New York-based Matador, a commission-free investing app, raised a $2M seed funding led by Greycroft, in September 2018. Matador launched in May 2017, a few years after Robinhood, a leading investing app, began to tear down the barriers of entry to the stock market.
Selling and buying stocks online is a complex and expensive process, made tougher with steep account minimums, needlessly high brokerage, and elaborate processes. For years, these barriers have made the stock market a playground for the rich and kept the public at large out. Even today, research says that it’s the wealthiest in the US who own 81% of the stocks. It’s for good reason that millennials distrust aging financial institutions and are looking for easier, more interactive options to get things done.
With the entry of apps like Robinhood, Acorn, Stash, and numerous others, the internet has been abuzz with news declaring an all out pricing war between brokerage firms who’ve been compelled to slash their trading fee by almost 40%. And the clear winners, in US’ rapidly growing $5.8B fintech market, are apps that people are increasingly gravitating towards and are most comfortable with.
Matador is one of them. Like Robinhood, Matador’s app allows investors to trade stocks for free. The former, with the valuation of $1.3B, might be the dominant force in the market, followed closely by others like Acorn or Stash, but Matador has an additional feature which could lure in many young investors: an integrated social network which allows you to broadcast your trades to your followers and follow the trades of friends and professional investors in real time. This comes at a time when, according to Gallup, less than half of young Americans are putting their money in stocks. Researchers point to the 2008 market crash and the market’s recurring volatility as the main reasons why young investors are leery of investing.
How Matador Works
To get started, iPhone users (the app isn’t available for Android users, yet) can download the app and fill out their investment application. Users get an approval notification once the information is verified, after which, they can fund their account and start investing.
Some app reviewers have lauded its sleek and easy-to-use interface which has pages for individual stocks and trends associated with it. Users can look at information about the company they want to invest in and typical trading statistics such as the P/E ratio and market cap. But what sets this app apart is its feed of your personal Matador community (connected to Facebook) where you can see others’ portfolios and a list of stocks they own. However, if you are not too keen on the social feature, you can turn off sharing your portfolio or individual trades. In addition to displaying your own stocks, Matador’s social tab also allows you to browse the stocks the Matador community has most traded that week and present “a sense of which stocks are trending across the broader Matador community”. Concerns of social investing creating an investment bubble which inflates or deflates demand are somewhat relaxed with the knowledge that Matador only shows you where your friends have invested, not the exact amount invested.
Investing With Friends
The big, looming question at the moment, however, is Matador’s fee structure and how it makes money. The company says that it charges $0 for bank transfers (both incoming and outgoing) as well as no yearly maintenance fee. However, if you decide to transfer your securities or stocks to another brokerage amount, Matador will charge you (Its pricing for services like domestic wire transfer to automated customer account transfer service ranges from $30 to $75.) Most importantly, the startup dispels any concerns about security by claiming to have “bank-level security with 256-bit encryption” and brokerage services regulated by the Financial Industry Regulatory Authority (FINRA).
It isn’t clear how Matador makes money, yet. The startup says that it has cut costs by eliminating stuff like “maintaining fancy storefronts and opening accounts by snail mail”. The speculation is that Matador might be earning interest on users’ cash balance (although the app doesn’t have a minimum deposit requirement) or that in the coming years, it’ll go the Robinhood way of launching a paid advanced product.
There could also be the possibility of doing something with its distinctive social feature. The ability to see other’s trades and follow the trends of an overall community is what differentiates Matador from other apps. It’s also an add-on the startup is banking on: “Investing can be scary and costly,” is the startup’s brand position. “We built Matador to make sure that confusion, hassle, and expensive fees don’t get in the way of building a comfortable financial future.”
But the biggest advantage of the social feature, something that comes second to the fact that you can trade in Matador for free, is that the app can become a learning ground for young, first-time investors. By giving them ample opportunities to observe how other people trade, interact with those who are financially conscious, it can create sophisticated investors from the bottom-line, not just those who can afford steep brokerage.
There are, however, plentiful concerns about what investment apps are making people do. While social media websites are fighting for your time, these apps are also fighting for your money. Can they then inadvertently encourage people to take more risks than necessary? The argument in the favour of investment apps is that they’re finally making it easier for people to invest and encouraging a habit of saving but perhaps, they can go the extra mile in reminding users that despite the clear benefits, no investment is without risks or limitations.
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