy-type clearing firms. What we’re trying to do is transform the cost and the affordability and the accessibility of retail robo-advisory, and sophisticated wealth management type products at a cost most people can afford.”
$450M from Series D Investment: The Development Momentum
“My goal is to build out the most modern fintech infrastructure for brokerage there is, so we’ll be making some acquisitions you’ll hear about very shortly around the execution and trading side of the business, to effectively execute for our partners. It’s about how we go to the market and work with the market on the institutional side, as well.” – Cortright defined the mission for DriveWealth. From that viewpoint, this company has grown continuously.
Most recently, in August of 2021, DriveWealth Holdings, Inc announced a $450 million Series D with a valuation of $2.85 billion, co-led by New York-based global private equity and venture capital investor Insight Partners and Accel, with significant participation by Greyhound Capital, Softbank Vision Fund 2, and Series C lead Point72 Ventures. The round also included a follow-on investment from Fidelity International, plus several new investors including Base 10, FTX, and FlightDeck.
DriveWealth will use the Series D investment to execute its strategic vision of becoming the category leader of embedded investing across digital wallets and brokerage apps on every continent. This raise will fund continued product and service expansion, talent acquisition, and technology innovation to build the most modern, industrial-strength infrastructure in brokerage to support the firm’s and its partners’ future growth. The funding will also be used to launch self-clearing and accelerate execution via strategic acquisitions and partnerships.
“We are in the early innings of a worldwide retail investing revolution,” said Bob Cortright. “Our goal is for DriveWealth to be the partner of choice to deliver the embedded investing experience of the future. This new capital and investor engagement will accelerate our global expansion plans in order to become the world-class, exchange-like technology company that powers tomorrow’s investing products.”
“The proliferation of digital wallets and democratization of investing has led to DriveWealth’s incredible growth and user adaptation to date, and the company’s institutional-grade brokerage execution delivers a seamless process to access equities globally. We look forward to partnering with the company as they continue to expand to meet the needs of today, and innovate for the demands of tomorrow’s fintech ecosystem.” – Deven Parekh, Insight Partners.
What is Waiting Ahead for DriveWealth?
The executive board define DriveWealth goal as building a very unique or sophisticated wealth management product that target the two main segments.
Segment #1: Financial companies and advisors:
In this B2B segment, the company will pave the way to help financial companies and advisors to offer their customers with diversified portfolios and, on the other hand, to influence the product functionality and usability.
Segment #2: End-user investors
In this segment, the company will make it easy for users to seamlessly trade US securities worldwide without the need to solve such issues as movement of world currencies to dollars and providing payments.
The CEO of DriveWealth said they are going to be on the forefront of customization and, not only that, deliver obviously extensive newer products. They are also working on a lot of different things and embedding them into their technology or APIs to make them very efficient for the client.
The next boost in DriveWealth’s trading volume will come from easing access to cryptos and embedding investment services on nonfinancial platforms. In April last year, Bob Cortright told Insider Intelligence the company aims to power crypto trading “because our partners are demanding it.” The fact that crypto exchange unicorn FTX participated in the Series D round is further proof of the fintech’s crypto plans. In terms of nonfinancial brands. DriveWealth already lets global brands add investing options to loyalty rewards tool kits, like topping customer credit card swipes with fractional shares of their stock.
The Bottom Lines
The increasing demand for financial services has left fintech companies eager to expand their products and drive engagement. With DriveWealth’s unique combination of brokerage experts and technology, it has successfully get to market quickly and scale.