In the first two days after UK neobank Monzo announced it was partnering with the world’s largest asset manager, BlackRock, 200,000 customers joined the waiting list to invest for as little as £1.
BlackRock’s cut of Monzo’s 0.59% investment fee is 0.14%, which means this exercise isn’t necessarily about potential profits. But by teaming up with the UK’s largest neobank by customers, it’s accessing the fast-growing market of younger, digital-savvy retail investors who want to put their money to work for the first time.
“We’ve been able to learn from them on what resonates with that new investment audience,” Timo Toenges, head of BlackRock’s digital wealth business EMEA, tells Sifted in an interview.
The Monzo pair-up is the first of many that BlackRock has struck up with European fintechs this year. In 2023, BlackRock has been behind new investment product offerings at neobrokers Bux, HeyTrade, and Scalable Capital — and there are many more partnerships in the pipeline, Toenges says.
“Overall, it’s a huge growth space for us. The digital wealth industry is currently worth around 2 trillion euros, and it’s growing 20% per year,” Toenges says.
BlackRock’s notable acceleration in European fintech partnerships lately stands out against its peers. A handful of other US-headquartered asset managers like Fidelity International and Goldman Sachs have muscled in on deals with European neobrokers and neobanks; JP Morgan’s acquisition of roboadvisor Nutmeg in 2021 also stands out. But it’s worth noting these were formed in the bull market in 2021: BlackRock stands out in its 2023 push, and its focus on providing its products through fintech platforms, rather than direct investing in fintechs.
BlackRock’s ETF push
Rather than serving end investors directly, asset managers like BlackRock operate a B2B model, where they partner with ‘distribution platforms’ to offer access to the funds they manage.
These come under three categories: fintechs, including neobrokers like Trade Republic and neobanks like Monzo; traditional online brokers of the likes of Hargreaves Lansdown; and larger retail banks like Lloyds bank that offer brokerage services.
Most of the new products that BlackRock’s fintech partners have launched this year have been exchange traded funds (ETFs) savings plans: the investment product that BlackRock sees as “one of the most exciting growth spaces right now in asset management in Europe,” Toenges says.
Exchange traded funds offer investors diversification and come with low fees, hence their popularity among retail investors that have less spare cash to invest than the typical high net worth clients of actively managed funds. An ETF savings plan is simply a scheme where the individual investor contributes a monthly amount to their ETF investment by direct debit.
BlackRock is forecasting that 10m new investors in Europe will begin using its range of ETFs via digital investment platforms by 2026: a potential pool of assets of half a trillion euros.
And at the same time, it believes these investors will get younger and younger.
Toenges points to data that suggests Gen Zs and millennials will fuel this rapid growth in ETF investing in Europe via online platforms.
“It’s a client that traditionally wasn’t super attractive to the established financial ecosystem, but that’s now really where the business opportunity is,” Toenges says.
“Most are first-time investors that don’t have a lot of money, and they tend to be underserved — and that underserved need is the same across all European countries.”
Toenges says that Blackrock is having conversations with some of the largest retail banks across Europe that are keen to move into offering ETF investments via their digital platforms. .
“If a customer contributes €200 each month, then you can build things around that relationship in terms of other financial products,” he says. “The banks see that as a great opportunity.”
It’s a trend that BlackRock is bullish will last: unlike the short-lived meme stock trading boom during the pandemic, Toenges thinks that during the current financial crisis, the interest that retail investors are still showing in ETF savings plans with low minimum investment entry points will stand the test of time.
“When you see record growth numbers it’s easy to think we’re already at the peak, but we actually think we’re at the very beginning of this trend in Europe,” he says.
Europe’s biggest markets
It’s no coincidence that the majority of the neobrokers BlackRock has partnered with are based in Germany: the asset manager’s own market research recently revealed that Germany is the largest market for ETF savings plans in the continent.
Much of this has been fuelled by the emergence of commission-free brokerage platforms of the likes of TradeRepublic and Scalable Capital — both of which partnered with BlackRock some time ago, in 2019 and 2017 respectively.
Toenges points to Spain and the Nordics as interesting markets in the next couple of years, and the UK as a market where tens of millions of retail customers are being crippled by inflation thanks to the fact their investable assets are currently only being held in cash.
“I was also in Milan last week, and I’m getting incredibly excited about Italy,” Toenges says.
“They have that similar fundamental need. It’s a big market overall and we’re starting to see savings plans growth really start to take off there too.”
Accessing the tech
It’s not just consumer-facing digital platforms that BlackRock has been partnering with: last month, it partnered with and invested in Berlin-based investment infrastructure provider Upvest in order to access its tech — and offer it to the platforms it already works with.
Toenges says this was a response to the calls it was getting from its existing neobank, retail bank, and brokerage clients that were looking to launch new investment products and asking if BlackRock could offer the investment infrastructure needed. At the same time, Upvests’ clients were asking whether the fintech had investment expertise, Toenges says.
It’s an investment that had industry sources questioning whether an acquisition was on the cards in future, but Toenges declines to comment on BlackRock’s further plans. BlackRock confirmed to Sifted that the stake the asset manager took in the fintech’s recent €30m fundraising round was a minority investment.
“Right now for us it’s about giving the retail end investor access to efficient low cost products and Upvest is a great partner for us doing that across Europe,” Toenges says.