Keeping App-Based Brokerages Secure
AML

Keeping App-Based Brokerages Secure

Millennials aren’t investing as much as older generations — but engaging with them on their smartphones, which they’re always on, could change that. Providing that mobile experience, however, requires navigating a strict KYC and security minefield, says StockTwits CEO Ian Rosen. In this month’s AML/KYC Tracker, Rosen explains what the company has learned from securing two million social media users, and how it plans to safeguard its soon-to-be-released trading app.

Fifty-four percent of Americans took part in the stock market between 2009 and 2017, according to Gallup research, and held individually or jointly owned stocks, funds or self-directed 401Ks or IRAs during that time. Younger consumers raised during the Great Recession and burdened by hefty student debts appear to be much less able or likely to risk their current funds on the chance of future gains, however. Gallup found stock market participation was at 62 percent for those between the ages of 30 and 49, but that number gets cut in half for the group aged 18 to 29, coming in at 31 percent.

To boost millennial consumers’ investment activities, some companies are working to do so with smartphone apps and mobile services. Those looking to provide such offerings must implement meticulous security and regulatory compliance efforts, however, or they’re going to end up put- ting themselves – and their customers – at serious risk.

Investor- and trader-focused social network StockTwits is currently trialing a new trading solution dubbed Trade App, which will launch to the public in September, and taking a careful approach to security and compliance to avoid hurting its finances, reputation or users’ security.

“We know this is the kind of thing where one problem can kill us,” CEO Ian Rosen said. In a recent interview with PYMNTS, he explained how StockTwits protects its social media platform, what it takes to safeguard its new trading app and how lessons from the former inform decisions for the latter.

Securing a Social Network 

StockTwits’ social platform encourages users to discuss stocks, and much of the company’s work includes ensuring the information posted is presented honestly. “Pump and dump” schemes – which see users making false claims about owned stocks to drive values up before sales – are a particularly common challenge it must combat. StockTwits utilizes a combination of its software, users and employees to prevent this type of fraud.

Software solutions detect and alert the company to suspicious activities like users attempting to open multiple accounts, as a single user with many fake personas could promote specific messages and dishonestly drive discussions. Automated software systems can also determine when IP addresses associated with fraudulent activities attempt to create new logins and subsequently block those users. These same software moderation tools are also helpful for StockTwits’ Trade App.

The company’s legitimate user base is also a powerful tool, Rosen said, because it self-moderates, as users are able to report bad actors to administrators. Staff members also monitor news feeds for misbehavior and respond to users’ complaints.

“We kick tens of thousands of accounts [off our platform] every month to keep the conversation healthy,” he explained.

Although its social network is secure, Rosen explained that StockTwits could not legally offer both trading and stock-focused social media on the same platform. Many aspects of the stock trading service had to be kept separate, such as its technological infrastructure, so the company decided it would be best to implement trading features through an app managed by a subsidiary.

Partnership Power and the Beaten Path

StockTwits must follow KYC and other compliance requirements when onboarding new users for both Trade App and its social media platform. A third-party identity verification company assists with its KYC efforts, while an established clearing firm handles other regulatory responsibilities. Rosen believes it pays to follow the same security models that established companies have successfully used.

“Our broker dealer and our products are built very similarly and closely to [the products of] other companies that have been down this road before,” he said. “In the tech world, there’s a lot of ‘move fast and break things,’ and frankly, that’s a terrible attitude to have when dealing with financial services. Not just because regulators will come down on you hard, but because it’s irresponsible in the face of an important part of people’s lives: their finances.”

Some consumers may be willing to take their chances on interesting stocks, but nobody wants to gamble on security. Mobile conveniences may help companies appeal to younger generations, but are unlikely to sway customers unless they come with robust protections.

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