Brendan Doggett’s father had a bottle of wine he would never drink. After 32 years in the New Zealand police, it had come as a gift with the $1000 he put into a winery to mark his retirement.

“He didn’t open it, and it’s still sitting on the shelf,” Doggett says. For a family that spent money as it came in and had no idea how to enter the markets, the investment was a mark of accomplishment.

“My dad was so proud and that just really stuck with me,” Doggett says.

Doggett, 47, is now the Australia country manager for Sharesies, a six-year-old company that is a major player across the Tasman but only arrived in Australia last year. He is betting that a generation largely locked out of the housing market and forced to contend with years of stagnant real wages will feel the thrill of investing in the markets and satisfaction of financial stability just as keenly as his father — or even more sharply.

Sharesies is not alone. A growing crowd of apps is competing for a slice of Australians’ investing dollars and, increasingly, their superannuation. Superhero, Stake, Raiz, Revolut and Pearler are among more than a dozen platforms offering first-time investors access to Australian and overseas markets for low, or sometimes even nil, trading fees. Many have launched in the past two years, while people were largely stuck at home during lockdowns. They drove investing as a distraction from the boredom of isolation, as well as providing an opportunity to make an income when many had lost jobs at the beginning of the pandemic.

The new apps are taking the fight to the incumbents of the investing world, including the trading platforms of the big four banks and traditional stockbrokers. And they’re doing it with remarkable success. At least 1.2 million Australians are investing with the newcomer apps, though established platforms are still dominant.

But their arrival raises significant questions about the future of investing in Australia: whether investors can afford their losses if things go bad especially if they are inexperienced; the platforms’ tactics to woo new business; and the growing ecosystem of ‘finfluencers’ that surrounds millennial investors.

The issues came into the spotlight in January last year after users of a similar American trading app called Robinhood purchased shares of the moribund US retailer GameStop en masse. Driven by social media posts, the investors valued its nostalgic importance as a place where many had bought console games in the past and opposed the short sellers hoping to profit off its demise. The episode caused the value of the stocks to surge from $US4 to $US483 ($647) before regulatory issues and waning buyer enthusiasm caused a sharp plunge. They now trade at about $US146 ($195), illustrating the power of coordinated retail investors but also the financial risk for those that buy at the top of a market.

The waning of meme stocks like GameStop and the apparent end of tech shares’ years-long bull market, in which it was seemingly impossible to lose money, poses a fresh challenge for the investing apps that are hoping to attract new users in an increasingly volatile market.

It takes fewer than five minutes to begin investing. One only needs the information that’s “in your head or your wallet,” as John Winters, the chief executive and co-founder of Australian investing app Superhero, puts it. Installing Stake, another new entrant in the market, is a slick experience: black and white arrows flurry around your phone before a green tick signals your access into what feels like a club for those in the know. Instantly, offers appear for $10 credit if you deposit at least $50 in funds within 24 hours of opening your account, and free trades if you refer enough friends to the platform (it’s a tactic that works: 60 per cent of Stake’s new users are referred by an existing user).

Stake says its specialty is the ability to instantly trade Wall St stocks with no brokerage fees. To achieve that, users are charged up to $8 in a variety of fees to convert to US dollars. And trading Australian shares on the platform requires a minimum $500 investment, which is the minimum parcel set by the ASX. It may be less than the $10 that CommSec shares, long the dominant retail brokerage, but it is hardly frictionless. Other apps have a much lower minimum investment: Sharesies promises users the chance to “buy shares from one cent”. The platform, along with Raiz and Stake, allows the buying and selling of tiny fractions of shares or exchange-traded funds (which represent a parcel of stocks in a theme, such as top companies or tech firms) in a practice known as “microinvesting”.

Users buy fractions of shares through the platforms, which purchase entire shares before distributing portions among their users. In most cases, users are ‘beneficiary’ owners of the fractioned shares.

“This use of a combined pool of shares is key to how platforms like Superhero plan to make money despite offering cheap share trades,” explains Dr Angel Zhong, an RMIT University researcher into digital finance. Some apps have a single institutional identification for the entire platform, so “when there are 100 trades placed by 100 investors, Superhero does it once via its holder identification number.”

The Commonwealth Bank too has launched CommSec Pocket, an ETF trading platform that counts 300,000 users and a $50 minimum investment. The idea is to lower the barrier of entry to investing for people who may not have $500 to kick in at a time, making a habit out of smaller contributions.

It’s a trend kicked off by Raiz in Australia in 2016, fuelling big hopes among users like Gian Riyanto, a 24-year-old software developer. His “north star” is to retire by 30, an audacious goal made no easier by the spectre of rising inflation. He uses Raiz to make weekly investments of $30 — barely enough for a whole share in many stocks — to gradually build wealth. “So I thought, I’ll start [investing] small now,” he says. “Even though it’s not too much, at least start making it a habit of this, that can be more beneficial down the road.”

Combined data from the ASX shows 723,000 Australians have begun investing since the beginning of 2020, with 83,000 of them opening a brokerage account in the past three months alone. And many of these new retail investors have something in common: they’re young. Eighteen-to 24-year-olds, defined by the ASX as “next-generation investors”, made up at least 10 per cent of the Australian stock market by 2020.

