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Is Your Broking App Making You Trade More Than You’d Set Out To?

How broking apps increase user engagement through clever design and—sometimes dark—nudges. By Anirudh Tagat and Saksham Singh.

<div class="paragraphs"><p>The Zerodha Kite app is demonstrated in the company's office in Bengaluru. (Photographer: Karen Dias/Bloomberg)</p></div>
The Zerodha Kite app is demonstrated in the company's office in Bengaluru. (Photographer: Karen Dias/Bloomberg)

Gamifying investments for a billion, one app at a time.

Mobile applications of online brokerages have made investing in the stock markets easy – perhaps a little too easy.

Data suggests 14.2 million new demat accounts were opened in FY21 alone driven by at-home millennials and first-time investors. Online platforms of discount brokerages, with engaging app design, catch investors young. Using just a smartphone, in four simple taps, anyone could trade stocks.

In this article, we argue that applications increase the engagement of users through clever design and—sometimes dark—nudges. While on the surface of it, improving access to financial markets for millions of first-time investors sounds promising, there is a potential downside. Such unencumbered access can foster risky investments and trigger losses. More so in financial markets where lack of timely and actionable information can reduce investor welfare.

Harmful Nudges and Dark Patterns

Nudges are similar to GPS devices which help people make decisions for good (as per Cass Sunstein, author of the book Nudge with Richard Thaler).

However, recent work in behavioural economics by Dilip Soman and in computer science by Arvind Narayanan focuses on identifying ‘harmful nudges’, ‘sludge’, and ‘dark patterns’ online. One popular example of sludge would be how it is more cumbersome to get out of many news subscriptions than it is to get into them. For instance – you can buy a New York Times subscription via an online process, but must speak or chat with customer care to cancel it.

Similarly, users of investment applications will find that with existing guidelines, while a new account can be set up in minutes online, closing the same account requires physical documents to be sent by snail mail.

Robinhood, a U.S.-based investment application, was criticised for making daily trading addictive for customers with harmful nudges like confetti celebrations on stock purchases and creating a highway for risky decisions with a frictionless app interface. Such devices also classify as dark patterns and target younger investors. Harmful nudges and frictionless design are also frequently leveraged by countless investment apps in India.

We evaluated five popular investment apps currently available in India for the presence of harmful nudges and dark patterns. The ‘audited’ apps were Zerodha Kite, Groww, Angel Broking (now AngelOne), Upstox, and Paytm Money.

Attracting User Attention

Nearly all apps in our audit aggressively vied for user attention (to take action) using nudges. Right after enrolling into the popular app Groww, users see behaviourally framed messages which build an urgency to invest. “Didn’t Invest yet? It’s a good day to start investing”. Upstox uses a similar design element – users will see a sad emoji if there are no orders placed.

Another example of attention prompts is when cues within the apps leverage social proofing to nudge investments. Paytm Money makes use of socially framed nudges on its home screen such as, “11,12,649 investors have already invested via Paytm Money”. Such an instance is classified as a dark pattern that makes use of social proofing, leveraging people’s fear of missing out.

Is Your Broking App Making You Trade More Than You’d Set Out To?

The Fast And The Frictionless

Speed-bumping is a process deployed by online services to emphasise a decision-making point by adding ‘friction’ for users to deliberate. It is then surprising that none of the applications we surveyed made use of this.

In all applications, we were able to make the sale or purchase of a stock in under four-steps with no disclaimers or notifications. We found the slide-swipe purchase decision by Zerodha Kite and Upstox to be the most engaging action. Disclaimers to signal risk were absent even for the more volatile and risky intraday trading processes.

Is Your Broking App Making You Trade More Than You’d Set Out To?

This can be a recipe for disaster for less experienced investors who can heavily lose money on intraday trading.

We found that only Zerodha Kite had introduced a nudge in the form of a ‘Kill-Switch’ and also announced other warnings and alerts to dissuade risky investing and introducing breaks for investors.

These are steps in the right direction which engage ‘speed-bumping’ principles to avoid repeated losses.

Defaults, Notifications, And Alerts

There are several other subtle processes running within the applications. To take an example, when users sell stocks using Groww, by default the amount is credited into the Groww wallet and not into their linked bank account. Redeploying the money may be in the best interest of the investment platform but may be at the (continued) risk of novice traders who may see funds in their wallets differently from the funds in their bank account. It is very similar to how paying by ‘plastic credit cards’ can spur spending as opposed to payments by ‘hard cash’ – people perceive money subjectively in its various forms or ‘mental accounting’.

During the setup and installation, the default options selected allow the applications to reach consumers through push notifications, alerts, email, and text (sometimes WhatsApp) messages. This allows the apps to ensure their regular presence through frequent notifications. During sign-up behaviourally-framed messages often emphasise on riskier trade options such as intraday trading. The concern here is that retail investors and new users—some with limited investing experience—are being urged to invest in risky assets whose betting odds are not made clear, without the provision of any prior information.

All through the process applications make frequent use of urgency in completing sign-up as fast as possible.

For instance, during sign-up, the Angel Broking application sent in notifications of free vouchers, brokerage, but also how users can begin trading in under an hour with an accompanying stop-watch. There were also calls for users who left the registration halfway through, to encourage them to complete documentation.

Is Your Broking App Making You Trade More Than You’d Set Out To?

The Need For An App Code Of Conduct

We find in our evaluation that platforms have many harmful nudges which can impede investor welfare. Nikhil Kamath, the founder-CEO of Zerodha, revealed that nearly 20% of applications for the Zomato IPO oversubscribed by 38 times, were through his platform. For individual investors, the bullish run of the stock markets has been an avenue of hope amidst the larger economic despair.

It may be useful for regulators to identify ways in which such applications can potentially hurt investor welfare.

Understanding the full extent of harmful nudges and devices deployed by online platforms is an important first step.

In-app disclaimers and disclosures, especially for risky trading options like intraday trade, will be useful for less experienced investors.

Mandating options for users to toggle the cooldown period to display investing can protect investors from repeated and excessive losses.

A variable interface, which assesses investor knowledge and designs the interface according to the type of investor and increases friction strategically can be a useful approach.

An online app code of conduct and platform design audits by stock market regulators can be useful ways to institutionalise protection from any manipulation. This should also include checks on how applications make use of amassed investor data.

Constitutionalising an ombudsman can go a long way to build trust.

Lastly, it might be useful for regulators to devise a way to better regulate financial advice online. YouTube influencers, popular with youth, don the guise of financial experts in videos to regularly provide investment triggers like ‘earn money in one hour with day trading’.

Avoiding An Investor Chakravyuh

Driven by retail investors, the trading of risky and penny stocks has hit new heights. With more millennials than ever using the stock market for investments, regulatory institutions would need to evolve smarter ways for investor protection. As applications fight for user attention, platforms toggle friction to increase engagement.

Reducing trading to gaming can make risky behaviour - habitual and a vicious, addictive cycle.

This is particularly so if the same application also allows investment in other avenues such as volatile cryptocurrencies. The temptation of the dark side of nudges must be resisted by institutionalising reform led by regulators such as SEBI and RBI. In the name of democratising investment, the fallibility of investors should not become the product.

Anirudh Tagat is a research author at the department of economics, Monk Prayogshala, Mumbai. Saksham Singh is a researcher with the Centre for Social and Behaviour Change, Ashoka University. Views expressed are personal.

The views expressed here are those of the authors, and do not necessarily represent the views of BloombergQuint or its editorial team.