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Investments in the palm of your hand

A new, disruptive app is letting novice investors access the stock market. Freetrade co-founders Adam Dodds and Andre Mohamed tell Rohan Banerjee about a future without broker fees.

The stock market, according to Adam Dodds, needn’t be scary – “but people are always afraid of what they don’t understand.” The fresh-faced 30-year-old has a contagious buzz about him as he describes the app he hopes will “democratise” the UK’s investment scene.

Alongside partners Davide Fioranelli and Andre Mohamed, Dodds co-founded Freetrade –a mobile-based stockbroker service offering zero-commission on global transactions. Set to be launched this year and available on iOS and Android, Freetrade has raised a total of £1.3m in less than 10 months through crowd-funding platform Crowdcube.

So, what’s the catch? “There’s no catch,” Dodds laughs, while gesturing towards a sofa sunk so low into the ground that it may as well not be there. We’re at a tech exhibition event in Old Street, London, showcasing successful start-ups. There’s a pop-up bar with a craft beer you won’t have heard of and an even rarer coffee. We fall together before Dodds rebalances himself and explains how Freetrade took off.

The former KPMG accountant, who’s dressed more like a student than a CEO, begins: “When I moved to London a few years ago I was shocked at how expensive and intimidating it was to become an investor. This is why Freetrade was created, to make investing in the stock market easy and affordable for everyone.”

Dodds says many people in the UK, especially millennials, are put off stocks and shares. “Costly broker fees, typically around £12 per transaction, stop smaller investors, who usually need to see their investment grow considerably before it returns a profit.” In addition to the fees, receiving the correct advice is difficult to come by because it tends to require an investor meeting with an independent financial adviser (IFA), which also incurs a charge and is time-consuming.

A report, Bridging the Equity Divide, published by Syndicate Room earlier this year, found that 46 per cent of Britons would love to invest in stocks and shares but don’t know how. Dodds appends: “Even when an investor is knowledgeable, a lot of the traditional channels are out-dated and difficult to use.” Other platforms such as Robinhood and Loyal3 both operate similar zero-commission models in the United States, but cross-pond emigrant Dodds was surprised that UK traders didn’t have anything similar on offer.

Freetrade’s zero-commission tagline, however, should be taken with a pinch of salt. Basic Freetrade accounts are totally free, but premium share-dealing accounts come with a flat rate of £1 commission per £1,000 invested. Another rung sees users charged for self-invested personal pensions (SIPPs) or stocks and shares Individual Savings Accounts (ISAs).

Still, Dodds maintains that there’s nothing cheaper. “Basically, broker fees have stopped smaller investors from making money. The app will remove major barriers to stock market investing. There isn’t anything else like it in the UK.”

Blazer-but-no-tie sort of guy Mohamed grabs a coffee, joins us, and pitches in: “The investment market has been inaccessible, not only due to the outrageous commissions, but the process hasn’t really been streamlined through an app. It’s long, drawn out and you’re signing stuff over with a pen. We don’t have a minimum deposit and users can get started with a few taps of their phone.”

If Freetrade’s costs are so low, where do you make money? Mohamed counters: “You could say the same thing about Spotify. I’m not worried about our premium services not being good enough to cover the revenue. What we have at the moment is a hypothesis and we’re right to find the right mix of premium services and product points. It’s about customer acquisition and keeping eyeballs on the app. It’s very sticky compared to something like Revolut.” Revolut, for context, is a global money app that includes a debit card, currency exchange and peer-to-peer payments. Mohamed goes on: “They have half a million customers but people only use them when they go on holiday. We feel we are in a much better position compared to someone like Revolut when it comes to monetising people’s interest. How we make money is similar to any broker – interests on cash balances. If you haven’t invested fully on your account, there’s revenue that’ll be there for us.”

Whereas other brokers charge a huge mark-up, Dodds says that Freetrade’s effective use of fintech has “totally slashed overheads” and by “not employing hundreds of staff or using bricks and mortar” it retains wiggle room. Mohamed adds: “There are no maximum or minimum trades and there are even fractional trades on offer too. They are real shares and this is real ownership. It’s the same as you would get from another broker but without the hassle or the expense. It’s nothing like CFD [contracts for difference].”

What are fractional trades? Dodds beams: “Freetrade will be introducing fractional share-dealing to the UK market. So, if you have Apple trading at £100 per share, you’ll be able to buy part of that and invest just £25.” Fractional trading is available in the US through the likes of DriveWealth and Stash Invest, but Freetrade will be bringing this model to Europe for the first time.

Is this gambling? Dodds takes a deep breath. “I think there’s risk attached to any kind of stock trading, but this isn’t spread betting. We’re about supporting investors in the long-term who would be excluded otherwise. Users have control and visibility. If you have extra cash and you have it in a bank account, not generating much interest, you could instead have it in an ETF [exchange-traded fund] and it’ll earn money on its own.”

