Discount brokerage 5paisa.com’s ad campaign broker hatao, brokerage bachao (remove the broker, save on brokerage) has come under fire from the broking community.
The Association of National Exchanges Members of India (Anmi) has shot a letter to exchanges stating the ad is incorrect “legally and factually”, and is promoting the misconception that brokers are not needed to carry out trades.
The industry body added that the ad is propagating incorrect legal notion and promising various benefits to investors that are in violation of Sebi (Stock Brokers & Sub Brokers) Regulations, 1992.
Anmi has asked 5paisa.com’s promoter IIFL to withdraw the advertisement and issue a clarification.
5Paisa.com, an online discount brokerage, has been aggressively keeping its fee flat at Rs 10 per trade. The move has miffed small and medium-sized offline brokerages as 5paisa as well as other discount brokers have been eating into their market share.
“The whole intention of the campaign is to encourage investors to move from offline brokers to online broking, where they can save on costs. We have put caveats with the ad. We have also replied to Anmi that it has nothing against the broking community,” said Prakash Gagdani, CEO of 5paisa Capital.
5paisa has a 2 per cent market share in the cash segment. It has clocked average daily turnover of Rs 150 billion in both the cash and derivatives segments. People in the know say 5Paisa.com isn’t withdrawing its ad campaign despite the outcry. Industry players say the ad campaign is the latest among multiple disputes between traditional and discount brokerages. Domestic equity brokerage is a Rs 140-billion industry. Full service brokerages, which offer a mix of online and offline services, account for 90 per cent of the revenue share.
Typically, high-ticket clients like to deal with offline brokerages as they prefer the physical interface. This has helped full service players maintain their market leadership.
However, discount broking —a relatively new trend — has been rapidly eating into revenues of full service brokerages. Discount broking firm Zerodha, set up only in 2010, has emerged as the number two brokerage with respect to the number of active clients. Others like 5Paisa have also shown sharp growth in recent years.
A discount broker offers services at a low and flat fee, irrespective of the size of the order. Most discount brokers have a no-frills business model. Typically, they don’t provide additional services such as research reports and relationship managers. There are more than a dozen discount brokers in India.
In the US, over two-thirds of retail trades are done through discount brokers.
Small brokers concede that competitive pricing by online brokers has eaten into their market share, but the wealth of experience will help them survive in the long run.
“The only advantage we have over them is the personal touch. These online brokers are faceless organisations. Most investors prefer small brokers with whom they share a personal rapport. The online players just acquire customers without any hand-holding,” said a Mumbai-based traditional broker, requesting anonymity.