Discount model the new mantra for broking firms to gain market share

Kotak Securities (KSL), a full-service broker, on Thursday announced the launch of its Trade-Free Plan, with zero brokerage on intraday trades and Rs 20 per order for all other F&O trades

The quest to gain market share and acquire more customers is pushing full-service brokers to slash brokerage and adopt a discount broking model.

Kotak Securities (KSL), a full-service broker, on Thursday announced the launch of its Trade-Free Plan, with zero brokerage on intraday trades and Rs 20 per order for all other futures and options (F&O) trades across equity, commodity, and currency segments. The offering will help KSL improve its market share in the F&O segment.

KSL is not alone. 

In September, another full-service broker Sharekhan had ventured into the discount broking space by launching a platform called Espresso through a separate company. Espresso charges Rs 20 per order only when clients make a profit through intraday trades across segments, such as equity, F&O, commodity, and currency, while there is no brokerage for delivery-based transactions. A full-service broker provides a large variety of services, including research and advice. Discount brokers offer web-based platforms, without research and advice.

According to B Gopkumar, managing director and chief executive officer (CEO) at Axis Securities, it may be difficult for full-service brokers to do a complete U-turn and adopt a discount broking model.

“A large set of customers requires handholding and is dependent on research and advisory, which the discount model does not offer. Having said that, there is a market for pricing innovation, especially on the F&O side, where customers tend to lose money. A hybrid model would work best,” said Gopkumar. Disc­ount brokers have scaled up rapidly in the past few years, wresting market share from their full-service peers. Three of the top 10 bro­k­ers with the most active clie­n­­ts — Zerodha, RKSV, and 5pa­isa Capital — are discount brokers. 

Angel Broking — a retail broker now listed on the exchanges — revamped its brokerage plans twice in 2019 to compete with discount brokers. It now offers a flat rate brokerage plan Angel iTrade Prime that offers free equity delivery and charges Rs 20 per trade for intraday, F&O, currency, and commodity segments. Vinay Agrawal, CEO, Angel Broking, said with discount brokers cornering significant market share, full-service brokers had no choice but to follow suit or make their pricing attractive.

Industry observers, how­e­ver, believe that building credibility, scale, and differentiation are challenges when it comes to the discount model (considering the similar price points offered by several brok­ers). Product, platform, and ease of execution matter most. “It’s not just about pricing. You have to create a digital ecosystem with the right products and user interface for clients, wh­i­c­h can take time,” said Agrawal. 

Angel Broking — a retail stock broking house — re-engineered its business model for the digital era. It shuttered its branches a year ago in keeping with its digital-only strategy. The increase in the share of mo­bile and internet for brokers has made it easier to acquire cu­s­tomers digitally for disco­u­­nt brokers. Trades execu­t­ed through mobile phones acc­ou­nt for about a fourth of cash ma­rket transactions on exchanges.