In 2021, 10 million new electronic trading accounts were opened as millions of young Indians started investing in stock markets. To attract these first-time investors, local trading apps such as Groww and INDmoney introduced behavioral nudges such as cash rewards and free shares of Tesla and Amazon stocks as referral rewards. A similar controversial design choice of digital confetti rain celebrating customers making their first trades by U.S. brokerage Robinhood was criticized and discontinued in 2021.
While Indian trading apps haven’t yet received such scrutiny, Nithin Kamath, the founder of the country’s largest brokerage Zerodha has been sounding the alarm on dubious practices. “We, as a business, are taking the opposite stance, saying that people trading less is better for the trader,” Kamath told me. “It is 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.”
In the past couple of years, Zerodha has introduced a slew of features that discourage users from spending excessive time on the app. They call this practice “user disengagement.” In March 2020, the brokerage introduced “nudges,” pop-ups that actively discourage, and sometimes block traders trying to buy penny stocks. Kamath said that the prompts “scare the shit out of 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 doing 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 come back to trade,” Kamath said.
Because of this feature, Zerodha’s penny stock trading volumes as a percentage of their equity volumes were down almost 70%, Kamath told me in February.
The platform also introduced a “kill switch,” a feature that allows traders to voluntarily lock themselves out of the app instantly, preventing them from being able to execute trades whenever they are in a poor state of mind. “Turns out, a significant number of users find this extremely useful,” Kailash Nadh, Zerodha’s chief technology officer, wrote in a recent blog without disclosing the number of users who use the feature.
Zerodha can afford such a contrarian approach to app design because Kamath’s 10-year-old brokerage business remains bootstrapped and is devoid of venture capital incentives for “exponential” growth. The brokerage has 6 million active traders, and booked $150 million in profits, on revenues of $358 millions in 2021 — a rare feat in the startup world.