How Does Acorns Make Money? Business Model Explained!

Acorns is an American financial technology and financial services company based in Irvine, California, that specializes in micro-investing and robo-investing. According to Fortune’s 2020 Impact 20 list, Acorns had 8.2 million customers and $3 billion in assets under management.

The company categorizes its services into three categories. Investing spare change in exchange-traded funds (ETFs) is the first option. 

Through the platform, users can create and fund an IRA and, through Visa, Inc., members can obtain a debit card. You can subscribe to Acorns for $1, $3, or $5 per month for a package of various services.

The History of Acorns

Walter Wemple Cruttenden III and Jeffrey James Cruttenden founded the company in 2012 to promote incremental investing and passive investing. The company launched its mobile app in 2014. The portfolio options available to a user were designed in partnership with Nobel laureate Harry Markowitz.

It includes checking account services and retirement IRA products since its inception. In order to achieve this, Vault, a fintech retirement startup based in Portland, Oregon, was acquired.

Shlomo Benartzi, the behavioral economist at Acorns, was appointed chair of a behavioral economics committee in 2018, charged with conducting field studies focused on consumer spending in the Money Lab.

Approximately $100 million in venture capital funding has been raised by the company since its founding. Jennifer Lopez, Alex Rodriguez, Bono, Ashton Kutcher, and Kevin Durant are among the notable investors in Acorns as of August 2019. The company is also owned by PayPal, BlackRock, and NBCUniversal.

Acorns intend to go public in May 2021 through a merger with Pioneer Merger Corp., a blank check company. This plan was canceled in January 2022 based on market conditions.

Acorns Financials

According to Acorns, there were 6.8 million users as of March 2021, up from 4.6 million the previous year. Of those accounts, 1 million had IRAs. Over $1 billion has been invested through its platform to date, according to the company.

Crunchbase shows that Acorns has received 10 rounds of funding. 

Acorns have raised hundreds of millions of dollars in funding from investors including NBCUniversal Media LLC, Paypal Holdings Inc. (PYPL), and Black Rock Inc. (BLK), valuing them at $860 million as of their latest fundraising.10 Acorns’ valuation surpasses that of fintech rival Betterment.

How Does Acorns Make Money?

The user has the option of selecting from different portfolios that have varying asset allocations after registering with Acorns. When a credit or debit card is linked to an Acorns account, purchases are round up to the next whole dollar and the difference is credited to the account. Acorns users may also manually contribute to their accounts. Acorns launched with a $1.00 fee, which was discontinued on September 21st, 2021.

Acorns offer personal accounts for the flat rate of $3.00 per month ($36.00 per year) beginning February 21, 2022; this is equivalent to a fee of 0.36% (36 basis points) on a $10,000.00 account, or, a fee of 3.60% (360 basis points) on a $1,000.00 account.

Acorns’ flat fee can be significant for customers who rely solely on the company’s round-ups to invest in their accounts: For example, if an account holder makes one purchase each day of a calendar year, the highest amount she could theoretically deposit (at ninety-nine cents change for each of three hundred sixty-five purchases) is $361.35; minus the annual fee, she would lose 9.96% of her money, and only the remaining 90.04% would be available to her investment portfolio. 

The difference is even greater when the transaction yields less than ninety cents in change or if fewer purchases are made each day.

Typical of most robo-advisor investment platforms, Acorns portfolios include passively managed exchange-traded funds (ETFs) which additionally charge their own fees. 

As of February 21, 2022, the company’s portfolios include combinations of seventeen primarily stock and bond exchange-traded funds, owned by either Vanguard or BlackRock.

Recent Developments

Acorns announced in October 2020 that it would partner with the online job market ZipRecruiter. Within the Acorns app, users will be able to browse and apply for jobs.

Through Acorns’ Grow website, Acorns announced a new partnership with CNBC to bring more information on investing and finance to a broader audience.

 According to Kerner, Acorns did not intend to go public as of June 2019.

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