Nithin Kamath, founder, and CEO of brokerage firm Zerodha, believes that the next significant disruption in the broking business would likely come from cryptocurrencies rather than another brokerage. He went on to say that there isn't much to disrupt in the exchange sector, both in terms of pricing and products.
According to him, the brokerage and exchange industries are nearing saturation in terms of goods and price, as well as being largely reliant on a tiny group of roughly 1 million active traders for revenue. Furthermore, constructively disrupting this area will be tough because rules prohibit negative brokerage, i.e. paying individuals to trade, and it is very hard to assure that every trader makes a profit.
According to Kamath, cryptocurrencies outperform equities in terms of leverage and volatility, as well as the ability to keep markets open for extended periods of time. Since there's no basic knowledge about price fluctuations, trading crypto is risky. 'But greed usually gets the better of most people with time,' he added.
Kamath also cited the case of the United States, where crypto affected brokerages and exchanges. “The AUM of Coinbase is $180 billion, and the crypto AUM of Robinhood Crypto is ~$11.5bil. Many incumbents couldn't react quickly, fearing regulatory lash back and mostly missed the bus,” he said.
Even though the country's crypto market is still limited, India is in a similar position as the US was a few years ago. “The regulatory fear doesn’t allow regulated platforms to offer Crypto. Eventually, if the status quo on regulations continues, traders can move away & disrupt the broking industry,” he said.
Zerodha is a brokerage that used a discount pricing strategy to disrupt the brokerage business. The company's name, Zerodha, is a mix of the English term "zero" and the Sanskrit word for the barrier, "rodha." The name represents the company's objective of breaking down all obstacles that traders and investors confront in terms of cost, support, and technology.