Freetrade is an English fintech company offering a freemium share dealing service. The company was founded by Adam Dodds, Viktor Nebehaj, and Davide Fioranelli to give ordinary consumers access to brokerage-free trading.
Freetrade operates under the freemium model in which users can pay for additional features across three different monthly subscriptions: Freetrade ISA, Freetrade SIPP, and Freetrade Plus.
Freetrade also makes money via currency conversion fees and the interest it collects from the funds it loans to other institutions. The latter is otherwise known as net interest margin and in the United Kingdom averages 1.3208%.
Origin story
Freetrade is an English fintech company offering a freemium share dealing service. The company was founded by Adam Dodds, Viktor Nebehaj, and Davide Fioranelli in 2016.
Freetrade CEO Adam Dodds created the platform to become:
“an easy, affordable, reliable alternative to traditional share brokers, with the firm belief that investing should be a thoughtful, long-term exercise, not a get-rich quick scheme.”
With a background in accounting and financial auditing, Dodds tried to set up an investment account in the United Kingdom and was surprised at how difficult and expensive it was.
Considering brokers were charging £12 for each transaction, he realized there was a massive opportunity to eliminate these commissions and pass the savings on to consumers.
Freetrade was then launched in October 2018, with crowdfunding playing an important part in making the company operational.
One participant in this process was Viktor Nebehaj, a former Google employee who was then employed to help Dodds grow the business.
Rather than using brokers, Freetrade connects directly with the London Stock Exchange (LSE) to reduce the cost of each transaction.
In this way, Freetrade occupies a corner of the market wedged between social-media-based meme trading apps and traditional brokers with convoluted and expensive procedures.
With no commission charged for brokerage services, the company operates under the freemium business model where customers can pay for extra features.
Freetrade revenue streams include premium subscriptions, currency conversion fees, and the interest the company receives from cash sitting in user accounts.
Premium subscriptions
Most company revenue comes from three monthly subscription choices:
Freetrade Stocks and Shares ISA (£3/month) – a basic general investment account featuring free trades and fractional share trading. Here, users pay for access to an individual savings account (ISA) which allows them to avoid paying income tax or capital gains tax for the first £20,000 in investments.
Freetrade SIPP (£9.99/month) – a self-invested personal pension plan with free transfers and no share dealing charges. SIPP investments can only be accessed once the customer reaches the age of 55.
Freetrade Plus (£9.99/month) – a premium membership account with access to perks such as limit orders, stop losses, curated stock collections, and priority customer service. The company also offers 3% on cash up to a maximum deposit of £4,000. Freetrade Plus members get free access to the ISA account and can pay a reduced rate of £7/month for the Freetrade SIPP subscription.
Currency conversion fee
For every trade made in a currency other than British pounds, the company charges a currency conversion fee.
The fee is 0.45% plus a spot exchange rate fee charged by the participating forex exchange.
Interest on cash
Like many similar platforms, Freetrade also makes money by lending out the funds residing in customer accounts to other institutions and collecting interest.
Acorns is a fintech platform providing services related to Robo-investing and micro-investing. The company makes money primarily through three subscription tiers: Lite – ($1/month), which gives users access to Acorns Invest, Personal ($3/month) that includes Invest plus the Later (retirement) and Spend (personal checking account) suite of products, Family ($5/month) with features from both the Lite and Personal plans with the addition of Early.
Starting as a pay-later solution integrated into merchants’ checkouts, Affirm makes money from merchants’ fees as consumers pick up the pay-later solution. Affirm also makes money through interest earned from the consumer loans when those are repurchased from the originating bank. In 2020 Affirm made 50% of its revenues from merchants’ fees, about 37% from interests, and the remaining from virtual cards and servicing fees.
Alipay is a Chinese mobile and online payment platform created in 2004 by entrepreneur Jack Ma as the payment arm of Taobao, a major Chinese eCommerce site. Alipay, therefore, is the B2C component of Alibaba Group. Alipay makes money via escrow transaction fees, various value-added ancillary services, and its Credit Pay Instalment fees.
Betterment is an American financial advisory company founded in 2008 by MBA graduate Jon Stein and lawyer Eli Broverman. Betterment makes money via investment plans, financial advice packages, betterment for advisors, betterment for business, cash reserve, and checking accounts.
Chime is an American neobank (internet-only bank) company, providing fee-free financial services through its mobile banking app, thus providing personal finance services free of charge while making the majority of its money via interchange fees (paid by merchants when consumers use their debit cards) and ATM fees.
Coinbase is among the most popular platforms for trading and storing crypto-assets, whose mission is “to create an open financial system for the world” by enabling customers to trade cryptocurrencies. Its platform serves both as a search and discovery engine for crypto assets. The company makes money primarily through fees earned for the transactions processed through the platform, custodial services offered, interest, and subscriptions.
Compass is a licensed American real-estate broker incorporating online real estate technology as a marketing medium. The company makes money via sales commissions (collected whenever a sale is facilitated or tenants are found for a rental property) and bridge loans (a service allowing the seller to purchase a home before the revenue from the sale of their previous home is available).
Dosh is a Fintech platform that enables automatic cash backs for consumers. Its business model connects major card providers with online and offline local businesses to develop automatic cash back programs. The company makes money by earning an affiliate commission on each eligible sale from consumers.
E-Trade is a trading platform allowing investors to trade common and preferred stocks, exchange-traded funds (ETFs), options, bonds, mutual funds, and futures contracts; acquired by Morgan Stanley in 2020 for $13 billion. E-Trade makes money through interest income, order flow, margin interests, options, future and bonds trading, and other fees and service charges.
Klarna is a financial technology company allowing consumers to shop with a temporary Visa card. Thus it then performs a soft credit check and pays the merchant. Klarna makes money by charging merchants. Klarna also earns a percentage of interchange fees as a commission and for interests earned on customers’ accounts.
Lemonade is an insurance tech company using behavioral economics and artificial intelligence to process claims efficiently. The company leverages technology to streamline onboarding customers while also applying a financial model to reduce conflicts of interest with customers (perhaps by donating the variable premiums to charity). The company makes money by selling its core insurance products, and via its tech platform, it tries to enhance its sales.
NerdWallet is an online platform providing tools and tips on all matters related to personal finance. The company gained traction as a simple web application comparing credit cards. NerdWallet makes money via affiliate commissions determined according to the affiliate agreements.
Robinhood is an app that helps to invest in stocks, ETFs, options, and cryptocurrencies, all commission-free. Robinhood earns money by offering: Robinhood Gold, a margin trading service, which starts at $6 a month, earns interests from customer cash and stocks, and rebates from market makers and trading venues.
SoFi is an online lending platform that provides affordable education loans to students, and it expanded into financial services, including loans, credit cards, investment services, and insurance. It makes money primarily via payment processing fees and loan securitization.
Stash is a FinTech platform offering a suite of financial tools for young investors, personalized investment advice, and life insurance. The company primarily makes money via subscriptions, cashback, payment for order flows, and interest for cash sitting on members’ accounts.
Wealthfront is an automated Fintech investment platform providing investment, retirement, and cashmanagement products to retail investors, mostly making money on the annual 0.25% advisory fee the company charges for assets under management. It also makes money via a line of credits and interests on the cash accounts.
Zelle is a peer-to-peer payment network that indirectly benefits the banks’ consortium that backs it. Zelle also enables users to pay businesses for goods and services free for users. Merchants pay a 1% fee to Visa or Mastercard, who share it with the bank that issued the card.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
