ETF investing app Raiz (ASX:RZI) has doubled its fees, taking the annual fee on its average account balance to a sizeable 2.13 per cent.

The $15 annual fee on balances up to $5000 is now a $30 fee on balances up to $10,000. A 0.275 per cent on balances above that remains.

The company said in its March quarterly report that average balances were $1408, which equates to a 2.13 per cent annual fee.

Managing director George Lucas says 95 per cent of accounts pay a maintenance fee at all (59 per cent of funds management do not incur a fee), and the new structure doesn’t apply to superannuation accounts.

He told Stockhead Raiz needed to invest in the app — changing the look and adding more features — but cybersecurity was the biggest issue as the company needed to spend more to fend off ever-smarter identity thieves.

It’s all about perception

The size of Raiz’s fees have long been contentious, as experts claim small balances would incur smaller fees as a total percentage of what they’re investing by putting money directly into the underlying exchange traded funds (ETFs).

But Lucas says they’re not an ETF provider and automating savings processes comes with a cost that isn’t recouped via a funds under management fee.

“We’re not an ETF operator, we’re not a fund manager, we’re a platform that encourages people to save,” he told Stockhead.

Raiz offers a way to invest in a basket of local and international ETFs depending on an investor’s risk profile.

Underlying funds include the SPDR S&P/ASX 200 ETF, which charges a 0.19 per cent management fee, and Blackrock’s US iShares Core S&P500 ETF which charges 0.04 per cent.

Useful for savers but how to make it profitable?

Raiz had almost 193,000 active accounts at the end of May and under the new fee structure the revenue they’ll bring in will also jump.

Lucas says the “significantly” higher revenue the extra fees will yield will “for sure” negate the need to tap the market for extra cash.

Raiz held $8m in cash at the end of the March quarter with $1.4m coming in as cash receipts, but planned to spend $2.6m this quarter.

Cyan Asset Management director Dean Fergie says the company “isn’t bleeding money, but they’re still a long way from profitability”.

“Where they seem to struggle with is they’ve got to get a lot of scale for the business to become profitable, and cost of acquisition of customers via incentive payments or advertising is pretty high,” he told Stockhead.

Fergie says this is a problem for fintech companies in Australia generally.

The other problem is that customers with small balances aren’t profitable.

“You’ve got to have a million customers rounding up the 40c from their coffees in the morning and putting that into their accounts to make it worthwhile, and you’re stretched to reach that number in a small country like Australia,” Fergie said.

Raiz listed last year offering shares priced at $1.80. The stock debuted at $1.30, but has struggled to gain any cut through with investors, and dipped by 4 per cent on Monday to 47.5c.