Will Jio Financial (JFS) and PhonePe disrupt Broking industry?
PhonePe and Jio Financial is entering broking space which already has 10 established players, with top 4 controlling 65% market. Will they be able to disrupt it?
Among the 4 leaders, only Zerodha and Angel are able to convert their huge customer base into substantial revenue generating customers, rest 2 - Groww and Upstoxx are struggling despite customer base on a similar scale .
So customer acquisition is one thing and revenue generation is another. Revenue trends indicate maybe active traders trading more frequently are not considering newer players.
New customers are switching platforms very fast since there is no switching costs for customers, indicated by the dynamic change in market shares- 2 years back Upstox used to have 11% market share and Groww 4%. FY23 market share of Upstox is 9.4% and Groww 16%. Upstoxx had lost 20 lakh customer base in FY 23 ( YOY) ( FY 22 was 52 lakh, FY23 is 32 lakh). Notably,despite no switching costs, Zerodha customers are not switching platforms and its revenues soared around 38% YOY. This growth is surprising considering customer base remains same at 63 lakhs and market was volatile and not a bull market in FY23 ( reasons will cover in a separate article)
So tracking market share based on NSE active clients may not give the true picture of the industry dynamics.
In the longer term, TRUST FACTOR , technical edge of the platform , less number of technical glitches, overall customer engagement ecosystem will be deciding factors as pricing are similar for all.
Existing business of PhonePe & Jio Financial
PhonePe is currently market leader in UPI transactions with 50% market share and huge customer base of 45 crore.UPI transactions are the main revenue stream. For the next leg of growth, closing in on the heels of Paytm, who are switching to consumer & merchant lending as their next growth lever, PhonePe also looks upon merchant lending as their next avenue for growth. PhonePe has an existing merchant base of 3.6crore, and has to spend aggressively for acquiring customers if they want to bridge the gap with Paytm ( detailed analysis on Paytm stock), who were first mover in 2021 and already has a loanbook of Rs 35000 cr as on FY 23.
Jio Financial has not started their business yet, but their main focus will be digital consumer lending and merchant lending, so PhonePe will have another competitor to take on.
PhonePe & Jio Financial announces entry in Broking business
UPI market leader PhonePe announces its entry to broking business along with offerings of mutual funds, ETF from the same platform. They are launching their app called Share Market with the offering of Rs 20/ trade and Rs 200 onboarding cost.
Earlier in 2022, they acquired 2 wealth management platforms Weathdesk and OpenQ for $75million. Founders of these platforms will lead the broking business.
Jio Financial has not revealed their detailed offering yet.
Current Broking Industry
Currently, the discount brokers Zerodha, Groww, Upstoxx and Angel control 65% of the broking industry,rest 22% by traditional brokers like ICICI, HDFC, Kotak,Motilal, Sharekhan.
Offerings of most discount brokers are similar in terms of pricing, technological facilities offered in their platforms, margin trading leverage- so seems it is difficult to create a differentiated product offering that will attract existing customers to PhonePe or Jio Financial.
Out of the total expenses of Rs 3706cr of PhonePe, Rs 866cr is marketing expenses.
PhonePe has planned to raise $ 1 Bn ( ~ Rs 8200cr) in 2023, already raised $ 850 million.
What is required to disrupt?
Currently, Upstoxx & Groww spends Rs 300-400cr annually for marketing. To aspire for significant market share ( > 10%) , new entrant also has to spend 400cr / year. With merchant lending being their primary focus of area now, which is easier to crack given their huge merchant base, they will probably not look at spending this much on broking, as even established players like Upstoxx and Groww are having a tough time converting their acquired customer base into revenues.
2-3% market share is always achievable for a new player like PhonePe or Jio Financial.
Ultimately, all of them are entering early with a long term view of the bigger market size 10 years ahead.
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