Retail Banking

Retail Banking

Opinions expressed on this blog reflect the writer’s views and not the position of the Capgemini Group

“Trading is hazardous to your wealth”: is there a case for making investing less accessible?

“The investor’s chief problem-and even his worst enemy-is likely to be himself” - Benjamin Graham

There has historically been a performance penalty of individual investors who attempt to time the market through active trading rather than a simple indexed or buy-and-hold strategy propagated by the likes of Warren Buffett. But the exponential rise in portable computer power, handheld technology and other FinTech innovation is making the temptation to actively trade greater than ever before.

Earlier this year mobile trading App “Robin Hood” secured $50m of venture capital funding to help develop their mobile trading application. Robin Hood is actively trying to make mobile-based trading more accessible to younger people through an intuitive app and by offering zero commission fees. As someone who tries to invest a part of my salary each month (albeit in an indexed tracker fund) the prospect of being able to actively trade in stocks, for free, seemed like an attractive prospect yet is promoting amateur interest - in a historically volatile market - in the best interests of banking?

The “Robin Hood” app prides itself on its easy tactile interface that allows you to buy a stock in a simple swipe (think Tinder). Reviews of it have called it “addictive” and “fun” and being targeted at the “unfamiliar”, introducing millennials to the world of investing has needed a form of innovation to engage a generation with notoriously short attention spans.

The huge investment firm Fidelity is also massively developing the way people interact with finance, it has created an investment platform which allows users to visualise their portfolio using virtual reality technology.

Stock positions are portrayed as skyscrapers in a virtual city which visually aids the processing of information, and makes it more engaging to interact with. Fidelity is targeting a generation brought up on video games and television to attract the unconventional investor, a 20-something professional with some disposable cash who previously thought stocks and shares were inaccessible.

Companies such as Occulus have a commercially produced product at a reasonable cost. It won’t be long until banking is conducted through means we never envisaged. New iterations of applications are being developed at an astonishing rate and through mediums we have not even considered before now. Once their adoption becomes commonplace we could see an explosion in the amount of people who choose to invest as a hobby.

Financial institutions are keen to attract a new audience to a previous seemingly exclusive vocation and increase the amount of trades, and hence commission, being performed through their services. And by making investing interactive, easy, immersive and fun will probably have that effect, but potentially at the expense of the consumer.

Leveraged purchases and being able to trade on margin, a feature now common on trading apps, have the additional advantage of tax-free status since it is considered gambling. The website Techcrunch warns “giving millennials a way to bet their money on the stock market as quick as they post a selfie has its risks.”

“If investing is entertaining you’re probably not making any money. Good investing is boring” - George Soros

Research consistently suggests people should buy individual stocks less not more and those who actively trade tend to underperform the market, in 2014 active traders saw an average 4.5% return while the S&P 500 index rose by 13%. By increasing engagement through intuitive apps, being constantly connected through devices such as the Apple watch, Google Glass, and virtual reality represents a hugely profitable opportunity for digital brokers who can earn commission whether the customers wins or loses.

The future of trading is mobile, tactile, and engaging. Performed at the swipe of a thumb rather through a call to a broker or logging into a computer. The question must ultimately be, is promoting playing with money reckless or can it open an exclusive market to new users who may have been previously discouraged?

About the author

Conor Waldock
Conor Waldock
Conor is a Performance Improvement consultant in the Operational Excellence practice, he is currently working on a project at one of the UK’s largest banks and his professional interests lie primarily in Banking and Financial Services. Outside of work he is a keen sportsman and fan, hoping England will win at this year’s Rugby World Cup!

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