The Australian Securities and Investments Commission (ASIC), which oversees the financial sector, is keeping a watchful eye on the flood, though also pleased to see young Australians engaged with their financial future. One element used by several of the apps such as Stake that has the regulator wary is gamification, where apps borrow tools from video games or even gambling that psychologists have found drive human behaviour.

“The concern that we have is that gamifying trading can lead to addictive, gambling-like, behaviour,” says ASIC’s Calissa Aldridge, a senior executive supervising the markets. “For example, if you’re constantly getting alerts saying ‘since you’ve got BHP shares, have you seen that Rio [Tinto] just moved in a certain direction,’ that prompting, that constant prompting, can cause investors to trade more frequently than they otherwise might,” she says.

Embedded in Stake, for example, is an array of design features that might influence a user’s trading behaviour: a countdown to market opening time, the offer of free stock, and notifications about trades and rewards. When a user makes their first deposit within 24 hours of opening the app, they are offered to play a ball drop game to receive a free stock. The app employs elements of intrigue and suspense that would not be out of place in a casino.

The design works for the companies behind the apps — particularly because most apps charge a fee whenever a user trades a stock. Yet evidence shows, Aldridge says, that the more retail investors buy and sell in an attempt to beat the market, the worse they do when compared to buying a position and holding it for a longer term.

ASIC is considering whether, in context, some prompts and notifications might be considered financial advice of a kind it regulates.

Stake argues its data shows that younger people aren’t being negatively affected by such ‘gamification’: its older users are the most active on the platform, with people over 55 trading eight times a month on average. People under 25 trade twice a month. “Everyone shouts, ‘young people don’t know what they’re doing, they’re trading all the time’,” says Stake co-founder Matt Leibowitz. “It’s actually the opposite. The more experienced are seeing opportunities.”

By contrast, “boring investing” app Pearler is the “antithesis of gamified trading,” says its co-founder and chief executive Nick Nicolaides. “Our default user experience focuses on 10-year historic returns instead of daily moves,” he says. But gamification is used to encourage investors in progressing to their goals, he says. “Our product is quite stationary, and it’s not meant to be stress-inducing or all that exciting.”

But for people in the game, investing is exciting. Canadian rapper Drake speaks about his stocks and Elon Musk tweets his investments. Investing has gone from being a “nerdy, uncool” pastime to “a badge of honour,” Stake’s Leibowitz says.

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No longer confined to bedrooms and trade floors, Warren Buffett memes and investment company merchandise has gone mainstream. “I think the meme stock phase is still here,” says Albert Patajo, host of an investing podcast called Fresh Capital. It’s just quieter because of other developments dominating the news, he says. The culture of young investors remains very online, constructed around an overlapping set of forums, blogs, podcasts and social media personalities; passionate, and relatively self-aware (sites like the Reddit page ASXBets are full of posts reflecting on the anguish of losing money or semi-ironic declarations of foolishness).

Sometimes these communities have crossed a line, prompting ASIC to step in. It has issued blunt warnings to chat groups brazenly co-ordinating “pump and dump” schemes, where users rapidly buy into a share to inflate its price before fleeing at a predetermined value, leaving others unaware of the scheme holding overpriced equities. Other issues on its radar include ensuring that the new trading sites have adequate records to ensure that if they go under, all shares can be traced to the correct customers.

“There have been a number of instances of brokers failing and it can be difficult to match clients and their investments in these omnibus structures,” says Aldridge. “There are also risks, including that the National Guarantee Fund doesn’t apply, so they won’t step in to continue to make clients good if there’s a failure.”

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Doggett, the Sharesies Australia boss, visibly bristles when asked if new investors are ill-informed and in over their heads. “That’s a paternalistic view,” he says, pointing to the array of information in the general media, specialist investing sites, on investing platforms and elsewhere that can educate young investors. According to the ASX, 41 per cent of young investors prefer to access financial advice via YouTube, in addition to the many podcasts, newsletters and TikTok videos that offer education and advice. A podcast called She’s on the Money convinced Emily Martin, 23, to invest for the first time. “There is a big Facebook group community behind the podcast as well as a book,” she says. “So it [felt] pretty trustworthy.” She now invests $30 a week into a Spaceship portfolio while saving for a home deposit with her partner.

A home is one thing, superannuation another. It limits the new apps because Australians already have retirement savings invested in the market, and provides a $3.5 trillion opportunity to be tapped. Spaceship, which has faced hard questions and a fine for misleading claims in the past, is one player in the market. Superhero also has a superannuation product as do Stake and Raiz.

“In 2020, we saw the rise of the retail investor,” says Superhero’s Winters. “So we built a trading platform within superannuation, so you could choose what your super is invested in.” For users many decades away from retirement, the appeal of trading with a large pool of generally inaccessible money is obvious. Whether they are thinking of the risks of doing it themselves, rather than entrusting it to the highly skilled money managers sitting atop multi-billion dollar industry superannuation funds, is less clear.

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