Gamification features like push notifications and prize draws utilized by trading apps can heighten users’ risk-taking behaviors, according to research conducted by the Financial Conduct Authority (FCA).
The UK regulator created an experimental trading app platform to examine how various digital engagement practices (DEPs) influence trading behavior, involving 9,000 participants in the study.
The research revealed that push notifications led to an 11% increase in the number of trades made, while points and prize draws resulted in a 12% rise. Additionally, these features contributed to an increase in the proportion of trades in risky investments by 8% for push notifications and 6% for points and prize draws.
The impact of DEPs was found to be more pronounced among individuals with low financial literacy, women, and younger people in the UK.
To address these concerns, the FCA has already initiated measures to tackle gamification within the new wave of retail trading platforms through its Consumer Duty framework. This mandates that apps must design and test their services to meet consumer needs and enable informed investment decisions, particularly for individuals exhibiting vulnerabilities.
Sheldon Mills, Executive Director for Consumers and Competition at the FCA, noted, “Trading apps have the potential to transform retail investments, but some in-app features might be pushing consumers towards more frequent or riskier trading, which isn’t appropriate for everyone. With the growing usage and popularity of trading apps, we will continue to monitor their effectiveness in helping customers make decisions that align with their needs.”