There are plenty of people who’d happily become shareholders in companies like Apple and Facebook if the process of buying stock were simpler. They are plenty of people who’d prefer to give the gift of stock but who hand out money or retailers’ gift cards for the same reason.
Stockpile, a five-year-old, 15-person, Palo Alto, Ca.-based brokerage services firm has a solution to that problem: Stock gift cards. They say they’ll be everywhere soon, too, thanks in part to $15 million in Series A funding the company has just stockpiled from Sequoia Capital, Mayfield, and actor-investor Ashton Kutcher.
We talked earlier today with Stockpile founder and CEO Avi Lele, along with its chief commercial officer (and former PayPal general manager), Dan Schatt. We asked how the company works, and why traditional brokerages haven’t created gift cards for stock much sooner.
TC: Avi, you previously spent 16 years as a patent attorney. Why start Stockpile?
AL: I’d long thought that rather than buy gifts for my niece and nephew, things they toss to the side after a couple of days, it’d be neat to turn them onto something that would last into the future. So I tried to buy them shares, but it was such a pain that I gave up. You had to open a brokerage account, then get their social security numbers, then fund the account with a couple thousand dollars. And even then, a lot of shares were too expensive. I was like, wait, this is too hard.
TC: You say you then spent four years quietly building a licensed brokerage platform to turn stock into a consumer product. Who are some of your partners?
DS: We’ve got great distribution partners already, including Blackhawk Network, which has 180,000 locations. It’s the company that powers the gift cards you see in racks everywhere from Safeway to Giant Eagle to Toy “R” Us. You’ll be able to buy [our cards] off the shelf at Kmart. They can light up all sorts of chain locations for us.
You’ll also see us working closely with banks, where you’ll be able to easily buy or sell stock from those financial institutions. We’ll be behind the scenes, but you’ll see “powered by Stockpile.” We’ve struck a number of deals; we just can’t name them yet.
We’ve built Stockpile as a platform service, meaning you can come through a third-party app or partner site or application or through a physical retailer because the platform is open. We can connect with anyone.
TC: What do the physical cards you’ll be selling look like, and what happens once one is purchased?
AL: The gift cards have companies listed right on them, so a card might say $50 of Apple stock. There are also more generic cards and you get to choose whatever companies you want. But you’ll buy it, peel off a sticker, then type the code you see into our site or mobile app. You’re in the driver’s seat, so you can stick with the stock that’s on the card or switch to another stock of your choosing or even opt-out and take a retailer gift card instead and go shopping at your favorite store. We want gift recipients to have lots of redemption options.
TC: And the number of shares in a company is dependent on when you execute the gift card?
TC: How much are you charging people to use your platform?
AL: It’s iTunes pricing. You can buy and sell shares for 99 cents per transaction, though when you buy a gift card in a store, we’re priced like if you were buying a Visa or Amex gift card; there’s a fee of $4.95 atop the gift price to pay for [our] interchange fees.
That fee also covers the cost of stock trade, so the gift recipient doesn’t have to dig into his or her wallet.
TC: So this is a very sticky way for you to nab customers for a new brokerage business. Are there limits to how much someone can buy or how often they can trade once they’re part of the platform?
AL: There is no limit. You can buy and trade as much as you want.
TC: Aside from expediency then, the biggest advantage over a discount brokerage like Schwab is that it’s more affordable?
AL: Our pricing is way better. Traditional brokerages charge $7.99 per trade, and you can’t do anything at Schwab with $50 bucks. With Stockpile, you can start owning shares with $10, even if it’s fractional ownership.
TC: Why hasn’t Schwab or another brokerage done what you’re doing?
DS: They say they can’t cost-effectively go down that low. They can’t make money off someone with $10 in their account.
One of the benefits we have is that we’ve started with a clean slate. Everything in our brokerage is purely digital. All the confirmations and statements are in PDF form, so we don’t have the legacy cost of paper and can lower the costs and barriers to entry.
If you think of every upturn and downturn of the economy, the people who own stock ultimately recover much more quickly. Those without it fall further behind, creating a larger income gap. The issue is access. We’re not suggesting that people buy risky stocks. Along with direct stock shares, anyone can buy shares in a bond fund or an S&P 500 index fund or [exchange-traded funds] through our platform. We’re making these things accessible to everyone so as the market goes up and down, everybody has the ability to benefit.