Discount brokers scooping up more clients amid volatile market environment

Analysts say 'Jio'fication of broking is gaining pace as customers are lured by low-cost options

The 'Jio'fication of retail broking is gaining ground, with discount brokers scooping up more clients than several of their traditional full-service counterparts amid a volatile market environment. This underscores an increasing acceptance of the former among 20- and 30-something investors. 

In the last financial year, discount brokers accounted for over 60 per cent of industry additions. Last month, discount brokers Upstox (also known as RKSV Securities), Zerodha and 5Paisa cornered the highest number of new clients of the broking industry. 

Upstox and 5Paisa are now neck and neck at number 12 and 14 in terms of active clients, respectively, ahead of full-service brokers such as Edelweiss, Reliance and Religare. They added over 25,000 and 36,000 clients in June, respectively, shows the data from SBICap Securities. 

Zerodha, after becoming the market leader last December, has consolidated its gains with an addition of 20,000 new clients in June, and has a market share of 11 per cent. 

"About 70 per cent of our monthly client additions are first-time investors, mostly in their 20s and early 30s. The product experience and low transaction cost appeals to them, compared to what is offered by traditional brokers," said Nithin Kamath, founder, Zerodha. The broker's trading app Kite facilitates 2-3 million trades a day and is now among the largest retail broking apps in the world, said Kamath.

Discount brokers offer web-based platforms, without research and advice. Clients are charged a flat fee for each trade, irrespective of its value. For instance, Zerodha charges a flat Rs 20 per trade and zero fees for delivery based trades. 5Paisa charges Rs 10 per trade. "As equity participation increases, we will see more investors moving towards the discount brokerages," said Ravi Kumar, co-founder, Upstox. "More than the cost, what people care about is the stability of the platform, product experience and customer service. These are the key differentiating factors in our business."  

Analysts expect the current trend of a shift in the broking client base towards discount brokers to continue, thanks to the advances in technology and the growth in cost-sensitive younger clients. "The technological and digital advances have reduced the need for a human face-based relationship and the increased ease of payment and fund transfers has reduced the advantage of bank-driven brokerages with 3-in-1 accounts," observed a note by SBICap Securities. 

Such has been the acceptance of discount brokers that full-service brokers are now offering discounted brokerages to their clients. Axis Securities, for instance, offers trading across segments at Rs 20 per trade, provided a minimum balance of Rs 75,000 is maintained in the savings account. Non-Axis bank customers can get low broking rates for a fee of Rs 250 per month. 

Angel Broking levies flat fees of Rs 15 or Rs 30 per trade, depending on whether the order size is greater than Rs 50,000 or not. Sharekhan allows customers to pay a one-time joining fee upon and enjoy zero brokerage in the discounting period and low rates after that. 

Full-service brokers typically charge fees as a percentage of the turnover. For the cash market, fees vary between 10 paise and 30 paise for delivery-based trades, and below 5 paise for intra-day trades. It is a capital-intensive business that requires high-quality manpower, while discount broking is execution-driven, low-cost, and internet-based. 

The marriage of the two may signify a seismic shift in the way brokers operate in the country. 

"Three out of top 10 brokers by active customers - Zerodha, Angel Broking and Axis Securities -have started offering broking at discounted charges… It seems that the industry is moving the discount broking way," said a note by HDFC Securities.

The entry of Paytm in the broking business may fuel more competition, leading to additional pressure on broking yields and making customer retention harder, added the brokerage, terming it the 'Jio'fication of retail broking.