Fintech/Analysis/

The next big thing in neobroking: social networks

Neobrokers are adding even more social elements to their trading platforms in the wake of the Gamestop saga and the rise of 'meme stocks'.

By Ryan Weeks

Credit: Wall Street Bets Reddit

The explosion in the popularity of so-called ‘meme stocks’ in recent months has made one thing clear: social networks and recommendations are a huge influence on people’s trading decisions.

Data this year from the financial education app Finimize found that  94% of its users talk about investment decisions with friends before pulling the trigger.

It’s a trend that neobrokers are now working furiously to capitalise on, with many considering moving from a model where users could follow the portfolio of ‘experts’ to one where they interact more with other casual investors on the platform.

Max Rofagha, Finimize’s CEO, says that the real value for trading startups lies in fostering “many-to-many” interactions between users. “By doing so, your product shifts from single-player mode to multiplayer mode — this is where real value can be created for retail investors,” he tells Sifted.

Gatsby, a US trading app that secured a $10m Series A in mid-March, is one of those with just this idea, hosting a “social network” on which users can share trading tips.

This gives users a way to earn money based on their trading activity. It is planning to launch “Gatsby Circles” — which alerts members when a trade gets executed and lets them follow it.

Earlier this year New York-based Public.com raised $220m at a $1.2bn valuation. The startup describes itself as an “investing social network” — placing heavy emphasis on social tools that help its users to collaborate on investment strategies and educate themselves.

“The Public community is about investing in companies, not just trading stocks. We believe that investing is one of the most powerful forcing functions for building financial literacy,” said the firm’s coCEO Leif Abraham, in a press release at the time.

Europe behind the curve

Clearly big investors are buying into the social trading trend, but while Europe’s neobrokers have cottoned on to some of these tricks, no startup has made quite so clear a commitment to fostering interaction between users.

The copycat stuff has existed for a while. It is arguably a model that eToro — which has just announced a SPAC-merger that will give it a $10.4bn valuation — pioneered.

Nextmarkets, the Cologne-based neobroker which just netted $30m from investors, has its own twist on copycat trading. The startup is in cahoots with 22 “coaches” — mostly former fund managers — who collectively produce around 300 trading tips a month, according to CEO Manuel Heyden. These coaches share a trading tip, users get a push notification, can click through to read the investment thesis and, should they choose to, swipe to invest.

“It’s not social trading, it’s expert-curated investing,” Heyden told Sifted, adding that these coaches are incentivised to share tips, but not by volume — as that may represent a conflict of interest.

Rofagha from Finimize says that it may not be a bad thing that European neobrokers are not bringing these social networks in-house and that they should perhaps always remain separate for ethical reasons.

“You will see some brokerages trying to move into this space, as is the case in the US already, but we know from the Finimize community that trust is key and there needs to be a kind of ‘Chinese Wall’ between content and community versus transaction, because brokers will always be incentivised to get the customer to transact,” he said.

Ethical dilemmas aside, if social tools are to be the next big thing in fintech investing, Europe’s fintechs would be wise not to fall behind — and there are signs they are keen not to. 

In December of last year, London-based neobroker Trading212 published a blog post entitled “Pies are getting social”. A user’s Pie reflects the makeup of their portfolio on the app. 

In addition to enabling users to copy other users’ Pies, the December update also added a suite of social features — including public user profiles, avatars, comments, and the ability to save favourite Pies to a library. 

An early sign, perhaps, of what is to come.

Ryan Weeks covers fintech at Sifted. He tweets from @RyanJamesWeeks and coauthors our new fintech-focused newsletter. Sign up here. 

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