FCA on high alert over gamification of trading apps
- The Financial Conduct Authority is keeping trading apps under review over gaming concerns.
- In an online experiment with over 9,000 consumers, the FCA found push notifications and prize draws can increase risk taking.
- The experimental platform set up showed digital engagement practices had a bigger impact on people with low financial literacy, women and younger participants.
- HL research has shown that among Millennial and Gen Z households who are in arrears, 70% of people are investing, or speculating.
FCA and gaming apps experiment:
https://www.fca.org.uk/news/press-releases/fca-keeps-trading-apps-under-review-over-gaming-concerns
Risk taking and arrears data in the HL Savings & Resilience Barometer on efficient use of money: Efficient Money Use report | April 2024 | HL
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’The findings of the FCA are extremely worrying and it’s not surprising the watchdog has put some practices under review. Push notifications, gamification and prize draws risk turning trading into a game, when instead the priority should be placed on taking long-term, well thought through decisions to benefit client outcomes and future financial resilience. The more established platforms steer clear of such digital engagement practices highlighted by the FCA and crucially also don’t have chat rooms which can lead to risk decisions based on herd behaviour.
Other research carried out by HL* has already shown that younger people are putting high-risk investments ahead of debt repayments, leaving them in a highly precarious position. Among Millennial and Gen Z households who are in arrears, 70% of people are investing, or speculating, when they should be focusing on getting out of arrears and building up their financial resilience. Of those in arrears in the poorest slice of society, 28% of households are investing, compared to 10% in the richest portion of the population.
Although trading apps have democratised the whole investment process and opened up what was seen as an industry closed off to ordinary people, there is a responsibility to ensure that the most vulnerable in society aren’t prompted into making decisions which could lead them into even deeper financial problems.
It is extremely tempting to get carried away, especially as so many people already run their lives through apps. From fitness and health through to holiday bookings and bank accounts, the phone in the pocket has become our personal digital assistant. Many people already manage money on an app, so managing a trade is seen as the natural next step. Many of the new trading apps have been designed based on the interactions people already have on social media, including push demand attention. Some apps have even congratulated users for making trades with celebratory animations.
Although it is encouraging to see younger investors enter the markets and gain some valuable experience, there are increasing concerns that the collision between social media influencers and the ease of use is leading investors to take short term speculative decisions, rather than linking investment goals to a long-term financial plan. If you are trading on the go, you need to be sure you’re giving each trade as much consideration as you would if you were sitting in a quiet place at home, so that you are not swept up in any hype and you take the time to fully analyse the fundamentals of any trade.
