LIVEMINT.COM: Advantage customers: providers shift focus

Live Mint discusses Zerodha’s unique broking model with it’s Founder and CEO, Nithin Kamath.

The market environment for financial services has changed significantly post the 2008 global financial crisis. While regulators have realized that services and products need to have a greater focus on customers, service providers themselves have acknowledged that the endgame is in the benefit that customers derive. Besides, a severe equity market environment and rising competition is pushing companies to develop unique propositions. A number of organizations across the spectrum of financial services—be it product providers or advisers, for retail clients or high net worth investors (HNIs)—are now adopting distinctive ways to showcase customer benefit.

Here are some examples that reflect the shift—towards making financial services and products more transparent and accessible to customers—in the industry mindset.

Cost advantage

Zerodha: It is a purely online broking company that works on a model it calls “Zero Brokerage”. Though as the name suggests, the brokerage is not zero, the uniqueness is in low fees—they charge a flat Rs.20 per trade regardless of the amount involved. This is valid across the cash and derivatives segments. Says Nithin Kamath, founder and CEO, Zerodha, “Gone are the days when traders just worked out of physical offices, so we put together a service which is completely online.”

You can create your account online and start trading. You can also input a view on the market or a stock, say an index level you expect, and get strategies for trading accordingly. Sample this: the average brokering rate per Nifty futures contract is around 0.03%. So for a trade value of say Rs.3 lakh, you will have to pay Rs.90, but if you trade with Zerodha, you will pay Rs.20. If the trade value increases to say Rs.20 lakh, you will still pay Rs.20.

Kamath says, “Our greatest challenge was to make people believe that it works at such a low rate as most associate high price with high quality.”