Buy coffee with ETFs

Fintech Unitplus wants to make it possible to pay for your own purchases directly with exchange-traded funds. However, the consumer advice center still has doubts.

In recent months, ETFs, or exchange-traded funds, have boomed like probably never before. During the pandemic, people have shoved billions of euros into the stock market baskets, where they are now expected to rise in value to secure their pensions. But why wait so long to use ETFs, thought Fabian Mohr, founder of Unitplus. His idea: a debit card that allows customers to pay directly from their securities account rather than using money from their savings account. So if someone wants to buy their morning coffee at their favorite café for three euros or a new armchair for 300 euros, they can sell their ETFs and pay with the proceeds.

Fintech raises one million euros from investors

Investors seem to like the idea. In the first financing round in spring 2021, Unitplus raised almost one million euros. This included well-known investors such as former N26 head of technology Christian Rebernik and former Amazon Germany boss Lothar Eckstein. The company plans to go live with its app at the end of the year. However, the consumer advice center is already criticizing the plans in advance. On the one hand, it criticizes the name of the associated card, and on the other, it generally warns against people trying to pay everyday bills with ETFs as part of an app, as they are subject to the fluctuations of the capital market. Can the launch still succeed?

The idea came from founder Mohr, who expanded the founding team to include Kerstin Schneider and Sebastian Segue. Founder colleague Kerstin Schneider met Mohr at the stock market driving license. In summer 2020, the third founder Sebastian Segue joined the team in Berlin. All three quit their jobs, Mohr at the fund provider Flossbach von Storch. As an equity analyst there, he looked at the payment market on a daily basis for four years. Including Wirecard and Paypal. "So far, I haven't regretted quitting for a second," he says. His colleague Schneider resigned from the consultancy zeb. Sugue said goodbye to Klarna, where he was responsible for a quarter of the payment business in Germany and the whole of Switzerland. The team now consists of 13 people - and has big plans.

Until now, accounts and securities accounts have been kept separate in Germany. This is because the custody account is actually used for investing money and the account for spending money. But the capital market is changing: in the crypto sector, the start-up Nuri is already making initial attempts to do away with this separation. Mohr now wants to do the same for ETFs. An open banking interface will be used to analyze customers' income and expenditure from their normal accounts.

Users can invest their money according to their risk profile and experience on the capital market

An amount is then calculated that is expected to be left over at the end of the month and will end up in the Unitplus account. The fintech then invests the money in equity or bond ETFs. Depending on their risk profile and experience on the capital market, users can invest their money in the account. Consumers will then be able to use these ETFs to pay later. If the ETFs have generated a return, it is more than before, but if the shares have fallen, there is less money left over.

First, the customer has to go through a personal check and answer questions about their savings behavior and liquidity. A customized custody account is then opened based on the answers. Mohr advises customers to invest a certain amount each month that matches their income and expenditure. "We want to evaluate our expenditure so that we invest in line with our life situation," says Mohr. "You shouldn't invest 10,000 euros straight away," he advises. "We want to invest the money that customers don't need for day-to-day living expenses," says Mohr.

With the money invested from Unitplus, users can participate in payment transactions more quickly than if they had to sell ETFs first. A Mastercard card can be used to pay bills at any time, even when not trading, for example at weekends. When the customer pays with their card, Unitplus sells parts of the portfolio in the background. Fees are charged for every purchase made with the card. As with a normal credit card, these are charged to the merchant, not the customer.

Customers pay two euros per month and 0.7 percent of the money managed per year

However, the account is not completely free of charge, as Unitplus charges for bridging at weekends, for example. Customers pay two euros per month and 0.7 percent of the money under management per year. For example, if you invest 10,000 euros via Unitplus, you pay an administration fee of 0.7 percent or 70 euros in addition to the two euros per month - i.e. 24 euros per year - and thus end up with almost 100 euros per year.

Scherfling from the consumer advice center took a close look at the concept. He recommends taking a close look at the costs and benefits. First of all, customers should generally ask themselves whether the Unitplus investment forms are suitable for them at all. "Just like the investment itself, a trading app should also suit individual goals and preferences," says Scherfling. The consumer advice center is generally skeptical of smartphone brokers because it could tempt people to gamble, which is why Scherfling is also targeting the boom in Trade Republic. However, unlike other trading apps, Unitplus cannot be used to purchase individual shares and derivatives, which can at least reduce the risk, as Scherfling acknowledges. But the risk is never eliminated. Even Mohr says: "If you invest amounts every month, you can expect positive returns, but also downward fluctuations," he says.

This is precisely what consumer advocates take a critical view of. From the point of view of the North Rhine-Westphalia Consumer Advice Center, it is generally risky and not recommended to invest your liquidity reserve in an opportunity-oriented manner. "Even if you have been able to achieve a decent long-term return with suitable funds in the past, there have always been significant price slumps," says Scherfling. If such a price slump occurs just when various bills need to be paid, the customer is faced with the less advantageous alternatives of selling shares and realizing losses along the way - "or having to use the expensive overdraft facility," says Scherfling.

Consumer advocates are still skeptical

And there is also a lot to criticize about the name of the payment card "Unitplus income card" from the point of view of the consumer advocates. "It's not really accurate or effective," says Scherfling. "Ultimately, you don't use the income to pay your bills, you reduce your capital by selling units," he says. If you just want to use the pure income, you could simply opt for distributing funds. "And if shares are sold as soon as I use the payment card to make a purchase, I don't know in case of doubt whether it's a good time to sell and what the possible tax implications are," says Scherfling.

This is presumably one of the reasons why Mohr asserts that they want to protect their customers and that the money at Unitplus is only money that would otherwise be in savings accounts. In recent years, the 31-year-old has been disturbed by the fact that three trillion euros of savings are sitting unused in call and fixed-term deposit accounts in Germany. "It's just waiting to be spent," says Mohr. Cash and sight deposits have increased from ten to 30 percent since 2005 - despite steadily falling interest rates since 2008. The app should also show customers what their portfolio holdings look like and how much return they have made. They will then be able to decide how much to invest next month. There will also be a payout limit of around 2,000 euros per day or based on the portfolio. "We are not a credit solution," says Mohr. However, this does not appease the consumer advocates. "It doesn't suggest that you can pay for a new kitchen, a new car or the next family vacation this way," says Scherfling.