Options-trading fintech wins backing from big and small banks

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Gatsby, a fintech loosely named after the Great Gatsby of literary fame, has won $500,000 of backing from Radius Bank, Barclays, Techstars, former Goldman Sachs managing director Alex Wohl and others.

Radius is already thinking about partnering with Gatsby and offering its app to customers of the bank. Gatsby's mission is to let ordinary people, especially millennials, make options trades.

This may feel like an exotic offering, especially as a product set for banks to offer, but Gatsby co-founder Jeff Myers argues that millennials and other new investors are ready for it. Apps like Acorns, Stash and Robinhood have gotten people comfortable with the idea of trading stocks over their smartphones. Gatsby takes this trend to the next level.

“We’re entering into an era now where it’s not so much about democratizing access to the market, but it’s more about unapologetically going for it,” Myers said. “We thought Gatsby could be the app you use to take some risks and try to move the needle a bit in your portfolio rather than just getting access to the market.”

Hence the name. “The Gatsby character was flashy with his money. He didn’t apologize about that, and he took big risks and threw big parties,” Myers said.

The app is not designed for Long Island millionaires like Jay Gatsby and Daisy Buchanan, however. It's for more everyday people new to trading.

The vision for Gatsby came from research about how millennials manage their money. They tend to put most of it in savings and checking accounts that make little interest. The more tech-savvy millennials invest a small amount with a robo-adviser or a cryptocurrency exchange like Coinbase, Myers said.

“We said, you’re swinging for the fences with some small portion of your portfolio, why don’t you do it with a tool that’s been around 50 years, that’s used by professionals, and that’s regulated and legal compared to cryptocurrency trading,” Myers said.

Gatsby strips down options trading for its younger demographic. For instance, it does not allow sales of open contracts. Users can only buy puts or calls.

“You’ll never lose more money than you put up for the contract,” Myers said. “That’s a huge differentiator from any of the traditional options platforms.”

The customer chooses a company, a put or a call, and an expiration date and sends it to the market through the app. The app explains terms and the process as the customer goes.

“The millennial trader doesn’t want to read a blog post in an app,” Myers said. “They’ll educate themselves through whatever workflow they want, but we do it just through very clearly articulating what the risks are and each term we’re using.”

In designing the app, the Gatsby team tried to emulate apps like Guitar Hero and Blue Apron that simplify something like playing an instrument or cooking a meal, and remove the need for the user to have expertise.

“This generation of digital product users want to pick up a guitar and be a rock star and they don’t want to go take 10 years of guitar lessons,” Myers said. “Technology can do a lot of that for them.”

Why Radius is in

“We’re constantly evaluating and looking at new opportunities, whether it be to partner, to build or improve our own direct technology, or through cobranded or white-label relationships on the sales side, like Aspiration,” said Chris Tremont, executive vice president of Radius.

In addition to Aspiration, which lets millennials make idealistic investing choices at low fees, the bank has also partnered with Prosper Marketplace and Gradify.

A colleague of Tremont’s met the Gatsby founders at a Barclays Rise/Techstars event in New York a few months ago.

Tremont’s team found a cultural alignment with the startup.

“When we have those kinds of good vibes going from the beginning, that checks off the first box,” Tremont said.

The bankers also like Gatsby’s product and business plan.

“This was an interesting one,” Tremont said. “They’re fairly specific to trading options. It’s a little bit of a niche market, and it resonated with us who they’re going after — it’s probably a fairly underserved market right now. I don’t think you can name a lot of good, powerful, easy-to-use options-trading platforms out there.”

In the future, Radius might integrate its digital-banking platform with Gatsby’s or add Gatsby to its digital marketplace for customers.

Radius could also provide deposit and banking services to Gatsby’s users.

Gatsby is waiting for a broker-dealer license from the Financial Industry Regulatory Authority. Its beta users are being helped by a third-party broker-dealer.

The company hopes to receive its license in the second quarter and quickly onboard its entire waiting list of more than 10,000 people.

Eventually, it hopes to have a million users and bring a new generation to options trading.

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