Tech-tonic shift: How brokerages are partnering startups to go digital

Pranjal Kamra owes much of his success to the sixty-first and sixtysecond YouTube videos he shot and uploaded in February 2018. The first dealt with the risks of investing in Bitcoin while the second discussed the perils of smallcap stocks. Call it clairvoyance or luck, Bitcoin prices crashed by over 50% a few days later and smallcap stocks came tumbling down soon after.

Overnight, Kamra became a widely followed investment YouTuber. People wanted to hear him on stock market and the ways to become rich real quick. Meanwhile, Mumbaibased stockbroking outfits wanted him to do more videos on investments and various asset classes. These videos helped brokers pitch the idea of stock investing to prospective clients. But Kamra did not want to remain just a YouTube influencer. He latched onto his newfound fame to start Finology in Raipur, Chhattisgarh, a startup that generates content to promote financial literacy, runs an investment advisory vertical and hosts two platforms that help investors choose the right stockbroker and also dabble in some data analytics before investing.

“I partner with top broking outfits for short-term projects. We are doing well. Our topline is about Rs 9 crore, with a 40% profit after tax,” says Kamra, 28-year-old CEO of Finology.

It is one of the over three dozen startups, including Sensibull, GetCogno, Trendlyne, Algobaba and Smallcase, which have forged a symbiotic partnership with leading stockbrokers and other financial intermediaries, offering a range of products and services — from simple content to trade execution, customer engagement, KYC and client onboarding, algo trading, wealth management, roboadvisory and data analytics. Gone are the days when brokers manufactured their products in-house. Now they partner with startups that offer these services in the digital mode.

Finology, for instance, does stock market-related videos that are mostly uploaded on the portals of leading broking outfits as co-branded content and, if industry sources are to be believed, Kamra charges a hefty sum. Brokers do not mind paying a premium as they use these videos to get more customers. “We simplify the art of investing,” says Kamra, whose three YouTube channels have over 35 lakh subscribers.

Financial intermediaries, especially broking houses , have realised they need to have a technological edge, especially to meet the demands of millennials and young investors. Over 2 crore new demat accounts have been opened in India since the beginning of the pandemic last year. Nearly 70% of them are by people below the age of 30, say stockbrokers.

“By tying up with a tech start-up, and showcasing a good product, you are widening the market. It helps you compete better and grow bigger,” says Nithin Kamath, founder-CEO of Zerodha, a discount broking firm.

Agrees Prabhakar Tiwari, chief growth officer of Angel Broking, which claims to have nearly 50 lakh retail investors: “Our core expertise is trade execution — and we do a good job there. But if we don’t have new-age products and services on, we will not be able to keep investors interested. So we tie up with companies that offer these products. They help us stay in the game.”

Collaboration is key because money and people alone cannot create sound technological solutions, says Kamath. “The startup also benefits because it gets access to your captive clients. They do not have to spend a lot for acquiring customers if they partner with a large broker,” he adds.

Stock broking outfits and other financial intermediaries such as banks and NBFCs do not upgrade their technology often as costs are prohibitive. This is where tie-ups with tech startups come handy.

“There are only two options — make the product or partner with someone who has the solution,” says Amber Pabreja, founder-CEO of Trendlyne, which provides stocks data analysis. “If you are choosing the first option, you may have to spend a lot of money making the product. Also, it may take at least six months before you can launch it in the market. But if you are partnering with a startup that already has the proven solution, you can plug and play in two-three days, at a fraction of the cost,” he adds.

Startups that offer financial literacy programmes, which teach people about investing and stock market, come first in the value chain. LearnApp, for instance, provides video lessons in investing, trading and business, with a range of courses to select and mentors to help investors understand strategies better.

Once an investor has made up her mind to invest in stocks, she has to open a demat account. Prior to onboarding the investor, the broker has to complete her KYC formalities. This is where startups like Digio, which specialise in digital KYC and client onboarding, come in. “Earlier it would take 5-8 days for a demat account to get activated as the KYC process was time-consuming. Now we do the KYC process and client onboarding in five minutes,” says Sanket Nayak, founder, Digio. “Partnering with us is a cheaper option for intermediaries as well. We charge ?35-40

per customer for end-to-end digital KYC verification. If a broker is doing this physically, using paper forms, it can cost ?150-200 per customer.”

Single stock investing is the biggest risk that investors face while starting off. New investors often place large bets on one stock, most probably a tip from a friend or a relative. This is dicey because if the stock falls, investors would not only lose money, but also become wary of stock investing. To steer first-time investors from such perilous stock counters, leading brokers now offer ‘preapproved investment portfolios.’ A pre-approved portfolio is a basket of stocks or ETFs (exchange-traded funds), or both, curated on the basis of an objective or investment theme. Smallcase, a startup with over 100 pre-approved investment strategies, is a dominant player in this segment. “We are not a cost centre for brokers; we help them increase their revenues. They partner with us because they feel it’s not strategic enough to build their own set of preapproved portfolios. There’s no need to reinvent the wheel,” says Vasanth Kamath, founder of Smallcase.

There are quite a few investors who prefer to do their own research before investing in a stock. This is where data analytics and the option to back-test trades become useful. Startups like Trendlyne, Finology and others help investors with data research and analysis. Trendlyne tells investors how to do fundamental and technical research. Also, there are screeners that enable investors to structure stock portfolios. Trendlyne considers itself a cheaper alternative to Bloomberg terminals. “Brokerages do not have the time to offer such value-added services. Tying up with startups is the best way,” says Trendlyne’s Pabreja.

Once investors get the hang of stock investing, they want to try out more complex products such as future, options, currencies and commodity forward contracts. There are a host of startups like Sensibull and Streak that hand-hold investors to structure appropriate trading strategies. Savvy investors may also desire ease and speed of trade execution. Algobaba, a startup, helps investors forward-test their strategies with live trade simulator. “We don’t just support system-based trading but also equip manual chart traders with the power of algo trading. Nearly 80% of Indian investors still punch in manual trades. We ensure easy and speedy trade execution,” says Rachit Seth, founder of Algobaba.

Meanwhile, startups like Stockal and Vested Finance enable investors to buy shares of global companies in overseas markets. “The trend of investing in overseas equities is catching up in India,” says Viram Shah, founder-CEO of Vested Finance. “Investing in overseas equities can help brokers grow their business exponentially. It’ll be difficult for them to do it all by themselves as overseas investing involves a lot of procedural wrangles. So it’s easier for brokers to partner with players like us.”

Most of these tech products and services are accessible via broker platforms. While these are designed to work seamlessly, there could be troubles. This is where GetCogno, a customer experience platform, helps BFSI players. It employs chatbots, agent live-chat channels and co-browse options to help clients. “The tidal inflow of customers has overwhelmed stock brokers. Several youngsters prefer getting help via a live-chat or through co-browsing channels. We offer these solutions,” says Aman Goel, founder, GetCogno.

It is a tango that brokerages and tech startups are enjoying.

tech-Sailesh

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