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’Investing In Cost-Effective ETFs Will Surely Enable Investors To Save More’

Author: Kumar Shankar Roy/Wednesday, July 17, 2019/Categories: The Finapolis Conversation, Exclusive

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’Investing In Cost-Effective ETFs Will Surely Enable Investors To Save More’

Upstox, an online discount broking firm, backed by Ratan Tata, Kalaari Capital and GVK Davix has carved out a niche for itself in its segment. The USP of this new age online broking firm is its young demographic customer profile between 18-25 years. In 2018 alone, the company has seen 85% jump in its customer base of millennials, a reflection of the massive transformation witnessed in the brokerage industry in the past six years. Mainline brokers have been feeling the pinch as discount broking gets popular. "We expect further consolidation in the space. At the same time, I don’t see the full-service brokers going away as they will find their niche," says Amit Lalan, director, Upstox. In an interview to Kumar Shankar Roy, Amit talks about the secret recipe behind high-growth online brokerage, the need to give rural retail investors the same advice, execution technology and processes as available to professional funds and the advantage of having resilient technology platforms that work even in feeble bandwidth connection.

Apart from funding, what kind of connect does Upstox have with Ratan Tata?

Ratan Tata is not just an investor but a mentor and a guiding force for all of us at Upstox. Having him on the Board has been a great learning experience. Ratan Tata invests in many start-ups. He is selective about whom he backs . Once he backs, he is fully behind them and we are lucky to be one of them.

How are you different from other new age online discount broking firms? Can you be the next Zerodha?

Discount broking is becoming an increasingly crowded space. What makes us different is that we offer wider choices to our end consumers in terms of products and services. Currently, we have over two lakh clients and contribute 3-4% of daily trading volumes across all exchanges, which is fairly substantial.

Do young people trade with you? What has been the growth? Do they take delivery or just do intra-day trades?

Majority of the new customers we added over the last year are between 18-25 years. The number of clients within this age group increased by more than 85% in 2018 from a year earlier. We have also seen the number of clients in the age group of 26 to 40 more than doubling between 2017 to 2019. Most of these investors either have little experience in trading with a discount broker or entirely new to the market.

Market volatility is a big obstacle for first-time traders. How do you overcome this?

Stock investing is always subject to market risks. There are enough regulatory checks and measures to ensure the customer interest is protected, especially of the small and retail investors. We are attempting to get more and more into wealth advisory services. We believe that this space hasn’t been adequately explored. Low-cost wealth advisory for small investors will enable them to invest prudently in a wider basket of market instruments.

You have started a low-cost customized online advisory service for ETFs. How does it work? What's in it for you?

Through the Upstox-Tavaga partnership, both companies intend to bring more consumers into the investing universe who had, till now, explored only the traditional methods of investing.

Retail investors, especially in rural India, don't have access to the same advice, execution technology and processes in investment products as available to professional funds. With Tavaga, Upstox aspires to bring more retail participation in the stock market. Investing in cost-effective ETFs will enable investors to save more and achieve a user-defined goal.

Do people in rural areas use mobile apps for stock trading?

Upstox offers online and mobile apps for stock trading. More than 65% of our clients are from Tier II and Tier III cities.

Mainline brokers offer mobile apps too. There are several discount broking firms coming up. Tell us what are the factors that a first-time investor or trader should consider before choosing a broker?

If we look at the entire broking ecosystem, we have large banks servicing most of the clients and there are also large brokers. But then it’s the discount brokers like us who are really mapping the game around. The future of the brokerage industry in India is discount broking. It is cost effective and more transparent and therefore more comfortable for retail and first-time investors. When it comes to choosing a discount broker, investors need to ensure that the technology platform of discount broker is resilient enough to perform seamlessly in all situations. Customers can place their orders on Upstox tech as it works efficiently even if the bandwidth connection is weaker

Broker consolidation is inevitable. Could you please walk me through your M&A process?

The brokerage industry has gone through a massive transformation in the past five to six years. There has been consolidation in the market already, which resulted in the discount broking model getting more and more popular.

At the same time, a record number of sub-brokers also shut shop in India. The pure-play brokers also consolidated positions and almost all big players changed their focus to certain areas of financial services. We do expect to see further consolidation in the space. At the same time, I don’t really see the full-service brokers going away as they will find their niche. In the discount broking space, you see a lot of new entrants, lot of 'me-too guys' coming in, but in the average consumer’s mind-space, only the top two or three brands are going to survive and thrive

How different are you from your competitors?

We are getting more and more participation from the Tier II and Tier III cities. What really enabled us to get there is that our customer acquisition has been transparent and direct. Upstox has expertise in opening up paperless accounts which is customer friendly. That's what gives customers the choice and the required leverage they don’t get from anywhere else.

Would your customers miss Upstox if you cease to exist?

I don’t see a future without Upstox in the financial services space in India. As I said earlier, Ratan Tata always supports companies which sustain and continue to make a difference three to four decades from now. Ratan backs an entrepreneur only if sees a spark and the ideas that he thinks would be the mainstay of corporate India for the next 30-40 years. He stood behind us because he believed that Upstox was the future of financial services in India and we are determined to live up to this vision. 


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