The current financial year will be a remembered as a breakthrough year for technology-enabled stockbroking platforms such as Paytm Money, Groww, Upstox and 5Paisa as they have managed to rapidly scale up their customer base and create a buzz in trading circles with their digital offerings. Just as rapid digitisation is taking place in other aspects of a consumer’s life, trading is going digital and going digital fast.
As per numbers shared by the National Stock Exchange for 2020-21, Zerodha leads the pack with 27.2 lakh active traders, followed by Upstox with 15.4 lakh active traders. 5Paisa has a trader base of around 7.5 lakh, while Groww and Paytm Money have 3.2 lakh and 26,491 active traders, data shows.
In the last one year Upstox’s active client base has grown 148 percent, while 5Paisa has seen 74 percent growth. For Paytm Money and Groww, this is the first year of operations and they have already crossed five figures in active users. Zerodha, even with a much higher base, has consistently grown 92 percent.
Now compare this with traditional full-service brokers; HDFC Securities has grown 19 percent from 7.2 lakh to 8.6 lakh active traders, while ICICI Securities has grown 15 percent to 12 lakh from 10.7 lakh a year back and Kotak Securities has grown a modest 19 percent.
While a variety of factors might have given wind to this growth, one major reason is extensive use of digital marketing campaigns, which have helped digital platforms to ramp up customer base quickly. From Youtube influencer videos to knowledge sharing posts across social media channels, startups are putting their advertisement dollars to use.
So, digitally-enabled discount brokers are racing ahead and look like the ‘winners of tomorrow’ in the stockbroking race.
“The do-it-yourself kind of approach for the new-generation brokers coupled with the online electronic KYC flow has helped these platforms attract many traders during the lockdown days,” said Ujjwal Jain, cofounder of Wealthdesk, a digital wealth management platform.
The scope of competition is not only with the traditional brokers; there is fierce competition among the discount brokers themselves. Zerodha, Upstox, Groww and Paytm Money are all targeting the next million traders. These prospective customers are on social media channels, hence that is where the players are putting their bucks.
A top executive with a wealth management startup said that companies could be spending upwards of Rs 2.5 crore per month through multiple marketing channels, starting with affiliate marketing, influencer marketing to social media advertisements, Google ads and many others.
“Covid has been a great tailwind for the digital wealth management ecosystem and these players have the muscle power to invest massively in acquiring new customers,” said Gaurav Rastogi, founder of Kuvera.in, a direct wealth management platform.
Groww is backed by Sequoia Capital, Ribbit Capital and Y Combinator. Upstox is backed by Kalaari Capital, Ratan Tata and Tiger Global. Paytm is backed by Alibaba and Softbank .
Sources indicate that these platforms are spending close to Rs 800-900 to acquire each customer. This number sometimes shoots upwards of Rs 1,200 and in one-off cases it could reach Rs 3,000 as well. For a discount broker to spend this amount of money to get one customer is extremely expensive, said people in the know.
Companies are aggressively using channels such as Facebook, Youtube and Instagram to spread the word around investing and trading online. Industry insiders pointed out that most of these are educational videos that teach viewers how to undertake stock trades through one of the platforms.
Moneycontrol looked up some of these videos on Youtube and found a few of them had lakhs of views. For instance a Youtube video on how to use Upstox has garnered 4.4 lakh views. Groww has its own Youtube channel with almost 3 lakh subscribers.
The Marketing Game
For online players the entire marketing game is skewed towards digital, since conversions are maximum. Marketing professionals with top consumer brands who spoke on condition of anonymity pointed out that tech brokers use channels across social media to get new customers. They also invest in building partnerships to create affiliate networks.
“There are a lot of ‘how to’ videos done by Youtube and Instagram influencers. They tend to grab a lot of eyeballs and definitely show conversions,” said a top marketing executive at a fintech startup. But the quality of leads varies between influencers, he added.
Most of the conversions come into the app or the website to register and a fraction of them actually start trading. For the rest, the marketing team needs to follow up.
A marketing expert who works with multiple direct-to-consumer brands said that startups use affiliate marketing extensively in the first year just to test the product and show scalability to their investors. Post that they invest in brand building, which is far more expensive, he said.
In the fintech and investments space, startups such as Groww and Upstox are going through a phase where they need a mix of brand building and conversions, which is why influencer marketing is picking up.
“These influencers typically have loyal followers, so when he or she speaks about a platform, a certain form of trust and credibility is built,” said the expert mentioned above.
Startups, which are typically backed by venture capitalists, need to show a hyper growth model and customer acquisition is perhaps one of their base metrics for success. The question is even if these videos bring customers, will they be active traders?
One of the wealth management players quoted above pointed out that a lot of these users are actually moving from one broking platform to the other. Many are switching to discount brokers over regular ones.
“The overall share of active clients on the NSE has not doubled. This shows that the net trading pie has not gone up at the same pace,” he said.
As per NSE data, the total active client base is 1.5 crore as of 2020-21, up 50 percent from 1 crore last year.
One of the marketing experts quoted above also pointed out that some of the influencers are capable of bringing quality traders into the platform. He cited an example where his team had called up one of the leads from one such channel and that person was already registered and about to place his first bet on the platform.
“We recently crossed the 2-million customer mark, which shows the wide acceptance of our platform. This rapid growth is supported by positive word-of-mouth by our customers and concentrated marketing efforts,” said Ravi Kumar, Chief Executive Officer, Upstox. Seventy-five percent of Upstox’s customers are millennials and 80 percent of the users are from smaller towns and cities such as Nashik, Guntur, Patna and others.
It is common for regular traders to have accounts with multiple brokers. But if millennial investors flock to the discount broking platforms, then traditional players will face some serious problems in the coming years.
Traditional brokers have always relied on their banking channels for demat account opening and a branch- and agent-led network for new customers. Now, with customer-acquisition tools changing, the overall trading business is on the cusp of a massive disruption. The game has moved on from money making to getting millennial customers and being future ready.
“There will always be a demographic that will need the support of branches. But for the rest, online seems to be evolving as the point of choice,” said Jain of Wealthdesk.