Social fintech: I’m feeling bullish…and a bit concerned

The past few weeks have prompted me to catch up on some sombre non-fiction reading starting with Prisoners of Geography by Tim Marshall and Doom: The Politics of Catastrophe by Niall Ferguson. Appropriate reading for such horrendous times. 

The latter also has an interesting chapter on the importance of networks, which I confess was a little over my head. What I did learn, however, was that network science is becoming increasingly important and not just in understanding pandemics and wars. It is clearly also increasingly a focus for our financial lives. It may well be the next big fintech trend in the coming years. That will be both positive and negative. 

Call it what you will ‘social + fintech’ or ‘ social investing', the message is clear: founders and VCs increasingly want to back financial services companies that harness the power of social networks. In particular, how this applies to the world of investing. 

A new crop

In the US, the social side of fintech has been apparent for longer. Etoro’s 'copy trading' is very popular. Public.com, another commission-free social trading platform, allows its users to view stock, crypto and ETF trades others are making and the startup crossed the million member mark just 18 months after launching. Public.com is also rumoured to be launching in the UK.

In London, a very new kid on the block Shares recently announced it had raised a $40m series A round of funding, which may well be a record for the UK digital wealth space, to bring its vision of social investing to life. The company is less than a year old.

Shares has some impressive backers including Peter Thiel, investors in the likes of N26 and Wise, a co-founder of Freetrade as well as founders with deep experience of building digital wealth propositions at Revolut and other well-known fintechs.

Shares says it wants to “democratise and demystify investment" by giving family, friends and experienced investors i.e your trusted network a single place to discuss investment ideas.

When buying or selling securities on Shares' app, users can also share their views on the investment they are marking with their close circles by sharing captions and GIFs. 

An ‘activity feed’ means you can keep track of their friends’ investments in real-time and react to them through likes and comments. 

Lightyear, another stock trading app, also founded recently by a group of fintech veterans launched its own social feature allowing users to share their portfolio details with other users, forming part of its long term plan to bring social investing to the UK and Europe.

The company, which launched its platform in September 2021, says its ‘profiles’ feature will embrace the social investing theme by allowing each of its customers their own personalised web page. They can share this online with friends and family, showing their portfolio holdings as well as watchlists and recent trades. Portfolio balances, transaction amounts and personal details are not shareable.

Martin Sokk, Lightyear’s CEO, told me that while investing “is not incredibly difficult”, in the sense that the basics of how people should invest - focusing on the long term, being mindful of the costs, diversifying your portfolio, not trying to time the market and to average the price you pay through volatility  - are simple and well codified but are just not known by a lot of people.

“I'm a true believer that when people want to learn something, then the best way is to create the environment around it and surround yourself with like strong people who are working on it,” Sokk said.

The environment is the critical thing, he adds, not the social media aspect, but there is a reality that that is how communities are now forming in the age of Whatsapp and Web3.

“It does not make sense to build just another Facebook where people can shout at each other. I haven't seen them really work in having meaningful discussions there. But it's more about how do we give people the tools to elaborate on the kind of thinking, analysis, their actual portfolio happenings and hope they can share that and spark discussions around it,” Sokk said.

Remember GameStop?

Retail investing boomed in both 2020 and 2021 owing to the pandemic, and so did investment communities around fintech apps with the number of younger investors, in particular, growing rapidly with ‘meme stocks’ becoming a global phenomenon and influencers wielding more and more power when it comes to making important decisions that could mean people losing money as well as making it.

‘Is this a good thing?’ It doesn’t have a straightforward answer. Democratising access to financial services is a noble cause and at the essence of the fintech trend. Investing, in particular, has been a closed shop for centuries with the cost of intermediation stubbornly high, with information skewed in favour of the few and ultimately many barriers to entry that means a minority of people could access investing. 

Then again social media does not have the best reputation when added into democracy, or at the very least it comes as a double-edged sword. The gamification of any digital app can lead to addictive behaviour or short term decision making. At the very least new social fintechs should learn the lessons of what hasn’t worked well in Big Tech’s social network experiments. 

Man is by nature a social animal, said Aristotle (I am pretty sure he also meant women), and the likelihood of social investing taking off seems to be high particularly as the boom in NFTs and other web3 inspired assets becomes adopted by the mainstream. In fact, social fintech in many ways, returns the whole investing process back to its 17th-century coffee house origins where trading was conducted in a highly social fashion of the Georgian equivalent of a flat white. 

Whether you agree with social fintech will ultimately depend on how much people actually think democratising investing is a good thing. A surprising number do not. A bit like democracy. These horrendous times demonstrate that it is vital.