Gamelike brokerage apps
Prompts, animations, rewards and digital flourishes have brought investing platforms closer to online sports betting and gambling, experts say © FT montage; Bloomberg, Alamy

Helplines of gambling addiction recovery groups have been ringing with a new kind of caller: day traders.

The rise of mobile brokerage applications outfitted with prompts, animations, rewards and digital flourishes have brought the feel of investing platforms closer to online sports betting and gambling.

“The user experience is converging and the line between gambling and investing, which was already pretty fluid, has almost been completely erased,” said Keith Whyte, executive director of the National Council on Problem Gambling, among the groups reporting more calls from stock traders to their help lines.

The US Securities and Exchange Commission is now examining the extent to which brokers’ and investment advisers’ “digital engagement practices” — including so-called gamification — assist or undermine small investors. A public comment period that closed on Friday drew more than 2,000 submissions.

The regulator has had to catch up with new ways for investors to buy and sell shares, derivatives and cryptocurrencies from their mobile phones on apps far flashier than traditional brokerage platforms.

Slot machine-style graphics, leader boards and lists of popular stocks are among the novel forms of digital engagement under study. The SEC is looking at how digital design itself could be construed as giving investment advice — a business that is subject to regulatory oversight.

Experts say that certain apps appear designed to encourage habits that are difficult to shake. “Gamification is about hooking and holding,” said Natasha Schüll, professor at New York University and author of Addiction by Design, about machine gambling in Las Vegas.

Silicon Valley engineers first incorporated gamification into app design a little more than a decade ago. Engagement was measured by time spent on an app and design focused on monetising that time. Mark Pincus, the billionaire founder of the online game company Zynga, in 2011 predicted that “game mechanics will be the most valuable skill in the new economy”. 

The fusion of stock trading with game-like features has gained attention as a new generation of investors flocked to the market during the pandemic. While gambling carries a cultural stigma, new investors on brokerage apps are vulnerable because they “don’t see themselves as gambling”, Whyte said.

Felicia Grondin, acting executive director of the Council on Compulsive Gambling of New Jersey, said the absence of other things to bet on, such as sports and horseracing, in the early days of the pandemic pushed some gamblers into stock trading platforms that can deliver the same thrill. Her group’s 1-800-Gambler helpline has received an almost 50 per cent increase in calls related to day trading since the start of the pandemic, she said, though she noted that the volume was small compared with calls about lotteries and sports betting.

Whyte views the increase in traders’ calls to the National Council on Problem Gambling as “the Robinhood effect” — a reference to Robinhood, the commission-free US broker. Robinhood has estimated that half of all new brokerage accounts opened from 2016 to 2021 were on its platform, and half of its own 22.5m funded accounts opened since 2015 were first-time investors.

Until earlier this year, Robinhood’s app greeted new users with a “scratch off” function that revealed a free share of stock for opening an account and rewarded customers with falling digital confetti when they executed trades.

Robinhood, the retail broker, features a digital hot air balloon on its IPO Access feature © Robinhood

Emoji stars and high-five symbols are still used in Robinhood customer communications, deposit confirmations and notifications. After a trade is completed, users are prompted by a sunglasses-wearing smiley face to consider placing another order.

Robinhood has argued that it provides information users want. “The efficiency of design that creates a delightful customer experience should not be considered ‘gamification’ and does not indicate any intent to manipulate customers,” David Dusseault, president of its Robinhood Financial division, wrote in response to the SEC’s request for comment.

Vlad Tenev, Robinhood’s chief executive, wrote in a Wall Street Journal column last month that it was “offensive” to suggest that new investors were “uninformed gamblers”.

Reactions and reinforcement after a trade are borrowed from the gaming and gambling worlds, gamification experts said. They seem designed to make users feel positive about a decision and keep them engaged, regardless of whether they won or lost. Explosive moves in meme stocks and cryptocurrencies have strengthened the emotional punch.

“When you’re reinforcing that activity, it starts to rewire a person’s brain, and translates to habit that for some leads to addiction,” Grondin said.

Robinhood has eliminated confetti but added a rising hot air balloon “celebration” to its new IPO Access feature, which enables customers to participate in certain initial public offerings. Still, “even the rising suggests something”, said Andrew Zimmerman, founder of Behavior Design Collective, a behavioural science consulting firm. “If it was a brick that fell from the top, you’d get less positive feedback.” 

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Bright colours and live prices that scroll up and down like slot machine wheels intensify user reactions to unexceptional numbers and drive action. “An animation or reaction makes you feel like you did something, and you get a release of dopamine without having to engage your conscious brain,” Zimmerman said.

Gamification does not change the options available to retail investors, as no one is forced to make a trade. But overly simplified, gamified interfaces on brokerage apps affect the way decisions are made, experts said.

“There is a difference between making a user platform easy to use and creating a user platform that feels like a video game, that doesn’t feel like I’m taking a lot of risk,” said Vicki Bogan, professor at Cornell University’s business school who studies the gamification of finance.

Robinhood chief executive Vlad Tenev
Users of modern investing platforms are not ‘uninformed gamblers’, argues Vlad Tenev, Robinhood chief executive © Andrew Kelly/Reuters

Hundreds of retail investors filed comments in response to the SEC’s invitation. Commenters also included the North American Securities Administrators Association, a group of state investor-protection regulators.

“By using features such as confetti, scratch-off style graphics and awards systems, certain firms are encouraging investors to make trades that may not be in their best interests and would conversely serve the interests of the broker-dealer,” the association wrote to the SEC.

Schüll said Robinhood’s success in bringing people into the stock market was largely positive.

“But they’re also taking advantage of a desert of regulation in this new digital terrain,” she added. “We haven’t put clear limits in areas where gamification could be problematic, like investment.”

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