Digital brokers corner over half of market
Top 5 new-age brokerages now have 53% of active clients
The top five digital-only brokers have cornered more than half of the industry’s active client base, signifying a seismic shift in the pecking order among domestic brokerages. Zerodha, Upstox, Angel One (formerly Angel Broking), 5paisa, and Groww had a market share of over 53 per cent until the end of July, with a cumulative tally of 12.6 million active clients. This figure stood at 17 per cent at the end of FY19. The share of the top five traditional brokers whittled to 22 per cent, from 33 per cent during the same period.
The Covid-19 pandemic was the tipping point for digital brokers, with nearly 70 per cent of the current client base being added after the outbreak.
Twenty- and thirty-something investors with a do-it-yourself mindset have signed up in droves because of the simplicity of the online trading platforms, flat-fee structures, and quicker account opening process.
“The increase in the number of active traders has largely come from tier-2 and tier-3 cities/towns, with a vast majority being first-time investors. The trend has only intensified in the pandemic period, with more individuals and households looking for additional sources of income beyond traditional instruments,” said Ravi Kumar, cofounder and CEO of Upstox, which counts Ratan Tata and private equity firm Tiger Global among its investors.
“We have grown 180 per cent in terms of customer acquisition after the pandemic. This financial year, we expect to beat that number,” said Prakarsh Gagdani, CEO and executive director, 5paisa.com, which has added 6,55,792 active customers over the past 16 months.
A few years ago, brokers, such as Zerodha, had disrupted the industry with their discounting model, which remains the mainstay of digital brokers to this day. Most digital brokers charge a flat ~20 for intraday and F&O trades. Traditional brokers, too, have slashed their charges since and pricing is no longer a key differentiator. “The distinction between discount and traditional brokers has reduced substantially, and it’s all about the ‘best product’ experience,” said Nithin Kamath, founder and chief executive of Zerodha, which recently got approval from the market regulator to set up an asset management company.
The broker has introduced features, such as equity SIPS, GTT (good till triggered) orders, basket orders, and stock gifting in the past two years and revamped its mobile app Kite at least twice. This year, it launched ‘Nudge’ -- a stream of alerts that help clients better the odds of winning when trading. The broker plans to offer NPS on its platform and foray into the advisory space soon.
Others have expanded their offerings, too: 5paisa and Groww offer US stocks, digital gold, and mutual funds on their platforms. Angel One has integrated thirdparty products, such as Streak, smallcase, Sensibull, and Vested on its platform. The retail broker, which had re-engineered its business model and shuttered its physical branches in 2019, plans to foray into the asset management space with passive products modelled on artificial intelligence and machine learning. Despite breakneck growth, not all brokers are consistently churning out a profit. 5paisa reported a net profit of ~14.7 crore for FY21, after posting a net loss of ~8.1 crore in the previous financial year.