Retail broking revenues could more than double in 5 years: Bain & Company

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Domestic retail brokerage industry’s revenue could more than double over the next five years, estimates consultancy firm Bain & Company. “This growth has been fueled by the emergence of India’s mass-affluent and affluent segments, coupled with increasing financial literacy. The number of demat accounts has tripled since FY19, reaching an impressive tally of 115 million in FY23, thanks to the heightened interest sparked by the COVID-19 pandemic,” said Bain & Co in a note.

Indian retail brokerage industry’s revenues have already doubled Rs 14,000 crore in FY19 to Rs 27,000 crore last fiscal—an annualised growth of 17 per cent.

“The COVID-19 pandemic served as a turning point for retail participation in capital markets, with digital-first players revolutionising the industry. However, the industry’s average revenue per user (ARPU) decreased from around Rs 6,000 in FY19 to Rs 5,000 in FY23,” added the report.

Bain & Co highlights that the industry has also managed to penetrate beyond the top cities.

“Greater financial literacy, frictionless customer onboarding and proliferating user-friendly digital platforms have led to a substantial jump in the number of young investors, accounting 70–80 per cent of active clientele of digital/discount brokers within the 18-30 years age group. Similarly, 70–75 per cent of newly acquired customers for bank brokers are also below the age of 30, albeit with lower activation rates,” the note observed.

Going ahead, Bain & Co expects industry players to shift their focus away from pricing.

“Looking ahead, the battle in the retail brokerage industry is expected to shift from price wars to value proposition-led growth in market share and profitability. Developing targeted digital marketing capability will be the key differentiator as efficiency of performance marketing will drive the cost effectiveness of acquiring and engaging new clients. Identifying and accessing high ARPU prospects can be a hurdle, but bank brokers will have an upper hand in this as they can leverage their parent bank and have easy access to high value customers,” said Misha Pratap, Partner and leading member of the Financial Services (FS) practice, Bain & Company.