Trade in the brokerage industry
What’s the participation rate of retail investors on Bursa Malaysia? Around 20 percent. Late last year, Bursa Malaysia Chief Executive Officer Datuk Seri Tajuddin Atan said only 4 percent out of the 853 respondents in a study had chosen to invest in shares, while the rest preferred less traditional investments.
How many investors in this 20 percent were in their early 20s?
Based on data obtained from Bursa Malaysia, the stock exchange operator, the total number of active Central Depository System (CDS) accounts ended December 2016 was 1,071,800. CDS holders between the ages of 18 and 25 comprised a measly 27,142. It may not be such a surprise given the range of alternative investments available to the techsavvy young generation.
According to the Securities Commission (SC), Malaysia’s equity crowdfunding (ECF) platform had raised RM32.74 million since its inception in 2015, till the end of 2017. ECF offers individuals the opportunity to invest in a company in return for a direct equity stake in that company. Companies that have dabbled in ECF to raise capital include Babydash – an online store which focuses on selling baby daily necessities. Currently, there are seven ECF operators approved by the SC: Ata Plus, Crowdo Malaysia, Eureeca SEA, FBM Crowdtech, Funnel Technologies, Pitch Platforms and Propellar Crowdplus.
On top of ECF, there is also peer-to-peer (P2P) lending, which allows businesses (issuers) to raise funds from investors by way of borrowing through an online platform (P2P operator). In return, investors will receive monthly repayments (principal and returns) for the duration of the investment note. There are six P2P operators approved by the SC: B2B Finpal, Ethis Kapital, FBM Crowdtech, Modalku Ventures, Peoplender and QuicKash Malaysia. In 2017, P2P financing successfully raised RM37.2 million through 628 business deals.
“We are also pleased to note that 70 percent of issuers in the alternative marketbased financing are women, and 52 percent of participating investors are in the younger demographic with 52 percent of them being younger than 35 years old,” SC Chairman Tan Sri Ranjit Ajit Singh was quoted as saying in the New Straits Times.
The low number of active young investors in Bursa Malaysia doesn’t give a good reading, nonetheless, it represents a relatively untapped segment. Or could it be underserved?
Share investing can be as elementary as buy low, sell high. It can also open up a myriad of rabbit holes. Which shares are good picks? What is a P/E ratio? Warren Buffett’s rule no. 1 is to never lose money. His rule no. 2 is to not forget rule no. 1. But convincing oneself to cut losses is as agonising a decision to make as opting to self-amputate in a life-threatening situation.
One particular fintech company trying to tap into this segment is Rakuten Trade – a digital
A new entrant in the age-old
brokerage industry, justin ng speaks to Rakuten Trade Managing Director Kaoru Arai and uncovers how the company
is democratising share trading
brokerage that recently celebrated its oneyear anniversary. The joint-venture company between Kenanga Investment Bank and Japanbased Rakuten Securities was established on 19 May 2017. It leverages on Kenanga’s familiarity with the local bourse and Rakuten’s knack for technology.
Rakuten Trade Managing Director Kaoru Arai has full confidence in their product offerings and potential. “Our target market is 100 percent retail investors. Our research team focuses on small- to mid-cap stocks,” he elaborates. “Every Monday, we issue simplified research information – just one page. But with support from Kenanga Investment Bank, we also provide reports on blue chips.”
His faith is certainly justified. Rakuten Trade was named Fintech Company of the Year at the Malaysia Fintech Awards 2018. In its maiden year of operation, it signed up more than 13,000 accounts. Not bad for a brokerage that occupies only half a floor at Kenanga Tower and has zilch front office.
Despite that, wooing the young generation hasn’t been a monumental task. Arai explains that all it takes is just a little persuasion, monthly roadshows and seminars and a few taps away. Everything is done digitally through the iSpeed.my smartphone app. This is where the divergence between Rakuten Trade and offerings by other big names begins.
Arai says iSpeed.my has been enhanced by Rakuten Securities in Tokyo, before adding that currently in Malaysia, there are two endto -end major system vendors providing these trading platforms, largely resulting in the lack of differentiation between them
While Maybank Trade immediately pops up with a screen prompting users to log in, iSpeed. my presents a long list of market indices and currency movements, which users can add or delete based on their preferences. Headlines of market news are provided by Reuters. It simply means anyone can use the app without actually being a client of Rakuten Trade.
To open an account with Rakuten Trade, just click on the orange button. “For most of the brokerage firms, the client has to visit the branch office for the filing process; whereas for us, the client only needs to visit our website or pick up the smartphone and fill in the information. The approval takes only two hours,” Arai proclaims, citing its simple and transparent process. “You can submit documents including a copy of your NRIC and payslips.” The process takes three steps, consisting of filling up basic information, personal information and financial profiling. Identities are verified through debit or credit cards.
To trade, a transaction above RM100,000 is subject to a flat rate of RM100 in brokerage fee. In comparison, Maybank levies 0.21 percent of the transaction value. Hence a transaction of RM100,001 would cost RM210 in brokerage fee. On the other end of the spectrum, since the majority of retail investors trade in value much lower than RM100,000, the brokerage fee at Rakuten Trade starts at RM7, which is the lowest among its competitors.
Arai attributes the reason for their l ow fees to their minimum fixed costs. “We don’t have any remisiers, salespersons and branch offices,” he says savings are passed down to clients. “Although our margins are very thin, our business model r evolves around volume.”
For day traders with a higher risk appetite, Rakuten Trade offers a maximum of five times for contra trading for the amount of deposit held i n the cash account. That is significantly higher than those of its competitors. Maybank Investment places a cap at a maxim um of 2.5 times.
This is not an endorsement of Rakuten Trade, however. It remains inadequate for sophisticated investors with a highly diversified portfolio that spans local and overseas exchanges. Maybank Investment, for example, allows for access to 16 markets located in Singapore, Hong Kong, Australia, the US, the UK, Thailand, Japan, Indonesia, Vietnam, the Philippines, Canada, South Korea, Sri Lanka, Taiwan, Shanghai and Shenzhen.
Nevertheless, Rakuten Trade is working hard to expand its offerings. “Contra trading is a key milestone for us,” Arai says, pointing out that it is the second product launched after the cash account.
It is important to note that while Rakuten Trade and its many competitors operate in the same brokerage sphere, it has carved out a niche by targeting a market segment that had been overlooked. Hence it has adopted a multipronged approach that extends beyond undercutting its competitors.
It was approximately one year ago, Rakuten Trade unveiled a loyalty system to reward investors, whereby points are earned with each transaction. The accumulation of points can be redeemed for flights through Air Asia Big, petrol vouchers through Bonuslink or even a cup of iced macchiato through B Infinite.
To a question of investors’ background on Rakuten Trade, Arai discloses nearly 80 percent of them are males, below 40 years old and primarily live in developed urban centres of the Klang Valley, Johor and Penang. The most profound of all, over 40 percent of them had never traded previously. This means Rakuten Trade has acquired fresh retail investors.
Arai feels that the young generation is interested in share trading but the entry barrier is very high, hence deterring them from greater participation. However, he states that Rakuten Trade welcomes anyone, even if they trade in small amounts like RM100, RM200. To him, it is about drawing in new clients, instilling confidence in its product and growing together.
By December 2017, the total number of active CDS accounts dropped to 1,057,181. Look beyond the surface though, you will find a whole different story. The number of CDS holders between the ages of 18 and 25 actually rose 50 percent to 40,962 – proof positive that Rakuten Trade’s strategy is effective. There is more room to grow yet.