Zero Brokerage on Equity Investments and Tech Improvements Got Us 330K Clients in 2 Years: Zerodha
Zerodha, the first company to introduce the concept of discount brokerage in India, was founded by Nithin Kamath on August 15th, 2010. In their 7 years of operation, they have disrupted the market with a low-cost pricing, zero brokerage on equity investment, and their new introductions: technologically advanced platforms- KITE and the direct mutual fund platform- COIN which happened in the first week of April.
Nithin used to be a hardcore trader along with his younger brother prior to which he worked as a telesales executive. While into his trading business, he was a sub-broker with Reliance Money, a proprietary trader and a portfolio advisor. This gave him the experience to help and understand the void between a person who was willing to invest and lack of knowledge of where and how to invest. This lead him construct this online platform to help people in checking the various rates and investing their money in the right places.
“The name ‘Zerodha’ is actually a fusion of Sanskrit and English. ‘Rodha’ means barrier in Sanskrit. And zero is a numerical. So the name actually means ‘zero barriers’ referred to people who plan on investing”, explained Nithin when asked about the name.
When asked about their market share, he said, "Zerodha contributes 5% of daily market turnover across various exchanges in India.”
“The investor participation in India is still very shallow; around 5 million investors who have traded once a year and not more than 1 million Indians who have traded once a quarter; less than 0.01% of India’s population. We have been able to make inroads, though. To attract our first 90,000 clients, it took us five years, but with the launch of our zero brokerage offering on equity investments and continuously improving technology offerings we have been able to quickly increase our client base to over 330,000 in last two years”, said Nithin when asked to explain his road into the Indian market.
The main trigger point for this start-up was the point of time when the NSE gave away free platform to the online brokers. While they got access to NSE, BSE and multi-commodity were still unavailable to them then. The only and the biggest expense they face was technology.
This bootstrapped start-up claims that they were and are able to scale up due to their one plan model where all clients are treated the same and get the same deal. Another factor that led to their growth was their brokerage calculator which Nithin said is completely transparent which is quite a contrary looking at the way the stock market usually is.
Rainmatter is an incubator to start-ups, formed by the team to invest in ideas which they feel can disrupt the market. A corpus of Rs. 35 crores is kept aside to invest in early stage fintech startups. They have currently invested in 4 interesting startups - smallcase.com, Tradelab, Digio and the most recent one, Balance.
Talking about GST and its possible impacts, Nithin said, "As far as trading and investments in the capital market is concerned, I do not think GST will have a great impact. The service tax charged on 'brokerage and transaction charges' will increase from current 15% to 18%. However, brokerage charges on equity delivery are zero with Zerodha, hence the impact of 18% increase will not really burden our customers. At a broader level, GST roll out is a huge positive for the country. Agreed, the initial few months can be chaotic with the clarity needed on many fronts. However, in the long run, GST is the way forward."
On a lighter note, when asked about his difficulties during the early days of Zerodha, he said, “The biggest challenge was to convince people that I’ve got an actual job being a Brahmin.”
