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How do you do fellow kids?: Regulators aim to boost bona fides with young investors

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Greetings from London, readers!

I’m the FT’s new(ish) banking and fintech reporter, a role in which I’ll be covering topics ranging from “buy now, pay later” and the future of cash to stablecoins and green fintech. As Imani said in last week’s newsletter, I’m delighted to be taking turns co-editing FintechFT with her.

In this week’s edition, asset management reporter Joshua Oliver has an excellent dive into how financial regulators are trying to get down with the kids, while I spoke to Zilch, which saw its valuation quadruple last week to $2bn as it plans a US roll out. Thanks for reading.

If you want to get in touch, my inbox is very open to all tips, comments, concerns, suggestions, recipes and stray thoughts. Feel free to drop me an email at sid.v.

Why does SEC chair Gary Gensler have a YouTube show?

Regulators on both sides of the Atlantic have stepped up their efforts to communicate on the social media channels that young investors trawl for financial tips.

The UK’s Financial Conduct Authority last month launched an £11m online marketing campaign designed to prompt wayward youths to take a deep breath before putting money behind the likes of Squid coin or leveraged bets on GameStop.

The first wave of FCA content includes online videos and a TikTok advert, with graphics eerily similar to Super Mario Bros on the Game Boy Colour (perhaps the last time some FCA officials played a video game?).

© UK Financial Conduct Authority

It’s easy to crack jokes about the regulator’s somewhat cringey bid for social media stardom, but the ad campaign forms part of a consequential strategy for retail investing. The watchdog would like to see around 1.7m more people invest their money by 2025. It recognises that easy to use investment platforms and robo-advisers make investing more accessible.

But the regulator is also worried that the “lack of friction” on user-friendly apps makes it too easy for first time investors to make the wrong choices. Its research suggests millions of UK investors have increased their exposure to high-risk investments during the pandemic.

“I think Fomo is very real in this context,” said Sarah Pritchard, FCA’s executive director of markets

The FCA’s research has zeroed in on a cohort of excessive risk takers, who skew younger than most investors. Three-quarters of those under 40 who invested in risky products like crypto and forex said they were driven by competition with others, the FCA found. Fifty-eight per cent reported being influenced by social media.

“This is a target audience that we are concerned that we are not reaching,” said Pritchard. “We are not communicating via the mechanism that they use and that influences them.”

That is set to change as the regulator follows in the footsteps of several start-ups that have leaned further into social media and influencer marketing this year, targeting the next generation of savers.

A similar logic appears to be at work inside the US Securities and Exchange Commission, where chair Gary Gensler has started a YouTube show.

“Office Hours with Gary Gensler” has published eight episodes since late July, and features the top US financial regulator explaining topics like how the SEC deals with cryptocurrency or how machine learning is used in trading apps — in three minutes or less.

The SEC said Gensler is “working to speak directly to everyday investors on topics that matter to them”.

For insight into how regulators’ target audience sees the social media offensive, FintechFT spoke to influencers who have built large online followings talking about personal finance and investing.

The FCA’s stab at TikTok relevance got a passing grade from these content creators. Mark Ross, a 23-year old TikToker from Glasgow with 119,500 followers, said the FCA had “actually made a pretty good attempt”, while influencer Elvire Mattu from east London called it “short, snappy and somewhat engaging”.

The reviews are less kind for Gensler. Ross dubbed the SEC chair “a monotone, middle-aged man spouting finance jargon.”

“It lacks charisma,” Ross said of Gensler’s YouTube presence.

Preston Seo, a US influencer whose Legacy Investing Show boasts 10,000 YouTube subscribers compared to the SEC’s 6,630, agreed that the videos are “dry” but felt the regulator struck the right tone, letting viewers know the SEC is on their side.

Matt Morgan, a 22-year old with half a million TikTok followers, was more pointed. “Nobody knows who ‘Gary Gensler’ is, so why is his name mentioned in the title?” he asked.

Harsh, perhaps, but a salient reminder of the gulf regulators — and financial brands — have to bridge if they want to resonate with the new generation of retail investors. (Joshua Oliver)

Quick Fire Q&A

Every week we ask a fast-growing fintech to introduce themselves and explain what makes them stand out in a crowded industry. Our conversation, lightly edited, appears below.

I recently spoke to Philip Belamant, chief executive and founder of Zilch, a London-based BNPL firm which announced a double unicorn valuation of $2bn last week after closing its Series C fundraising round of roughly $110m, led by Ventura Capital and Gauss Ventures. Other existing investors include Goldman Sachs, with a total of $400m. Belamant, who founded the company with his father Serge and Sean O’Connor, built on his experience developing a similar product in Africa.

Can you talk about the fundraising round and the valuation?
With the close of this oversubscribed round, we have officially entered the coveted unicorn club. What we’re most excited about is the speed at which we’ve done that. We’ve reached it in about 14 months, which is the fastest we’ve seen out of Europe to date. We’ve seen a huge amount of growth — it’s been all hands on deck, growing from 25 to 210 staff members which has been pretty phenomenal.

What trends have you seen in the BNPL sector?
While the biggest core customer base is Gen Z, we’re actually starting to see 35- to 45-year-olds growing as a population. There’s this strong belief that BNPL is for discretionary purposes — such as buying something from JD Sports or Boohoo. In terms of usage, what’s really interesting is that we’re also starting to see consumers using Zilch for non-discretionary spending such as groceries. If we look at open banking data, we can see people go and shop maybe twice a week. Customers can buy a bigger load and pay over time, showing the clear benefit of cash flow management.

How does the UK BNPL’s market stack up globally?
Right now, we’re around the third largest ecommerce market in the world. The US is arguably around the first — it’s really between them and China. In the UK, BNPL penetration right now is around 4 to 5 per cent, compared to 1.7 per cent in the US. So we’re one of the leading markets today for penetration, and certainly the adoption and the growth is one of the fastest we’ve seen worldwide.

Given the government opened its consultation on regulating BNPL last month, are you concerned about the impact of regulation for the business?
With BNPL, there’s so many incarnations of this thing you’ve got to consider everything from catalogue purchasing to something like Zilch. It’s a massive task to get this right. If you do one thing here, you may affect a bunch of businesses somewhere else. We’re not one of those businesses that welcome regulation because they told us — we just think it’s a good thing for the consumer. We are one of the very few regulated BNPL providers in the UK today. But we don’t want to see an overregulation and a return to higher cost credit. The regulators have to ask ‘how do we make this proportionate to BNPL?’.

Fintech fascination

Twitter crashes the crypto party Tess Rinearson will lead Twitter’s newly launched crypto team, which will explore decentralised apps. Chief executive Jack Dorsey is a longstanding crypto advocate (his Twitter bio simply reads “#bitcoin”), but the push reflects a broader buzz around hopes for a “web3” ecosystem. The movement promises that a world of decentralised apps on public blockchains that would reward users for participating with tokens, while ensuring that data is not collected by a single party.

SEC says no to bitcoin ETF In less bullish news for cryptocurrencies, the Securities and Exchange Commission has rejected an attempt to list a bitcoin-backed exchange traded fund on Wall Street. The regulator cited concerns including possible wash trading, potential price manipulation and the risk of “manipulative activity” involving the controversial stablecoin Tether.

China crypto crackdown hits Huobi The co-founder of Huobi Global, one of the world’s largest cryptocurrency exchanges, told the FT that China’s ban will slash almost a third of its revenues. Du Jun said that Beijing’s increasingly draconian measures on digital assets had led to Huobi accelerating its efforts to build up its presence in overseas markets.

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