Not all online brokerages should ‘gamify’ a la Robinhood – but others can and will go further
By James Cutts, Lead Product Designer, Lab49
The stock-trading app Robinhood has been both a major beneficiary and an important enabler of the surge in day-trading volumes by retail investors on discount brokerage apps since the onset of the pandemic. This January, for example, it added 3 million customers and, at the height of the GameStop frenzy, received 600,000 downloads in a single day.
The retail brokerage market is notoriously competitive. Robinhood’s accessible and ‘consumer-friendly’ UI design, which won an Apple Design Award within six months of the app’s launch, is often credited with helping the company carve out a distinctive niche with lower-net-worth, younger investors. Its pioneering zero-commission model, which has now become the industry norm, is perhaps the only single bigger factor behind its rise.
However, certain aspects of Robinhood’s award-winning UX have been accused of straddling the divide between an investing platform and a video game. These included confetti animations triggered by a user’s first trade or a scratch-off ticket revealing a random free stock awarded to new users.
This has attracted not just criticism, but regulatory scrutiny. Massachusetts securities regulators filed a complaint against the company last December, alleging that ‘gamification’ encouraged frequent and irresponsible trading. This February, new SEC chair Gary Gensler also announced a review of ‘gamification’, citing balloons and confetti as behavioral prompts for investors to trade more.
While Robinhood has sought to pre-empt regulatory interventions, recently scrapping both the confetti animation and the scratch-away ticket, its success has led the online retail brokerage market to a fork in the road. Should established players and new entrants try to emulate some of the design tactics that have helped fuel its success? And, if so, how can you walk that fine line between, on the one hand, presenting information that encourages and informs your customers’ trading activity and, on the other, provoking neurological responses that influence behavior and form habits?
The institutional-gamified spectrum
The most important thing to remember when thinking about what lessons online brokerages can learn from Robinhood is that the platform is not designed to cater for the entire market. It sits on one end of a spectrum, populated by younger, less experienced, lower-net-worth customers who have historically done far less investing. At the other extreme, attracting a greater proportion of higher-net worth users, often with some professional experience of markets, you might place the thinkorswim platform of TD Ameritrade (now owned by Charles Schwab) or T Rowe Price.
It’s these latter online brokerages, in the institutional mode, that initially dominated the market. They lifted the applications used by professional traders and lightly refashioned them into retail equivalents, serving a relatively sophisticated customer base.
It would be a mistake for these ‘legacy’ players to deduce that Robinhood’s rapid growth means that they need to shift away from an institutional product towards a more ‘consumerified’ one and adopt some of the cosmetic features of Robinhood, such as larger font sizes. The very different UX and product requirements of retail brokerages on opposing ends of this spectrum are a function of their very different customer bases and offerings.
Robinhood, for example, doesn’t even offer individual retirement accounts. While it does offer the kinds of exchange-traded index funds typically favored by longer-term, hands-off savers, it promotes the individual stocks and cryptocurrencies favored by investors with higher risk appetites who are more interested in actively managing a portfolio as both an investment and a pastime. This is best exemplified by its promotion of higher-risk options trading to all users. Robinhood CEO Vlad Tenev told the post-GameStop congressional hearing that 13% of its customers trade options; over a third of the company’s revenue derives from options trades.
By contrast, a Fidelity or a Vanguard will market itself primarily as an investment platform rather than a trading one, requiring users to pass certain eligibility thresholds before qualifying for options trading. There would therefore be little point in either of these brokerages copying Robinhood’s list of the top-10 most traded shares, which can act as a rallying point for Robinhood users to invest in ‘meme stocks’ with strong momentum, because most of its users aren’t interested in that trade.
While B2B/wholesale typically lags behind B2C/retail in terms of innovation in design standards across most areas of financial services, this has not even historically been true of trading platforms. The adoption of OpenFin is forcing banks to rethink how their trading products get mindshare and real estate on clients’ desktops. This might the more worthwhile example for ‘institutional’ retail brokers to emulate, if they want to mimic Robinhood’s growth.
However, for other retail brokerages targeting a similar customer demographic, Robinhood’s platform can be seen as a jumping-off point in terms of design and functionality. It is paramount that all regulatory guidance is observed in full and that users are completely aware of the risks involved in their investment decisions. But there is nothing nefarious about most companies and developers working on these trading apps – they want to offer a high-quality platform and experience that users can enjoy and will return to, demystifying something that has for all too long appeared dry, inaccessible and arcane.
One area where we foresee the envelope being pushed further, having worked with a tech company on their upcoming platform, is in enabling dialogue and community engagement between users. The role of the ‘Wall Street Bets’ subreddit in the surge in GameStop and AMC shares earlier this year underlined how crowdsourced investment advice and debate within retail investor communities are crucial to understanding and anticipating certain market moves. It’s natural that brokerages would want to bring that level of community engagement in trading onto their own platforms, such as by adding tips and comments from other users as a feature.
The criticisms of this approach are easy to foresee – that it further encourages frivolous trading and is open to attempted manipulation. But we have seen this year that retail trader communities contain many smart participants who can provide interesting insights into companies in a competitive marketplace of ideas. The platform need not endorse any users’ recommendations, any more so than an ‘institutional’ brokerage endorses third-party analysts’ buy/sell ratings.
The potential benefits, meanwhile, are a more engaging experience that captures some of the community feel that made Wall Street Bets such a phenomenon early in the year; being able to gather additional metadata on companies from users’ contributions; and making further progress in accessibility, opening up investing to demographics who are more commonly deterred from using investing platforms.
Some of the most recent and contentious innovations in online brokerage UX need not be widely adopted across the market. But fundamentally they reflect a broadening of user profiles, and we should expect a continued evolution towards functionality such as dialogue and greater inter-user engagement.