Dodds makes it all sound so easy but he insists: “that’s because it is.” The Freetrade app, “which takes seconds to install”, could be likened to “Uber and Airbnb”. Independent advisers will also be able to provide advice directly through the app, opening up a whole new world to the novice investor. Climbing out of the sofa sinkhole with a smile, Dodds closes with this: “Freetrade is digital only and mobile first, built from the ground up using new technology. This means we have significantly lower staff requirements, so can actually afford to remove commissions from the equation. We’ve seen a similar model work with UK challenger banks like Monzo and Tandem. Now it’s time for the brokers to get disrupted.”

Rohan Banerjee is a Special Projects Writer at the New Statesman. He co-hosts the No Country For Brown Men podcast.

SHUTTERSTOCK / TADEUSZ IBROM
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The Silicon Valley of South London

London’s deputy mayor for business Rajesh Agrawal and Croydon Central’s Sarah Jones MP tell Augusta Riddy why Croydon is becoming a hotbed for fintech talent

It has been almost seven years since riots took hold of Croydon, and many residents would argue that it is today a very different town. This regeneration can be seen everywhere in the area, but perhaps the best evidence is to be found in Croydon’s thriving tech scene. And while the riots are for many a painful memory, Jonny Rose, founder of the not-for-profit tech hub Croydon Tech City, says that disruptive time “had a real galvanising effect”. Rose, who was then a recent graduate, says the riots inspired him to return to Croydon, to build something positive at home. “We couldn’t just sit on our laurels,” he says. “We’d come back from university, we were full of ourselves,” he remembers, but says that when he began thinking of starting up, a sense of place and limited resources made Croydon the obvious choice.“Let’s do it from our parents’ houses, rather renting up in Islington.”

Between 2011 and 2013, Croydon’s tech scene grew by 38 per cent. The area is now home to more than 1,500 tech start-ups, progress the Deputy Major for Business Rajesh Agrawal describes as “phenomenal”. He calls Croydon Tech City “London’s fastest growing digital, creative and technical start-up cluster”. Rose, too, is very proud of the progress that has been made, but he attributes the growth to bottom-up regeneration. “You don’t build the UK’s fastest growing tech economy by waiting on politicians.”

So, what is behind Croydon’s tech boom? Rose says the area already possessed all the necessary parts, and that it just needed a “unifying body” to unlock its potential, as Croydon Tech City has been successful in doing. As the “largest town in Europe,” the talent was there in spades. “Croydon is almost a city within a city, and if you think about the sort of people, the sort of talent you need to create a tech ecosystem ... [they] are all present in Croydon.” The borough is a major commuter belt, and Rose points out that talent was there, but simply commuting elsewhere. “We knew the talent was going uptown, so why not build an ecosystem here to retain it? This has really been one big retention exercise.” Crucially, Croydon was already home to some major tech companies, such as Dotmailer. Rose says this “proved that you could build a tech city here”, provided the means to create a well-connected tech community.

At the forefront of this community are a number of fintech firms that have been born and raised in the borough take off in recent years. Notable success stories include QuidCycle, an “ethical financial services company” that re-finances high-interest credit cards and loans, and Uniqodo, a “voucher code platform for eCommerce marketing”. Agrawal is himself a successful fintech entrepreneur, and he agrees that Croydon held the “key ingredients of developing a good ecosystem” including cheap rent and excellent travel links. For Agrawal, a particularly important factor is the makeup of the workforce: “[something] that really is attractive to entrepreneurs is diversity, and Croydon is very diverse”.

The newly-elected Labour MP for Croydon Central, Sarah Jones, is equally enthusiastic about Croydon’s future as a home for fintech companies. “As a new MP, I’ll be looking to quickly get involved and build relationships within the tech scene. I will be listening closely to firms already here to ensure we are doing all we can to support them,” she says. Like Agrawal, Jones points to a diverse talent pool as one of the factors central to the borough’s tech success. “Croydon is a vibrant community with incredible diversity and energy so it is no surprise that young and innovative companies are increasingly choosing to set up here”. In local government, too, the potential of tech start-ups is recognised and encouraged; Croydon Council was named digital council of the year in this year’s Local Government Chronicle awards.

A nationwide debate on the technological skills gap has emerged in recent years with the growth of Britain’s tech sector. Jones says it is “vital that people from Croydon are contributing to and benefitting from our burgeoning tech scene. In the longer term this means investing properly in skills both for young people and adults – helping develop those lacking in basic digital skills and abolishing the digital divide.” There is a strong feeling that the growth of Croydon’s tech scene should not benefit only a technologically savvy elite, but the community as a whole. At City Hall, Agrawal points out the Mayor’s £7m Digital Talent Programme, which is aimed at training young people in digital skills, while at Croydon Tech City, Rose and his team have set up Future Tech City, a volunteer educational programme “converting non-tech locals so at least they have the skills to access jobs in the scene on their doorstep”.

Rose is so enthusiastic about his home town that he has recently started a line of T-shirts that read: “Croydon vs The World.” He talks excitedly about a recent local exhibition by Damien Hirst and an urban saffron farm round the corner from East Croydon station. “Now everyone has got a bit of vigour whereas once people were a bit ashamed ... Croydon is no longer a place where we lay our head at night”. Clearly, fintech firms are not the only things taking off in London’s leafiest borough and, as everyone is keen to point out, it’s all just 15 minutes from central London.

Augusta Riddy is a Special Projects Writer at the New Statesman