Impact of Fintech and Social Media on Retail Investing: A Case Study of GameStop Controversy

This report analyzes the influence of Fintech and social media on retail investing with a case study of GameStop controversy. It discusses how Fintech is disrupting the banking industry and how social media is driving volumes for investments. It also explores the use of different technology to improve the efficiency within financial markets.

Case study

TABLE OF CONTENT
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Fintech and social media to shift the dynamics of retail investing..............................................3
Use of different technology to improve the efficiency within financial markets........................5
CONCLUSION................................................................................................................................8
REFERENCES..............................................................................................................................10
Books and Journals....................................................................................................................10

INTRODUCTION
GameStop is an American video game and electronics merchandise retailer which is
headquartered in the grapevine city of Texas. This company is one of the largest video game
retailers present all over the world. This is a trade in destination for Xbox, play station and some
other games and related systems (Pagano, Sedunov and Velthuis, 2021). There are different
controversies which has taken place after the Robinhood decided to freeze the trades for the
GameStop. The market shares of this company has started to crash down since then and has
again shoot up. This report deals with the influence of Fintech and social media on the retail
investing and all about the use of different models for payment in reference with the GameStop
controversy.
MAIN BODY
Fintech and social media to shift the dynamics of retail investing
Banking is very important however banks are not. The digital sources of financial
technology is helping in improving the lives of its users. Fintech is disrupting the banking
industry and this trend is growing and entering in all the financial sectors. The traditional
working of the banks and other financial sectors have a lot to catch up from the changes
happening in the recent years. The managers of the banks are not ready to bear the risk of
embracing the new changes and making use of new technologies in the banking sector. This
industry has come a long way and all the improvement has lead to a better banking profits but
not the customers (Barber and et.al., 2020). The use of online banking has reduced the needs and
requirements of customers to have regular visits to their respective bank branches. This process
has changed the look of using banking services and not the whole of banking model. The cost of
maintaining online banking systems are very much less than compared to the traditional
methods. Transitioning to the online platforms is a very beneficial step for banks.
Fintech offers the technology which secures the clients better than any other bank while
providing an efficient as well as suitable online strategy. Fintech was started by the financial
sector employees and were committed to finance. These finance professionals teamed up with
the information technology team to create Fintech which helped in solving problems of the
people rather than banking problems. During the time of economic crisis, the trust people had in
the banks was damage as every individual was keen to save and manage their money. This

created a huge opportunity for the digital industry to make a user centred finance services. This
is a digital era where each person is working and using different forms of technology (Pugliese,
2020). This opened countless doors of opportunity for the financial sector. This digital age is
more in the new approach and a mindset which is user centered.
Mobile banking has eliminated the challenges faced during the market entry which in
turn has increased the demand for the financial services regardless of the location. A lot of
customers are making use of the mobile banking and Fintech is leading to provide the solutions
for banking customers and helping them compete with major banks. Fintech offers better finance
management tools such as mobile payments, crowdfunding, faster loan transactions and also the
feature of peer to peer lending system. The innovators of the Fintech have the understanding of
the struggles faced by the customers in performing the banking services. The services by Fintech
masters in splitting banking services and providing them with maximum amount of customer
satisfaction. Banks have failed on the online platforms and provides complex and very confusing
services when compared to the user friendly services by Fintech. Fintech are the digital services
provided while considering the perspectives of customers and is therefore all about the users of
the application (Steib, 2021). The major focus of the banks is to provide loans and charge fees,
have different branch locations when the customers are looking for comfort and easy
accessibility. This is reason behind the increased use of crowd funding and faster loans.
Banks does not believe in changing the already existing processes while online banking
have provided more personal finance management tools with the help of Fintech design. Banking
activities have been shifted to mobile banking rather than going to the branch. Fintech and social
media are driving the volumes for investements and attain high volatility in the market. The
stock exchanges in the US have experienced to be extraordinary volume and volatility. The stock
price for the GameStop have been affected heavily and have experienced an extreme volume and
volatility in the past few years. This spike in prices is because GameStop have traded up from the
price of $18.84 in December 2020 to reach the peak of $483 in January 2021 end. It again fell
after some days (Investing in digital age: how influx of retail traders and Fintechs have changed
the makret, 2021). The main step behind these stocks are moving with the rise of Finetch as well
as the power of collective market where an individual can invest with the help of technology and
social media. The transition to this digital age and following the legacy is well understood by the
changes and the rising of Fintech start-ups. Social media has the ability to mobilize the vast

