Feel free to view our video. Below you will find a summary of what the video is about.
Our video focuses on financial exchange markets and recent disruptive developments within them. We analyse how new technologies introduced by various companies are transforming the way traditional financial exchange markets have operated in the past.
The first known form of an investment exchange market was founded in 1602 by the Dutch East India company VOC. About a hundred years later, in 1792, an agreement between a group of American stock brokers led to the formation if the New York Stock Exchange and Wall Street. After the first electronic stock market – NASDAQ – was introduced in 1972, new technologies allowed the exchange market to become more decentralized and dynamic. In 1975, the American government decided to deregulate and allow new brokers with new business models to enter the market. Further developments led to the emergence of two generic types of brokers. Full-service brokers and discount brokers, that charge different commissions to customers.
The barriers to entry into the traditional exchange market system are somewhat high for individuals who do not possess the required capital or knowledge. However, we will elaborate on two apps have attempted to disrupt this.
In the first example, the stock trading app, Robinhood. This app charges 0% commission on stock trading. Robinhood takes on a lean business model approach and applies it to financial exchange markets. The key advantages of Robinhood include an ability to differentiate itself from competitors by offering a 0% commission trading system as well as being a first mover, allowing the company to develop a first app of its kind to offer such a service. However, Robinood’s business model may be threatened due to its target market having low capital to invest. Furthermore, since the target market knowledge & experience of consumers is lacking, losses that are incurred by the customer early could be detrimental to customer growth and retention.
In the second example, Acorns is an app that generates capital for the average consumer by rounding up daily expenses. Acorns has two key advantages. First, customers require no previous investment knowledge. Second, consumers save as they go; as customers spend money on daily activities, the rounded up cents are invested into the trading portfolio of the customer’s choice. A disadvantage of this app is that investors have no control over the actual purchases and sales of the stocks themselves. Furthermore, there is a lack of transparency since customers cannot see which securities are being traded.
Technology has helped move this industry from hierarchies with dominant brokers on Nasdaq into markets with many new types of brokers like discount brokers and Robinhood. Throughout history, we have seen a movement from biased markets with high commissions, to unbiased markets with more players and lower commissions. This transformation has been here since the deregulation in 1975. However now we are seeing a movement from an unbiased market to a personalized market with companies like Acorns. This suggests that that in the future, big brokers and banking institutions will not be necessary.
