How Zerodha built her digital equity investing empire

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To celebrate India’s rising startups, Inc42 profiles a new Soonicorn every Friday in the Inc42 UpNext: Unicorns Of Tomorrow series. Over the next few months, we’ll talk to the founders and co-founders about these potential unicorns and shine a light on their journeys and growth stories. We begin the series by taking a closer look at the Zerodha stock investment platform.


International companies have eagerly watched India’s burgeoning middle class population and incomes for years, and many have ventured out to take a slice of the pie, as the economy grows, even against a backdrop of slow-down. But what also becomes a flip side of this scenario is that the overall Indian household savings rate has declined over the past few years thanks to rising consumption, and as pressure mounts on the consumer front. job creation and the economic downturn, Indian households may be looking to save in the short term rather than spend.

But selling financial products in such a climate remains a special task, as it forces consumers to let go of their inhibitions towards savings instruments such as mutual funds – we’ve all seen these ads. . This means spending to reach consumers, who also need to spend more in retail, entertainment, and digital space to experience these ads.

And the challenge is compounded for online trading platforms. Here, the risk is several times higher despite the tailor-made rewards.

Recently, this risk was exposed, when a technical system outage on its website for almost 30-35 minutes caused hundreds of thousands of losses to its user, with customers using social media to complain about the business.

For ZerodhaIn addition to the technical complexities, an equally important challenge is convincing the growing number of savvy digital consumers whose purchases today are based on what they will earn tomorrow.

“We haven’t solved the problem yet and I don’t know how to solve it yet,” said Nithin Kamath. Inc42 frankly.

From recession to digital boom

The founder of Zerodha has seen the worst. The online discount brokerage firm has grown to be the largest brokerage firm in the country by number of clients. But it was launched in the days following the 2008-09 economic recession, long before the digital wave hit India.

In 10 years, it has garnered over a million active clients who trade and invest (according to the NSE), the highest ever for a broker in India. and has not raised any external funding to date. It generates more than 15 lakhs of income-generating transactions daily, according to a recent blog Publish on a brief downtime, which caused enormous consternation in the stock exchange fraternity.

So when he’s baffled by the problem of stopping overconsumption in digital-first audiences and getting them to put money back into the markets, that’s no trivial matter. If changing behavior is a monumental task, asking the younger population to invest in the equity markets is just as massive.

A YouGov-Mint Millennial survey conducted in July 2018 showed that a third of working millennials put their money only in risk-free instruments, such as fixed and recurring deposits, without investing anything in the stock market.

A big problem for the millennial workforce is the lack of a solid stock market model, which combines execution and advice. Consumers don’t just want to invest – or rather, as Kamath later pointed out, they can’t – but they also want advice on what to invest in. Zerodha is a pure execution platform and over its 10 year lifespan the company has stayed away from any kind of consulting services. The simplicity and tenacity of his approach have yielded excellent results, but that strategy could change now, Kamath said.

“Yes, we will not stay too long in the background (on advisory services). Right now at Zerodha the two most owned stocks are YES Bank and Tata Motors, the worst performing stocks for the past three years, if you let people fend for themselves in the stock market, they will continue to make mistakes, ”Kamath said, when explaining why people need counselors.

Zerodha is slowly tracing her approach in that direction, and Kamath stressed that competition is no closer to balancing advice and execution.

Fighting legacy and New-Age competition

With over a million active customers, Zerodha has the numbers on her side, but in terms of high net income (HNI) customers, banks still dominate the field. Zerodha may be the main brokerage firm, but in terms of the amount of investments and value of transactions, the banks hold the largest share.

“The customer is always parking millions of dollars with them [banks] and has great confidence in the banks. We’re still a young company and the younger ones anyway don’t care so much about the brand and focus on the product which is where we get high scores, ”Kamath said.

Kamath added that in terms of adding new customers, banks, with their existing product set, are unable to position themselves as an attractive place to invest money digitally.

But it’s not just the banks that Kamath is wary of. Like Zerodha who was an outsider before becoming a major player, Paytm with ‘Paytm Money’ offers a similar commission-free investment platform. Paytm claimed to have racked up over a million users within eight months of launch, although the number of active customers is still unclear.

Paytm Money, which Kamath says is its closest competitor, is said to have plans to raise $ 1.2 billion for a valuation of $ 5 billion. What does this mean for the segment?

While Kamath expressed his doubts about the veracity of these reports, he said it would make Paytm the number one player in the segment, but more importantly, it could attract more interest across the segment, this that Zerodha would greet.

The ecosystem is not growing. Until we find the ecosystem, it’s not a big industry; it is dominated by offline activities – Kamath

But spending money on acquiring customers isn’t half the job, a concept familiar to everyone in the world of consumer services. This is especially true in this segment because customer loyalty is an issue. When people lose money on the stock market, activity drops and leads to customer exits. And companies still have to spend to win back that customer.

Building the Zerodha ecosystem

Before we dive deep into the Zerodha ecosystem, we wanted to check out the speculation of a Zerodha IPO. “We have no plan and I don’t know what I would do with the extra money,” Kamath said, dismissing such reports.

“When people can increasingly invest in the companies they use and consume, that’s when capital markets really start to develop. In India, we haven’t had this for the past 10 years. So I wish OYO, Flipkart, Paytm and others to help the ecosystem grow, ”added Kamath.

Speaking of the ecosystem, one of Zerodha’s main selling points is the suite of products it offers, including the purchase of Indian government securities. He’s working to expand that by allowing users to buy U.S.-listed stocks, which he hopes to roll out in the coming months.

Kamath said that Zerodha will also offer collateralized loans where people can borrow against the stocks they hold with the company at a rate compared to unsecured loans, which is a good innovation for the credit market which has room for many actors.

“We’re trying to work with a startup on a bond platform that’s better than deposits. For example, in terms of yield, a State Bank of India bond is better than a fixed deposit. Retail in India doesn’t have access to these kinds of assets and that’s something we’re working on, ”Kamath added.

The company is also looking at investor education and has an app called “Varsity” which has more than 100,000 downloads from the Android Google Play Store. Through the app, users can learn about the basics of stock trading, track their learning progress, and also take tests to see how much they’ve picked up. It also has an app for stock market information and the clear intention is to get more involved in the consumer’s buying decision – something that until now has been the consumer’s responsibility in the Zerodha ecosystem.

A crucial part of the fintech ecosystem is the innovation of other startups and the development of those ideas to stimulate the entire industry. Zerodha does this by investing through her Rainmatter incubator program, which provides workspaces, mentorship, and funding between $ 100,000 and $ 1 million to startups operating in the capital markets space in return for minority stakes. .

It also gives startups access to a sandbox that includes access to a large customer base for testing its products and services. Zerodha has invested in Streak.tech, smallcase, GoldenPi, SensiBull and other fintech startups via Rain material.

One thing that would also catch the attention of consumers is for Zerodha to become a unicorn, a feat that no other discount brokerage platform has yet achieved in India.

“We made a pre-tax profit of 350 Cr INR, we are more than a unicorn on this basis. Forget about the new ages where profitability isn’t valued, we’re growing at around 50% year-on-year, ”Kamath said.

In an age when investors are more than willing to fund startups that show signs of promise, Kamath doesn’t understand why companies that aren’t able to make “that much money” are raising a ton of money, so he relies on his sense of humor to infer it: “If someone gives you money, you should probably take it.


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