Capital Markets report: Full steam ahead for online financial platform Hatch

During the Covid-19 lockdown individual investors stuck at home had plenty of time to think about their portfolios and many of them leapt into the United States sharemarket.

More than 20,000 New Zealanders signed up to the Wellington-based digital investment platform, Hatch, taking its customer base to nearly 50,000 — a 40 per cent increase. Hatch is now handling $250 million worth of trading business.

"Lockdown accelerated our growth," said Kristen Lunman, co-founder and general manager of Hatch. "We had people sitting on the sideline with cash in hand and good quality shares such as Tesla, Apple, Amazon and Microsoft were on sale.

"They knew these companies, they were brands they shopped for, they had been tracking their shares, and this was the correction (on New York Stock Exchange and Nasdaq). I'm not suggesting there won't be another correction, but these quality companies were on sale and we have some happy investors."

Hatch, the first New Zealand-based web platform to offer direct access to the US markets, quickly had to double its staff to manage the new business. Established 18 months ago, Hatch increased its staff from 12 to 21, taking on IT specialists and customer response team members.

"Lockdown was crazy," said Lunman. "We had unexpected levels of people signing up and we were recruiting, hiring, and providing onboard training from home."

She said there has been a rise in self-directed investing. "We started with the US sharemarkets because they account for 85 per cent of all global investing, they are the biggest in the world and the most liquid, yet Kiwis found them too hard and too expensive to participate in.

"In some cases, they have deeper knowledge of the global brands than stocks on our local (New Zealand) market. There is a strong momentum to invest in the US markets."

Through Hatch, New Zealanders can invest in some 3000 companies and more than 500 exchange-traded funds listed on the NYSE (for blue chip shares), the Nasdaq (specialising in technology stocks) and Chicago Board Options Exchange (for funds).

The most popular stock for Kiwis, according to Lunman, is electric car manufacturer Tesla, followed by Apple, Amazon, Microsoft, microprocessing and artificial intelligence multi-national Nvidia Corporation, Netflix, Disney and Facebook. Funds like Standard and Poor's 500 Index and Vanguard S&P 500 are also high on investors' lists.

"During Covid new players have emerged particularly in the biotech and healthcare sectors, and there is a lot of shareholder interest in NIO, the Tesla of China," she said.

Hatch was launched by co-founders Jakub Chodounsky, Jarred Sewell, Natalie Ferguson and Lunman who approached investment manager Kiwi Wealth, Kiwibank's sister company, with their proposal for a digital sharemarket platform. Hatch, owned by Kiwi Wealth, is now part of Kiwi Group Holdings with New Zealand Post, New Zealand Superannuation Fund and ACC as shareholders.

The four founders had worked together in innovative digital start-ups in Wellington. Lunman was previously chief operating officer for video software company Wipster, the programme director of Kiwibank's Fintech Acccelerator at the Lightning Lab and Innovation Director at Kiwi Wealth.

The founders soon partnered with New Jersey broker DriveWealth which runs a cloud-based API (application programming interface) system. Hatch developed its own platform over the top of DriveWealth's programme, allowing Kiwis easy access to the United States sharemarkets.

DriveWealth, which launched its fractional share trading capabilities for investors of any size in 2016, is a registered United States broker-dealer and a member of the Securities Investor Protection Corporation. DriveWealth doesn't get involved with 'penny stocks' — it facilitates trading in quality companies priced over US$1 per share with a market capitalisation of at least $1 billion.

The New Zealand investors can make their share investments work while they are sleeping. The United States markets are open from 1.30am to 8am NZ time (or 3.30am to 10am with daylight saving) and the investors can place their buying orders through Hatch before they go to bed.

The orders, they can have price limits, are sent via the web-only API system to the United States exchanges and are placed immediately when the markets are open. Settlement for selling shares takes two days.

The New Zealand investors simply sign up and deposit funds in the Hatch wallet (they are converted to US dollars) — a process that takes under five minutes. Hatch's customer accounts are typically between $5000 and $10,000 but some are over six figures.

The investors can make buying orders for fractions of shares by stating an amount they want to invest — since Tesla's price, for instance, is US$1500 per share and Apple's $370 per share.

Hatch charges 0.5 per cent on the foreign currency exchange and a flat fee of US$3 for both buying and selling up to 300 shares, then 1c a share for other orders. Hatch's cost for buying and selling a $1000 order, for example, is less than $20 compared with traditional brokers' charges of up to $300 on a similar order here in New Zealand.

Paying tax on United States shares is minimal. For those investing less than $50,000, they don't have to declare dividend income under $200 — and US listed companies don't pay as high dividends as their New Zealand counterparts.

For those investing more than $50,000 New Zealand's foreign investment funds regime comes into play and tax is calculated on the opening and closing value of the portfolio. Hatch has organised Wellington-based online share portfolio tracking firm, Sharesight, to provide a quick tax calculation.

Since launching, Hatch has met with competition from Sydney-based Stake which began offering United States trading from New Zealand in May, and Sharesies which is about to enter the US markets.

"The demand is there and the choice for investors is great," she said. "More people are now prepared to go into the sharemarket. They have come out of the 1987 sharemarket crash and the global financial crisis. They know markets have come back and they recognise that companies will grow and share prices will increase.

"We've found our spot. We are attracting confident investors who have existing investment accounts — the Gen X who are comfortable with technology and e-commerce. We've seen them transferring their portfolios to us. Our point of difference is cheaper costs and the user experience."

Hatch is planning to expand its product offering.

"We know choosing from 3000 individual stocks in the United States can be a little overwhelming," said Lunman. "We are looking at providing a curated funds offering that are specialised and concentrate on different sectors, such as innovation, robotics, social media, e-commerce, cannabis and green to remove the complexity of choice."

Hatch will almost certainly add the New Zealand and Australian Stock Exchanges, and it is interested in developing a tailored, low-fee KiwiSaver scheme, say 80 per cent of the fund being passive and 20 per cent active to invest in the likes of Tesla and Apple.

"We want to have everything on one platform and become a one-stop-shop for New Zealanders wanting to put their money to work," said Lunman.