The Indian brokerage that wants to opt out of users
In 2021, 10 million new electronic trading accounts were opened as millions of young Indians started investing in stock markets. To attract these new investors, local trading apps such as Groww and INDmoney have introduced behavioral nudges such as cash rewards and free shares of Tesla and Amazon stock as referral rewards. A similar controversial design choice of digital confetti rain celebrating customers making their first trades by US brokerage Robinhood was criticized and dropped in 2021.
While India’s trading apps have yet to come under such scrutiny, Nithin Kamath, the founder of the country’s largest brokerage, Zerodha, has sounded the alarm over questionable practices. . “As a business, we take the opposite position, saying people trading less is better for the trader,” Kamath told me. “It’s also better for the business, because as a business you need your customers to be in the market. They are in the market as long as they don’t lose money.
Over the past two years, Zerodha has introduced a host of features that discourage users from spending too much time on the app. They call this practice “user opt-out”. In March 2020, the brokerage introduced “nudges,” pop-ups that actively discourage and sometimes block traders trying to buy penny stocks. Kamath said the prompts “frighten people” and warn investors that the company is shady and “you can lose money.” The underlying philosophy is that a user who makes a loss by making a risky financial investment will not remain a user for long. “If you started with 100,000 rupees [around $1,284]and you lost 100,000 rupees, you will never go back to trade,” Kamath said.
Because of this feature, Zerodha’s stock trading volumes as a percentage of their stock volumes have declined by almost 70%, Kamath told me in February.
The platform has also introduced a “kill switch”, a feature that allows traders to voluntarily and instantly lock themselves out of the app, preventing them from being able to execute trades when in a bad mood. “It turns out that a significant number of users find this extremely useful,” Zerodha CTO Kailash Nadh wrote in a recent blog post without disclosing the number of users using the feature.
Zerodha can afford such a contrarian approach to app design because Kamath’s 10-year-old brokerage business remains stalled and lacks venture capital incentives for growth. “exponential”. The brokerage has 6 million active traders and posted $150 million in profit, on revenue of $358 million in 2021 – a rare feat in the startup world.