KAORU ARAI

Prestige (Malaysia) - - Contents - PHO­TOG­RA­PHY ANDREW LOH

Steer­ing Rakuten

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.

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