The next time you’re in a Kmart, OfficeMax, Wegman’s, Safeway, or another major retail chain, take a minute to peer at the gift cards by the register.
Some might be for stock.
Since early October, California-based company Stockpile has offered physical gift cards in stores to present loved ones with $25, $50, or $100 of stock ownership.
“We’re making it easy and affordable for anybody to give, get, and own stock in their favorite companies,” says Avi Lele, Stockpile’s cofounder and CEO.
Here’s how it works: You spot a Stockpile gift card at the store (or choose a virtual version online), and buy a card that’s worth $50 of Apple stock for your niece’s graduation. She goes online, creates an account by entering basic information including her date of birth and Social Security number, and types in a code from the card to redeem her stock.
If Apple closes that day worth $100 a share, she’ll own half a share of Apple stock, which she can watch rise and fall through Stockpile’s online interface. If for some reason she decides she doesn’t want Apple stock, she can select the same denomination of stock in another of the 1,000 investments Stockpile offers, including a gold or market index ETF.
If she’s uninterested in having a stake in the market, she can trade it for an old-school retailer gift card that functions like cash. If she ends up extremely interested in the market, she can later start buying and selling stocks through the interface for 99 cents per trade. She doesn’t pay anything for Stockpile to simply hold her investments.
A virtual card that you buy online instead — they’re available up to $1,000 — costs the value of the gift card (in this example, $50) plus a $2.99 fee and 3% of the card’s value: $54.49.
“It’s something that’s never been done before,” Lele explains. “You can walk in and buy a card for stock like any other gift card you could have purchased in the past. Our whole mission here is to make investing accessible to anyone. Right now it’s too expensive, and too complicated, to give someone else stock.”
Lele, his cofounder Sanj Kulkarni, and their team built their own fractional share brokerage from scratch, and worked closely with regulatory bodies FINRA and the SEC to remove and amend steps to the existing process of gifting stocks.
Traditionally, to give stock, both the gifter and recipient must have an account with the brokerage, and to open that account and buy the stock in the first place, the gifter has to fill out a stack of paperwork that takes a few days to be approved.
“Other brokerages ask for everything, hoping you might do more with them later on,” Lele explains. “We do the opposite — we only ask for what we really need.” Once the recipient enters her basic information, she’ll be verified through the system and approved immediately, barring any issues with her identity.
Stockpile, which offered online gift cards for about a year before getting regulatory clearance to sell them in stores, doesn’t share how many cards it’s sold total. Lele does share that they’ve noticed two buying patterns they didn’t expect: Instead of buying just one card at a time, people are buying them “by the fistful” — presumably because they don’t have just one child or grandchild or friend to gift at a time — and they’re buying them for themselves.
Federal regulations say that “closed-loop” gift cards, those that are offered and redeemed only by a single company, cannot exceed $2,000, so Stockpile capped its offerings at $1,000 per card (digital cards hold more value than physical cards) to be safe. That doesn’t mean you can’t buy more than one, if you intend to gift more than that.
Note though, “If we see you buy five cards and the circumstances are weird, like you’re buying at 2 a.m., all of your cards are going to the same person and it happens repeatedly, or the recipient immediately sells and pulls out the money as cash, we step in because we have a responsibility as a financial institution to make sure that people aren’t using them for bad purposes like money laundering,” Lele says. “We have a sophisticated risk detection system in place that can discriminate between good and bad activity.”
Doesn’t this little gift card have the potential to cause a major tax headache? Stockpile has thought of that. The gifter’s taxes are completely unaffected, as they’re simply buying a gift card with prepaid value. When the recipient redeems the stock, his or her taxes are also unaffected until they sell it or receive a pro-rated dividend. The site keeps track of the activity and at the end of the year, presents the investor with a pre-printed, filled-out 1099 form that can be printed and included in his tax filings.
Lele says the cards are largely given by people over age 30 to people under age 30. “Normally if you’re under 18 you sign up for a custodial account with mom or dad, and they hold the keys to the account. With my kids, for example, I’d have the login and my kids barely know the accounts exist. We allow the kid to have their own separate login so they can come in any time they want to see their stuff.”
Kids can log in whenever they want, but the account’s custodian gets an alert about any activity. “Once you have the account, if you’re a kid, you can place trades that your parents approve or decline,” Lele explains. “I approve or deny, but as far as kids can tell, they’re placing a trade right to the market.” Stockpile’s chief commercial officer Dan Schatt even sends his kids allowance through the site.
“Also, it starts a conversation,” Lele, a father of two, says. “My kids have started owning Apple and Disney and Tesla, and they’re starting to pick up the paper to check out their companies. I never thought they’d ever open the business section of the New York Times.”
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