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Traditional online brokerages dominate the list of brokers with the highest number of active clients.
ICICI Securities, HDFC Securities and Sharekhan are the top three brokers, with 560,000, 340,000 and 330,000 customers, respectively, data collated from the National Stock Exchange website show.
ICICI Securities and HDFC Securities have predominantly retail clients sourced from their parent banks, say experts. Sharekhan, which did not have a bank backing until now, was recently bought by French bank BNP Paribas. The other brokers in the top 10 list — IIFL, Kotak Securities, Karvy, Angel Broking, Motilal Oswal, Geojit BNP Paribas Financial Services and Religare Securities — have traditionally been offline brokers and have a smaller online presence.
According to observers, online brokers with a bank backing typically have a large base of salary account clients with them, which they tap into. “We cater to all segments of clients, be that investor, trader, beginner or experienced. We don’t have any criteria of minimum funding cheque or advance brokerage. There is no entry barrier for customers,” said Vishal Gulechha, head-equity at ICICI Securities.
While online brokers have been successful in building a sizable client base, experts believe it is crucial to have a mix of both online and offline clients. “The profiles of both these are different. While offline clients are typically large ticket-size customers who track the market closely and want a physical interface with the broker, online clients are predominantly retail investors who trade on their own,” said Kamlesh Rao, chief executive officer, Kotak Securities.
Traditional online brokers have been able to charge higher brokerage than most offline ones. For example, the charge for online delivery-based trades could be 30-50 basis points, compared with 15-25 bps charged by a typical offline broker. Offline customers are typically traders or affluent individuals who do high-volume business. “These customers are price-sensitive, tend to bargain hard and drive down costs,” said a broker on condition of anonymity.
According to Gulechha, brokerage is only one element of customer’s decision making. “The transparency provided by the broker, customers’ control on investments, funds, tracking tools, value added and security features are also important for customers,” he says. On the flip side, the average ticket size of online customers is typically a third that of offline ones, say experts. So, if an offline client trades for Rs 2 lakh, the online customer will put in Rs 50,000. “While the online brokers can charge higher, the absolute value of brokerage contribution could be much lower,” said Rao.
Online clients are ‘stickier’ as well. Online investors are much more inclined to buy stocks, even in a bad market. Whereas, offline customers will stay away if the broker doesn’t give the right call.
“When a client is trading on his own, he goes with his gut feel. Offline customers rely much more on brokers’ views,” said Prasanth Prabhakaran, head, retail broking, IIFL.
Despite the push, online penetration hasn’t improved substantially in the past few years. Experts say online contributes 18-20 per cent to overall market volumes and mobiles another 1.5-2 per cent.
“Even for the online customers, KYC (Know Your Customer checks) and other account opening documentation have to be done offline. Only once this process is taken online will penetration improve,” said Rao. Adds Prabhakaran: “Online broking will pick up only if there’s a secular bull run and investors get the confidence to invest on their own.”
