Discount brokers: India
This is a collection of articles archived for the excellence of their content.
The expansion of Discount brokers’ profits in India, 2014-18
Discount brokers’ success
Discount brokers expand biz on data, Aadhaar KYC
Top 6 Firms’ Customer Base Up 24X In 4 Yrs
Discount brokers — the low-cost, no-frills broking houses — have seen a phenomenal growth in the last two years on the back of Aadhaar-enabled e-KYC process, launch of high-speed data services at low cost by Reliance Jio, and the five-year old bull market.
The growth has been so strong that, as of fiscal 2018-end, Zerodha — an eight-year-old tech-driven startup in the broking space — became the thirdlargest in India in terms of number of customers, behind ICICI Securities and HDFC Securities. It ranked 16th on the list two years ago, and 34th five years ago. In the league table, it’s ahead of D-Street’s old horses like Sharekhan, Axis Securities, Kotak Securities, Angel Broking and Motilal Oswal Securities.
Zerodha and peers like Upstox, Samco and SAS Online have seen their client base more than triple in the last two years. Consider this: From nearly 62,000 clients at the end of fiscal 2015-16 (FY16), Zerodha now has about 5.40 lakh clients. Upstox (formerly RKSV), Zerodha’s closest competitor in the discount broking space, now has nearly 44,000 customers from about 10,000 two years ago.
A similar growth trend was seen in customer registration with other discount brokers, data from NSE and other sources showed. The total number of customers of the top six discount brokers together is up more than 24 times, with Zerodha’s number growing nearly 30 times since FY14.
Along with customer numbers, the share of discount brokers in total turnover in the retail broking space has also increased. From a market share of less than 0.5% about five years ago, industry estimates say the top six discount brokers together now have about 12% share, with Zerodha’s 8% giving it an edge. Data shows that these tech-driven brokers are now giving the large, full-service brokerages a run for their money in the retail broking space.
On the one hand, Aadhaar has helped to cut down the time taken for brokers to complete the Know Your Customer (KYC) process from a few days to just a few minutes. On the other, the launch of Reliance Jio in September 2016, which led to cutthroat competition in the telecom space, also helped these low-cost brokers to tap pricesensitive customers from tier-2 and -3 cities and towns.
“Innovation-focused broking firms rode the Aadhaar technology and Reliance Jio’s wide reach across the country to grow at a strong pace as more and more people got access to data connection on their smartphones, which are also equipped with the latest apps,” said Ravi Kumar, co-founder of Upstox, which — among other investors — is backed by Ratan Tata. The availability of lowcost, high-speed data offerings that helped the government’s Digital India initiative is, at least in the broking space, also helping bridge the tech divide. Places like Bhopal in MP, Salem in Tamil Nadu, Konark in Odisha, Mysuru in Karnataka and Chitoor in Andhra Pradesh have shown growth in customer numbers that’s much higher than corresponding pan-India numbers. Venu Madhav of Zerodha said, “We have always focused on retail customers and given them the best of technology, unlike some of the bigger firms who focus on wealth management and HNIs.” For instance, some of its clients, with approval from the exchanges, also have the option of creating their own versions of their trading APIs (a type of individualised mini-apps).
Another factor that attracts customers to discount brokers is the brokerage structure that does not differentiate between large and small traders. The democracy that discount brokers bring to the table — their technology, mapping tools, interactive charts and ability to tweak algorithms for rule-based trading for all clients without any differentiation between big and small traders — is also a reason for strong growth, said Chennai-based broker V Nagappan.