SEC: more concerns around gamification in trading apps and sites

By Gaia Lamperti

The Securities and Exchange Commission announced on Friday that is looking to hear feedback from the public on gamification techniques in trading apps and sites. Particularly, the regulator is investigating how “digital engagement practices” (DEPs) like behavioural prompts, specified marketing, and game like features could harm or disadvantage retail investors.

The announcement shows the SEC concern that brokerages, wealth managers, and other financial-technology companies might use these techniques and other technological tools to affect user behaviour and trading choices on their platforms.

Announcing the call for feedback, SEC Chair Gary Gensler said: “While new technologies can bring us greater access and product choice, they also raise questions as to whether we as investors are appropriately protected when we trade and get financial advice. In many cases, these features may encourage investors to trade more often, invest in different products, or change their investment strategy. Predictive analytics and other DEPs often are designed with an optimization function to increase revenues, data collection, or customer time spent on the platform. This may lead to conflicts between the platform and investors.”

Using engaging strategies to drive interaction on the platform has been frequently used by brands and gamification practices have also traditionally been used as a learning strategy for educational purposes. Some critics warn against specific features, such as vivid colours, bonuses, sound effects, push notification, that if implemented in trading contexts might turn investing into a game to the advantage of the brokerages.

Most of these techniques come from social media, which are the undisputed masters of how to capture attention and offer instant gratification. These are also the platforms where young generations hang out the most, shaping the future of what trade might start to look like in order to target Gen Zs as they begin to make their own investment decisions.

Though the SEC did not mention any platforms by name, among the apps watched with suspect most probably figures investing platform Robinhood. The FinTech first rose to prominence when it disrupted the industry with zero-commission trading (an idea that became the industry standard only in late 2019) and recently came under fire for leading the way in gamification practices of trading.

In December, Massachusetts securities regulators filed a complaint against Robinhood accusing it of using game like techniques to entice continuous use of its service. The trading app later removed its digital confetti feature which historically has rained down on users’ screens to celebrate occasions such as making a first trade and had become a point of contention for the brokerage.

The commission says it will collect feedback over the next 30 days to better understand the practice and learn what conflict of interests may arise, eventually leading to a tightening up of regulations.