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Companies dole out stocks and ETFs as perks to loyal customers

Retail trading updates

Fractional shares and exchange traded funds are emerging as loyalty perks from companies looking to cash in on heightened interest in retail investing during a prolonged bull market.

The latest in the wave is telecoms company AT&T, whose pre-paid mobile phone carrier Cricket Wireless would contribute to investment accounts for customers who sign up through a new partnership with micro-investing app Acorns, executives said.

Already, companies including Lululemon Athletica, McDonald’s and Chevron have partnered with fintech companies such as Upstreet and Bumped to rebate to customers a small percentage of purchases in the form of fractional shares in the companies or in ETFs.

The incentives are meant to drive more repeat business. A recent study by Columbia Business School found that consumers spent 40 per cent more with companies after being given partial shares.

Stock trading has surged since the start of the pandemic as low-cost brokerages made it easy for people to invest the money they saved during lockdowns. Trades from self-directed investors more than doubled and account for more than 20 per cent of total share volume in 2021, according to data from Piper Sandler, a Wall Street broker. The free trading app Robinhood, popular with new younger investors, debuted on the Nasdaq last week with a valuation over $30bn.

Broader interest in the market was also a tailwind for passive investing platforms such as Acorns, which automatically send deposits to diversified funds based on risk profiles. Cricket Wireless will give a $10 investment bonus to customers who sign up for the micro-investing app and deposit at least $5. The carrier will then contribute another dollar every time they pay for service.

Pre-paid phone customers pay for their phone plans up front, whereas most mobile phone customers are on plans that charge at the end of the billing period. Pre-paid customers tend to have lower incomes, lack bank accounts and go to stores to purchase service with cash. They are highly price-sensitive, switching carriers five times more frequently than postpaid customers, according to the research group GlobalData.

AT&T executives hope the promise of investment contributions will help reduce churn among their Cricket users. Low-cost phone carriers have tried a variety of ways to retain their customers, from branded spatulas to pre-recorded phone calls with Hollywood actor Ryan Reynolds.

“Loyalty is the scorecard that we use to evaluate how well we’re taking care of our customers, but it also is one of those things that drives cost into the business if you are losing customers,” said John Dwyer, president of AT&T’s pre-paid portfolio. “You can’t be the fastest-growing pre-paid carrier without spending a bunch of money.”

The Cricket-Acorns tie-up stands apart from other investment-based reward programmes because of its effort to turn consumers with minimal disposable income into investors. The average Acorns customer earns between $50,000 to $75,000 a year, but an influx of Cricket customers was likely to pull that figure lower, executives said.

Acorns, whose California-based parent Acorns Grow has announced plans to go public through a merger with a special purpose acquisition company, usually charges $1 a month to maintain an investment account, a fee that would be waived for customers signing up through Cricket. Its average account balance was $1,200, the company said.

Cricket customers’ funds would be automatically invested into one of Acorns’ ETF portfolios. While portfolios of stocks and bonds have risen over the decades, they can also expose investors to sharp losses.

Personal finance experts note it is important to set aside savings before risking cash in the market. However, Noah Kerner, Acorns chief executive, said that steady deposits plus compounded returns could build up savings for Cricket’s customers.

“It’s a microaggression to say it’s irresponsible to give poor people access to what rich people have had access to all this time,” said Tiffany Aliche, a personal finance educator and author.

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