There have been big changes happening in the financial sector for a while now. Consumers are more and more turning away from big banking brands to smaller, start-up, fin-tech brands.
Starling Bank, Monzo and Revolut are leading the way in a revolution that’s causing major disruption to a dusty market — in some cases forcing major banks to wake up and make changes.
But banks are just the beginning. Something else has been happening, which represents not just a movement in market share, but a whole new category all together.
Enter the retail investor. The Mountain-Dew-sipping, onesie-wearing, meme-loving, Wall-Street-iconoclast who gets his or her tips from their twitter feed.
New trading brands have made it easier than ever for anyone and everyone to become interested in the stock market. They’ve swung a wrecking ball through the walled garden of traditional investment platforms, shaking up the scene and in some cases threatening the old way of doing things.
In the old days you had to phone up your broker and place an order over the phone. Now you can do it in seconds in an app.
You used to have to buy whole shares in companies, locking retail investors out of shares like Amazon (currently sitting at $3,549 a share), now you can buy fractional shares so if the company goes up by 10% so will your £10.
You used to be slammed with huge trading fees for purchasing stock and selling stock. Now most of the new wave of trading brands take a cut from the spread of the stock price — encouraging smaller, more frequent trades.
You used to keep your portfolio on the hush-hush, now you share it with friends at the coffee machine, or even better, take part in some of the social trading features boasted by Revolut, eTorro, and Trading 212 — competing with your mates to see who gets the best yearly returns.
These brands still face the same mission. How to attract non-investors to their platforms and turn them into financially savvy folk ready to take charge of their futures.
They’ve got two important tools in their arsenal that traditional brokerages like Vanguard and Hargreaves and Landsdown don’t.
One, they are easier, faster and the barriers to entry are far lower. There really is no point buying shares through traditional platforms with small amounts of cash. Let’s say you bought a share for £100, with a £10 trading fee to buy, and again to sell, you’re share would have to go up by 20% just to pay the fees…
Secondly, they are at the spearhead of a culture shift in younger generations — who are getting excited and more and more involved in the market. Sure, these retail investors have a lot less capital than the usual Wall Street clientele, but there’s a lot of them.
The task for these brands is to communicate weapon number one, to weapon number two. If they can reach this audience, through social, more culture driven channels, they could reach new All Time Highs.
Some are less excited about the emergence of the retail investor. Doubts are running high of people investing more than they can afford, taking huge risks and gambles and losing it all.
In some cases, communities like reddit’s Wall Street Bets, have turned traditional stock analysis on its head; giving value to companies on a purely meme-emic basis — thereby forcing everyone to ask the question: what makes a company valuable? Is it good growth potential, strong sales, or simply because people think that it’s valuable.
Wall Street Bets is renowned for targeting old cherished companies on a downward spiral. These companies generally have heavy short interest from hedge funds (who are betting the price will go down, thus pushing it down at the same time). By buying these cheap stocks and forcing short squeezes (forcing hedge funds to buy in, else face catastrophic losses) they’ve pushed up share prices and market caps of otherwise dwindling companies.
You might be thinking, so what? They’re fools. Someone will be left holding the cup… But some pretty interesting phenomena has taken place of late. These companies, like GameStop and AMC have had their share prices inflated, grown capital, and been able to reinvest back into their brands — making changes that have altered their trajectory from down, to up — and possibly saved them altogether.
Robinhood, which has had high success in the States is not coming to the UK anytime soon. It was rumoured to have been last year, notably putting pressure on Hargreaves Lansdown’s own share price — pressure that quickly alleviated on news that it wasn’t.
But there are other platforms traditional investment firms no doubt have their eyes on. These platforms generally have the same marketing strategy: the give away a free share for sign ups one.
This works to get customers on the platform, but how they keep them there is a whole other story.
Revolut offers crypto, commodities, stocks and general banking solutions — aiming at becoming a one stop shop for all financial concerns.
Trading 212 offers highly risky CFD trading geared towards the short term, and investment pies for those with a longer more diversified focus.
EToro offers copy trading, where you can copy the trades of successful traders automatically.
And Freetrade seems to be making moves towards more sensible, long term investing, with pensions and ISAs included in premium plans — no access to funds yet though.
Bots is another interesting platform, based on the idea of algorithmic trading, where programmers design AI traders that the general public can subscribe to. The equivalent of a Fund Manager meets Blade Runner.
Honestly, right now many of these brands feel like the same platform in different packaging. But as they spread their wings and grow in what is a fast-paced, high growth market, expect to see bold brand strategies and awareness campaigns that grab not just the freebie chasing millennial — but the wider market of ‘everyone else’.
With savings accounts being at all-time lows, there’s nothing to stop investment apps from becoming the new norm. Personally, I’m bullish on the category.
Written by Alex Hamilton.
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