‘Broking industry is no longer about pricing’

In less than a decade, Zerodha has managed to become the No. 1 player in terms of the number of active clients in the broking space. In an interview with NITHIN KAMATH, founder and chief executive officer of the tech start-up — which disrupted the industry with zero-brokerage plans — says the industry has moved away from pricing to product offerings. Edited excerpts:

How did Zerodha manage to crack the broking industry?

We got lucky. We didn’t get enough competition along the way. We think of us as a tec h business; this whole b ro k i n g thing is incidental. An apple-to-apple comparison would be a tech company doing broking. Demonetisation also p rov i d e d an impetus. Earlier, on-boarding a customer was t h e bigg es t challenge. This Aadhaar-based know-yourcustomer made it really easy. That’s the only reason we came on the scene.

Est a b l i s h e d players leveraged t h e i r physical presence. A digital-o n ly player would never have been able to match that. Once that thing was broken, it was easy for someone like us to d i s r u p t t h e place.

Zerodha is criticised for frequent outages.

The issue is blown out of p ro po rt i o n . In the last 14 months, we have had three i n c i d e n t s . Goo g l e, Facebook or Amazon would have had m o re incidents. I don’t think a ny tech business is insulated from this. But the problem with our business is when we are down, we are causing a n o t i o n a l profit or a loss. Also, o u r client base is young and social media savvy and hence, these things get amplified.

Zerodha has the maximum number of active clients. What is your revenue market share?

The industry size is between ~8,000 crore and ~10,000 crore. Exchange transaction charges get added to the revenues. But if you take out that, last year we did around ~700 crore, which included proprietary trading (prop). This year, we will do around ~800 crore of pure retail broking, excluding prop.

Now that you have established yourself, is there a temptation to raise charges?

We are thinking of premium o f f e r i n g s and certain new products. We are working hard at the backend. A lot of people think the broking b u s i n es s is about pricing. It

has stopped being about p r i c i n g long ago. It is all about products. Product development takes time. We h ave t a k e n four-five yea r s . Most new players used vendor-based products.

We have only a few stock market participants.

The real question is how many of the 1.3 billion people make money. People who trade will be ones who make money. The entire audience for the industry is not more than 50 million. That is a stretch. So the participants are around 7 million, which is 14 per cent of the addressable market. I’d say that’s not so bad.

Any plans to go public?

As a business, we don’t require money. But people in our office have stock options. We need to give them liquidity at some point in time. Our fortunes are closely tied to the stock markets. We are like a high-beta stock. With so much volatility in our business, raising money from the public could be a challenge. We need to build other verticals that will take away some of this volatility. We have a non-banking financial company licence. We are starting loanagainst-securities and margin funding.