number of investors while decreasing the investor and customer brand loyalty with some
established firms in order to be more transparent. It is important for the financial institutions to
adapt and overcome from the current market challenges which includes the threat of new
competitors.
In the digitalised trading environment business, investors have the access to numerous
variety of information and related sources which are important to make investment decisions.
With the help of social media, investors have the access to numerous amount of online
information and different sources which will help in making investment decisions (Nijboer,
2021). Many brokerage firms also offer some tools which are used to analyse the information
from the social media helping them take appropriate decisions. Social media ranges from the
news media to the independent social media platforms which are associated with the investment
firms. There are many different brokerage firms which offer the tools help in analysing the
information from these social media sources. Understanding the social media helps the investors
to connect with the experts in any filed of area as well as obtain further more insights related to
the market. They form the great platform to carry out the diligence on the investments as the
investors can assess individuals and also the whole of the industries.
Pandemic has given the investors more free time as well as more liquidity. Covid - 19 has
forced the users to be more mobile and work remotely which gave them more free time. This has
resulted in more time spent on the social media and having extra personal savings. This has lead
to increase in the retail investing and increasing the number of users as well as the investment
amount (Galvin and et.al., 2018). There are many people who are taking stimulus checks and are
interested in investing more on Robinhood. Some of the reddit firms have driving the price of the
stock up for GameStop. Many number of retail investors use the social media to discuss their
ideas related to the investment and some use to figure out which trend in investment is taking the
lead. The bubble for the GameStop is popped and with the combine use of social media and
other platforms such as Fintech will continue the powerful impact of the equity markets while
going moving in the forward direction.
Use of different technology to improve the efficiency within financial markets
Technology driven businesses are either good or bad. Robinhood is a financial
technology which is operated on the online platforms with discount brokerage and having a

commission free trading. It provides the online and mobile based financial services whichb
allows the users to invest as well as trade the stocks, exchange traded funds. It also allows its
users to invest in certain cryptocurrencies which are based on the locations. It makes money from
the payments during the flow of orders, taking stock loans, having interest on uninvested cash
and other small revenue generated streams (van der Beck and Jaunin, 2021). Robinhood is an
example of such disruptive force which sits between the absolutes. The industry of brokerage
and investment has lead to technology to turn the industry into being more open platform and
forcing to innovate and expand. The users of popular Reddit came up with the idea behind the
execution of short squeeze trading on the stocks of GameStop. The gaols for this process was to
outperform in the market and punish the investors who can go short. This made the members to
mobilize the users and buy the shares of GameStop in an aggressive form while executing the
large scale short squeeze. Robinhood and other brokerage firms have curtailed the trading in
some particular stocks and reduce the collateral requirements.
Such interruption lead the Game Stop and other high volatility stocks to have the
experience of massive sell offs. This lead Robinhood to reduce the restrictions on trading and
investors started new trading activities and GameStop as well as other stock prices to rebound
sharply. The business model of Robinhood enables its users to buy and sell some of the financial
assets where the users have no need to pay a brokerage commission while placing the trade. The
traders form Robinhood considers themselves as being the outsider individual in the traditional
financial system. The marketing of Robinhood is such that it is a platform for free trading having
the capability to trade the fractional shares. At the time when this opportunity to trade and related
activities were banned it resulted in users being angry on the platform as it was supposed to be
the democratic trading platform which handles the investing for everyone. The consequences of
this resulted in anger and lawsuits as well as venting on the social media asking to boycott
Robinhood. Traders move their accounts and trading activities to the other brokerages however,
this adverse publicity resulted in lot of new customers. Robinhood become a trending matter
across the social media for the restricting trades.
The payment for order flow model of the Robinhood approach is the compensation and
the benefit coming from the brokerage firm which receives the direct orders with different set of
parties for the execution of trades. In this the firm will receive a small payment amount which is
generally in the fractions of penny per share and can be compensated for directing the orders to a

particular market maker. It is the compensation which is received by the broker for routing the
trades for its execution. This method allows the creation of many dark pools and is thus criticized
for some unfair practices at the cost of retail traders and investors. Traders using this model
discovered that the free trades were costing them a lot and were not getting the best price during
the time of transactions. In addition to this, there was some confusion regarding what will
happen to the trades which must be practised by the outlaw. In comparison with the commission
based brokering model is where the employee of the brookerage company will be remunerated
for the number of trades which they execute. This system can encourage more unethical
behaviour with unscrupulous commission brokers.
It can lead to engage in the practices such as churning which means executing multiple
trades with the customers in order to generate more commission and also bucketing. The brokers
in this model earn the percentage of the client's assets which are traded. More the trades of the
client, more is the money they maket (Ashta and Herrmann, 2021). A fee compensated advisor
will collect the pre-stated fee in return of the provided services which includes an hourly rate for
giving the investment advice. On the other hand, the income of the commission based advisor is
generating its income from products which can be sold or opening the accounts. Commission
based advisors will keep the best interest of the investors in mind during the time of selling them
investment and security.
Impact of settlement and payment systems based on block chain
GameStop controversy has gained a lot of attention towards block chain which allows
untrusted parties to reach to an agreement on state of database without any intermediate need of
any middlemen. Specific financial services such as securitization and payment are done without
need and administration for bank. Thus individuals are allowed to use self-executing contracts
which can automate manual process from claims and compliance processing to distribution.
Distributed ledger technology (DLT) encourages better standard and governance in data sharing.
DLT and block chain payment systems such as project Whitney and project Ion establishes
decentralise ledge for making faster payments at relatively low transaction fees. Block chain
based payment systems are cheap and secure payment methods which eliminates the need of
third party verification and thus lowers the processing time (Casey and et.al., 2018). DLT allows
quick settlement of transaction so that better tracks can be maintained. The use of digital

