Challenger bank Stash is rooted in helping most Americans invest and build wealth, $5 at a time. The company has grown a lot this year. Co-founder and CEO Brandon Krieg joins me on the podcast to update the firm’s growth metrics. Stash recently won Tearsheet’s Challenger Bank Award for Best Card Product for its Stock Back Card, which rewards cardholders with fractional shares of companies they shop at.
We talk about the growth opportunities for the firm and its decision early on to monetize its accounts via a subscription fee. Lastly, we discuss Stash’s relationship with Green Dot, its banking as a service provider, and what’s important to get right in those types of partnerships.
Stash is an interesting animal. The fintech firm's roots are in fractional share, automated investing. But as it's added banking functionality and a debit card, we've gone at Tearsheet from calling Stash an 'investment platform' to describing it as a 'challenger bank'.
Even though banking seems to be core to its value proposition, not everyone would describe Stash as a bank. "It's funny, I don't refer to Stash as a challenger bank," said co-founder and CEO, Brandon Krieg. "Banking, for us, has always been really important. The main reason wasn't to have another card or another checking account out in the market -- it was to be able to give advice out to our customers and be able to play a bigger role in their financial lives."
The cornerstone of Stash's banking push has been its Stock Back Card, which rewards cardholders with fractional shares of stock in the companies they shop at. For the 130 million Americans who live paycheck to paycheck, it's likely they don't have a lot of experience with stock ownership. Through Stock Back, they tend to have a discovery experience, learning that they can own the companies they do business with. "So, you can move from being a pure consumer spending money to actually learning about the companies you interact with," he said.
Stock Back is also a passive way to build an investment portfolio that doesn't require any behavioral change. Stash has issued nearly 20 million Stock Back rewards since launching a year and a half ago. The rewards program has an interesting knock-on effect -- nearly half of the Stash users who receive Stock Back rewards go on to buy more stock in the companies' stock they receive, according to Krieg.
The growth in Stock Back mirrors the growth Stash has seen over the past seven months during the pandemic. With 270 employees, the company has added nearly a million customers since the beginning of the year and seen its assets under management on the investment side nearly double. It's also seen 'well over' 100% growth in banking customers.
The pandemic has accelerated the move to digital finance and certainly, Stash can attribute some of its growth to that. In addition to a general rising tide, driving this growth is Stash's middle class target demographic. COVID has shown just how little people have saved and the need to build up a nest egg. Krieg says the idea of stashing away just a few dollars here and there really resonates with these types of consumers.
Stash always charged a subscription fee for its service, differentiating it from other challenger banks that employ a freemium pricing model. An AUM pricing model, where users pay a percentage of their assets, also didn't feel aligned to Stash's mission. "From day one, we wanted to be a subscription business. We want this business to be around for a really long time and we also need to have a business that's very stable because we are effectively the private bank for the masses," Krieg said.
With an upfront fee, Krieg emphasized that there's nothing hidden. As the business has evolved and Stash has added products, the subscription fees ensure that the firm can focus on outcomes and not cross-selling. Stash currently offers three different pricing plans.
Throughout Stash's evolution, Krieg never intended to become a bank. The company wanted a banking product that wasn't just another debit card or checking account. But getting a banking partner that was aligned with his philosophy on cutting fees required focus. The firm chose to work with Green Dot and has been happy with the relationship.
Working with Green Dot enabled Stash to launch quickly and get a product out in the market. Stash learned from its mistakes. "We were very quick to get this thing up and running, which was really awesome," he said. "I'd rather be in the market with the product and start iterating it and growing it, than spending years building a product to not have any customers using it."
In addition to banking and investing, Stash has introduced other products, like insurance. Looking ahead, Krieg sees more growth and is focused on continuing to invest in a product that people love.
"The good news for Stash is we have tons of products. We don't need to build any crazy new product. We have all the things that our customers need. And so for us, it's just continuing to put them together in a very delightful way and reaching more people. That's the focus that we're that we have now. And I don't see that changing for a while," he said.