It’s the David vs Goliath battle that has captivated the internet. Hundreds of thousands of retail investors have gone toe-to-toe with the biggest hedge funds on Wall Street over the share price of a bankrupt electronics company.
The GameStop squeeze has amplified long-term rumblings of a retail revolution in the investment world – a revolution that could never have grown without fintech support.
Retail investors have been using light-touch investment apps such as Robinhood to buy up as much stock as they can afford in low-value companies such as GameStop, in an effort to provoke hedge funds into shorting their stock.
This is a ringing endorsement of the fintech mission to democratise investing, and make it easier for retail investors to access the same profits and benefits that institutional investors have been enjoying for decades.
But there is an element of schadenfreude in the GameStop saga, which speaks to the deeper motivations of these retail investors. As millennials prepare to enter the second global financial crisis of their lifetimes, their frustrations are clear.
Time and time again we read about how younger investors are more comfortable taking risks with their money, despite the fact that they don’t have a huge amount of investible income to work with. The rise of fintech makes it easier than ever for these investors to make their presence felt.
Peer-to-peer lending was created as a way for the average investor to make the same gains that high-net worth individuals and institutional investors can access. But over the past few years, institutional funding has begun to dominate the P2P space, leading to a series of high-profile exits.
RateSetter – once one of the largest retail-focused P2P lenders in the country – was acquired by Metro Bank last year and will no longer take retail money.
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Landbay and ThinCats have both opted to leave retail P2P in favour of institutional investment in recent years. And Funding Circle and LendingCrowd have paused retail investment on their platforms while they focus on lending through the government-backed coronavirus business interruption loan scheme (CBILS) – a scheme which is funded solely by institutional money.
But the GameStop story shows us that retail voices can make themselves heard. If enough small investors get together, they can move markets and bring down titans of industry out of sheer frustration.
It has also proved that retail investors can grasp complex financial transactions, just as long as they are sufficiently motivated and have access to clear information.
This bodes well for retail-focused P2P lending, which is increasingly reliant on sophisticated investors who can demonstrate that they have a good understanding of the unique risks associated with this still-niche investment option.
P2P lenders could learn a lot from GameStop’s investors. Retail investors have something to say, and all financial services firms would do well to listen.