payment and DTL systems brings a greater and significant different in infrastructure of financial
markets and circumstances similar to those observed in GameStop controversy. In the event
brokers were blamed for siding hedge funds. In reality brokers operate on T+2 scheme in which
when shares are purchased for clients they are settled after 2 business days and money is also
paid at that time (ALSaqa, Hussein and Mahmood, 2019). Thus brokers must settle accounts
with DTCC against position of their client within two days. However, when there were regular
speculations about price hike of GameStop shares then DTCC demanded huge collateral sum
from brokerages or Robinhood in case of GameStop. As settlement takes two days there is
increased risks that brokers may not be able to pay for shares at settlement time. Thus stock
value can be lost rapidly. In this response Robinhood borrowed $2.4 million along with
restriction of certain trades which even caused outcry from users and public criticism.
Contrary to this block chain based settlements are considered as more improved solutions
for encouraging serious transformation of security settlement. The creation of public security
database with details of ownership is easy to maintain without need of third party infrastructure.
It can also help in settling assets through smart contract system even in the absence of central
authority. Thus instead of DTCC executed operations, a computer program can perform
settlement without any delay and without any need of reconciliation. For instance, Ion project is
envisioning digital settlement service which integrates the advantages of accelerated settlement
along with the benefits of central authority so that settlement space fragmentation can be
prevented. However, block chain implementation need quick and prior resolution of certain risks
such as technical failures, security breaches, counterparty risks factors in case of delayed
transactions, scalability issues and inequalities (Chiu and Koeppl, 2019). These limitations of
block chain can influence the market practices and existing settlement systems but there is need
to bring better improvements in related policies and regulations.
CONCLUSION
Brokerages and other institutions are all required to try the technological changes in order
to stay ahead in the finance industry while also retain and attract clients and managing the risks.
Social media and Fintech have continued to develop at a rapid pace and at the same time, the
legacy institutions and traditional investors will experience extreme volatility and falling down
of the asset prices. There are different ways for brokerage which has its own positive and

negative points. It can be concluded that Robinhood model for the business has entertained some
unethical behaviours and created some problems which has lead to spike the share of GameStop.

REFERENCES
Books and Journals
ALSaqa, Z.H., Hussein, A.I. and Mahmood, S.M., 2019. The impact of blockchain on
accounting information systems. Journal of Information Technology Management. 11(3).
pp.62-80.
Ashta, A. and Herrmann, H., 2021. Artificial intelligence and fintech: An overview of
opportunities and risks for banking, investments, and microfinance. Strategic Change. 30(3).
pp.211-222.
Barber and et.al., 2020. Attention induced trading and returns: Evidence from Robinhood users.
Available at SSRN 3715077.
Casey, M., and et.al., 2018. The impact of blockchain technology on finance: A catalyst for
change.
Chiu, J. and Koeppl, T.V., 2019. Blockchain-based settlement for asset trading. The Review of
Financial Studies. 32(5). pp.1716-1753.
Galvin and et.al., 2018. Synergy and disruption: Ten trends shaping fintech. McKinsey Global
Banking Report.
Nijboer, R., 2021. Retail investing in the information age: an investigation of herd behaviour on
Robinhood (Doctoral dissertation).
Pagano, M.S., Sedunov, J. and Velthuis, R., 2021. How did retail investors respond to the
COVID-19 pandemic? The effect of Robinhood brokerage customers on market quality.
Finance Research Letters. p.101946.
Pugliese, V., 2020. Open Banking Platforms: Minimizing the Risk of Fintech Partnerships.
American Bankers Association. ABA Banking Journal. 112(1). pp.51-51.
Steib, B., 2021. ‘The Robinhood Effect’-Digital technology in global financial markets and its
effects on investor decision making.
van der Beck, P. and Jaunin, C., 2021. The equity market implications of the retail investment
boom. Available at SSRN 3776421.
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