Kush Shah · Follow
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The first name that comes to our mind when we discuss discount brokers in India, is Zerodha. The name has been coined from a combination of ‘Zero’ and ‘Rodha’(a Sanskrit word for barrier). With a humble beginning on August 15, 2010, Zerodha was co-founded by Nithin Kamath(CEO) and Nikhil Kamath(CFO).
Zerodha, India’s leading online brokerage platform, has been shaking up the traditional stock brokerage industry since its founding. With its innovative business model and use of technology, Zerodha has been able to drastically lower costs for customers, making stock trading accessible to a wider range of people. But the company’s impact goes beyond just making trading more affordable, it has also been a catalyst for change in the industry, inspiring others to follow in its footsteps and adopt similar strategies.
One of the peculiar things that people are intrigued to know about Zerodha is that even though it has been bootstrapped and didn’t raise any funding from any investors, it managed to enter the “Unicorn” club. Zerodha entered the Unicorn club based on its self-assessed valuation of $1 billion. Nithin Kamath, in one of his interviews with Raj Shamani, mentioned that the period of 2010 was not favorable for starting a stock broking firm. A few of the reasons being, the brokers lost a lot of money and were affected by the financial crisis. The trading activities were reduced drastically. Also, he felt less awareness of VC in India. So if they would have met professional VCs in 2010 and if the VCs would have given money, the company may have probably raised funding for the firm.
Before Zerodha, Nithin Kamath and Nikhil Kamath co-founded a firm, called Kamath Associates back in 2006–2010. During this, they realized the high costs and lack of transparency in the traditional stock brokerage industry. Zerodha’s disruptive idea was to eliminate the traditional percentage-based commission and introduced a flat fee structure for trading, making it more affordable for the customers.
Zerodha seemingly follows — “low margins, high volumes” as their business model. The company saw an opportunity to use technology to disrupt the status quo and make stock trading more accessible to everyday investors.
- Though they have a low fee of Rs. 20, the number of transactions per day is quite high in volume. This in turn gets more revenue in total for the company
- They have managed to keep their operational costs low because of their online platform/technology, aiding them with high-profit margins.
- Just the way, Zerodha is a bootstrapped company, they also believe in a “No-marketing” policy, which in turn saves them a ton of money. This is one of the reasons that they believe in mouth-to-mouth marketing which is possible only if their products are well-developed and provide a better customer experience.
- Zerodha offers various products and services related to financial investments and technology.
- Rainmatter, an initiative by Zerodha, funds and incubated innovative Indian Fintech startups.
Financial Investments
- Stocks: Trade stocks for delivery or intraday on over 5000 stocks listed on National Stock Exchange (NSE) and Bombay Stock exchange (BSE).
- Direct Mutual Funds: Invest in over 2000 direct mutual funds directly without a distributor.
- Future & options: Trade metals, oil, and Agri commodities on MCX and stock and index futures and options on NSE.
- IPOs: Invest in companies listing on the Indian exchanges with an IPO (Initial Public Offering)
- Gift Stocks: Introduce your friends and family to the habit of investing for the long term by gifting them stocks, ETFs, mutual funds, and gold bonds.
- Fixed Income: Invest in Government securities bonds, sovereign gold bonds, etc.
- Currency Trading: Trade in currency derivatives.
Technological
- Kite: is a web and mobile platform that offers access to trading and investment products, including equities, derivatives, currencies, and commodities, with streaming market data.
- Kite Connect API: An API for developers
- Coin: A platform for direct mutual fund investments, free.
- Varsity: A free online education portal that provides educational content on various investment and trading-related topics.
- TradingQ&A: The most active trading and investment community in India for all your market-related queries.
- Console: A platform for account management
- KillSwitch: A Service for risk management for retail traders
- Sentinel: A cloud-based price alert engine
STARTUPS
INVESTMENTS
- Rs. 0 or free equity delivery — All equity delivery investments (NSE, BSE), are absolutely free — ₹ 0 brokerage.
- Flat ₹ 20 or 0.03% (whichever is lower) per executed order on intraday trades across equity, currency, and commodity trades. Flat ₹20 on all options trades.
- All direct mutual fund investments are absolutely free — ₹ 0 commissions & DP charges.
Detailed information about the fees: https://zerodha.com/charges/#tab-equities
One of the important points to note here is, though they have kept the fees quite low, they ensure that the quality of their products is not compromised.
It’s not just the product or the business strategy that has helped them to build their reputation. Their ideology of customer-centric policies helped them to build better relationships with their customers.
The company is working more toward its nudge feature that will support traders in taking informed decisions about their investments. It warns investors before buying penny stocks. It launched a killswitch, that will instantly disable trading for investors that constantly make losses. This disabling will lead to fewer trades making losses, but it blocks more profit for the company. But they consider minimizing customer losses over making more profits for the company.
Challenges faced by the company
- The company is fully dependent on the underlying stock markets. They anticipated a market slowdown which would lead to the slowing down of the company’s growth.
- Their OMS(Order Management System) faced certain technical glitches because of heavy trading activities. This leads to a reduction in customer satisfaction at times. But they are ensuring that their technology is up-to-date and working on building robust systems.
- Though the platform provides various products and services, they still do not have features like daily reports, news alerts, etc.
Zerodha’s various strategies as mentioned till now, viz. educating their customer first for free, utilization of behavioral economic concept nudge theory of killswitch, no-advertising, low-cost, etc has successfully helped the company to showcase a strong competitive positioning.
As of 31st March 2022, Zerodha constitutes around 17.42% of the total market share of the active clients registered on the National Stock Exchange. It has over 62.77 lakh active customers compared to a total of over 3.50 Crore active clients of all stockbrokers on the NSE.
Zerodha has been able to overcome various challenges and continues to grow. The company has been able to achieve this by staying true to its mission of making markets accessible to all, and by continuously innovating and adapting to the changing market conditions.
Zerodha has also been awarded as the
- Economic Times Startup of the Year — 2020
- NSE, BSE, MCX — Best Retail Brokerage Award — 2018, 2019, 2020
Zerodha’s business model and use of technology have disrupted the traditional stock brokerage industry in India, making stock trading more affordable and accessible to a wider range of people. The company’s success has inspired others to adopt similar strategies and has had a significant impact on the industry as a whole. Despite facing challenges, Zerodha has been able to overcome them and continue to grow, and it will be interesting to see how the company will evolve in the future.
Additional References
- https://zerodha.com/
- https://startuptalky.com/zerodha-trading-services/
- https://tradebrains.in/brokers/how-does-zerodha-make-money-a-look-into-its-revenue-model/
- https://zerodha.com/z-connect/featured/12-years-of-zerodha
- https://www.adigitalblogger.com/research/zerodha-valuation/
- https://www.youtube.com/watch?v=E4RO8Mstaac
- https://www.truebeacon.com/
- https://rainmatter.com/
Note: This article is not a sponsored article. It is purely an interesting case study.
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