eToro operates an exemplar matchmaking business model. It is the largest online social trading and investment network. It combines the value propositions from electronic trading brokerages and virtual social networks. eToro links investors from around the world to share, follow and copy each other’s trading activities. At finger click, they can obtain the wisdom of the crowd on trading and investment in currencies, commodities, indices, stock and Bitcoin.
The platform enables transparent user profile and visualised data analysis to help present trading performance and identify top traders with comprehensive measurements. Users can copy the investment portfolio of traders at their choice. Top traders can earn a monthly salary, commission from their assets under management and cheaper transaction costs benefits.
Essentially, eToro provides everyone with access to a managed portfolio without going through traditional asset management processes and thus helps ordinary investors to avoid the demanding customer criteria, complex on boarding/off boarding procedure and variety of fees to different parties. As a complementary product, eToro offers free online tutorials through its Financial Trading Academy.
In 2007 in Israel, eToro was founded by brothers Yoni Assia and Ronen Assia together with David Ring. Yoni has a BA and MSc in computer science, Ronen majored in art and design and David was working as R&D manager prior to joining eToro, he also holds BSc in electrical engineering, MBA in finance and MSc in computer science.
Till today, eToro has secured a total of $73m funding in 7 rounds from 15 investors including BRM capital, Chemi Peres, Cubit Investments, and Ping An (full list available at: https://www.crunchbase.com/organization/etoro/investors). It currently has 300 employees, over 4 million users covering 140+ countries with more than $20m of assets under management.
Customers tend to be individual traders who want to trade actively or want an actively managed portfolio but do not fit the $100,000 wealth management service customer entry criteria. They are usually tech-savvy with a general knowledge of trading and investing.
Learn more about the Matchmaking Business Model
You identify two or more customer groups and brings them together in your marketplace.
Engagement — Value Creation Proposition
eToro offers low to mid-market investors access to low cost, high variety investment strategies. The eToro Open Book consists of comprehensive investor profiles and users are encouraged to explore trading performance, latest update on market opinions etc. on the platform. This facilitates a learning process for people who are not experts in trading to learn from others at no costs. Users can make decisions to trade a variety of investment instruments, follow other users to get updated information on their trade activities and social feeds and/or “copy” another trader’s portfolio for a given total investment amount.
eToro also ranks traders into cadet, rising star, champion and elite levels, each of which have increasing number of benefits including special deposit rate, rebate on the spreads and commission fee from copiers’ funds, depending on a number of criteria such as number of follower/copiers.
eToro blends social with finance through its online website, where users can manage their money more effectively and flexibly and learn from other investors. According to a Platformeconomics article, a 2012 MIT study found that eToro members whose networks allowed them to cull from a wide range of strategies earned a 30 percent better return on their investments than members who never copied anyone else’s trades.
eToro Academy provides free training including e-course, webinars, trading guides etc. to familiarise users with the platform and finance knowledge and customer services through online chat, email or phone etc. channels.
Delivery — Value Chain
Users need to have minimum deposit of $50 to register on the eToro website. There are mainly three segments on the website: People (discover other traders and their insights), Markets (market intelligence) and Trading (3 platforms, Open Book to copy top trader’s position, WebTrader and Mobile App).
eToro maintains transparent information of each trader such as past return performance, portfolio distribution, risk appetite, trading activity frequency etc. for users to make judgement on who to follow or copy for free.
The technology behind eToro’s social network and web applications is HTML5, Java Script, and Flash, and the company offers both iOS and Android apps.
Monetisation — Value Capture
Essentially an electronic broker, the major revenue comes from commission/spread per transaction made through the platform. The minimum deposit to open account is $50. eToro charges spread on variable basis for each transaction. It does not charge a monthly fee but charges for withdrawal or inactivity fees. The size of the spread depends on the type of trade (currency, stock, etc.).
Disclaimer — Written by Linyun Qiu and edited by James Knuckles under the direction of Prof Charles Baden-Fuller, Cass Business School. This case is designed to illustrate a business model category. It leverages public sources and is written to further management understanding, and it is not meant to suggest individuals made either correct or incorrect decisions. © 2016 Published 20 April 2016