Fintech brokerages face slower growth environment after pandemic frenzy
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When the government was sending out "economic impact" checks and more people than usual found themselves subject to pandemic lockdowns, online trading apps attracted a slew of new users.
Since then, growth of fintech brokerages and robo-advisers has softened and reversed now that stimulus payments are in the past and inflation is eating away at consumers' disposable income. That's likely to continue, said Morning Consult in a recent report.
"First, the end of stimulus payments, followed by high inflation, means less discretionary income and ever-dwindling financial cushions for consumers, resulting in less 'play money' for those who used personally managed brokerage accounts or robo-advisors to dip their toes into the investing world," said Morning Consult's Charlotte Principato.
Fintech trading app businesses will need to adjust to navigate the evolving environment and slower pace of new accounts. A survey by Morning Consult found that fewer people were using apps such as Robinhood (NASDAQ:HOOD), Acorns, and Wealthfront in Q2 2022, especially compared with Q4 2021. 
"For fintechs, what worked to attract and retain consumers during the height of the pandemic won't work during a bear market â the first that many upstart investing brands have had to contend with," Pincipato said. Instead, they'll need to focus more on holding onto and "growing existing relationships while lowering their expectations for new customers."
A similar story was told by PayPal Holdings (PYPL) when it posted Q4 earnings in February. Though not a stock-trading app, the dynamics echo brokerages' predicament. The company abandoned its medium-term customer account aspiration of 750M and shifted its focus to user engagement rather than customer acquisition. The sudden move surprised investors and led to a dramatic stock decline in February.
While non-investing fintechs may be seeing usage and user growth slowing, investing apps will struggle more, Principato said. The pandemic "actually spurred people to invest who hadnât before, rather than just turning an activity they already did through in-person means into a digital one," she explained. Other fintech apps are likely to be more "sticky," meaning once theyâve started to bank or make payments digitally, theyâre likely to continue that activity.
Usage of investing apps will continue to decline among their target segments, i.e., younger investors, and they're not likely to be replaced by older higher-income adults, who will stay with more established providers, the Morning Consult report said.
What are fintechs doing to get their existing users more engaged? One avenue is to expand their offerings of crypto products such as wallets or bitcoin ETFs, Principato said. Brands should also focus on "educating new investors, especially those experiencing their first downturn, and help investors align their allocations with their short- and long-term financial goals."
Fintech brands are also likely to seek ways to make it harder for current customers to leave. Besides trying to strengthen customer ties by getting them to use a range of products, some companies could increase the cost of moving funds out of their apps. 
No matter whether fintech or a more traditional broker, competition for clients is heating up. New account openings dropped by 8% in Q1 2022 vs. Q4 2021 and were down by almost 70% from Q1 2021, according to an analysis of global brokerages by BrokerChooser, a retail brokerage comparison service.
According to the analysis, 4.3M new accounts were opened in Q1 2022, down from 4.7M new accounts in Q4 2021 and 14.0M new accounts in Q1 2021.
On average, new accounts opened between Q4 2021 and Q1 2022 dropped by 6%, according to the firm. 
In Q1 2022, the most brokerage accounts were opened at Fidelity Investment (BrokerChooser estimated) with 1.83M new accounts, and Charles Schwab-TD Ameritrade (NYSE:SCHW) at 1.20M new accounts. In 2021, the highest number accounts was opened at Robinhood (HOOD) at 12.2M for the entire year, followed by Fidelity at 7.6M and Charles Schwab (SCHW)/TD Ameritrade at 7.3M.
Investors have taken notice of the lower trading activity. Robinhood (HOOD) shares have dropped 73% since its IPO last summer, lagging the Global X FinTech Thematic ETF (FINX), which dropped 45% and Charles Schwab (SCHW), which has slipped 3.8% during the same period as seen in this chart.
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