No frills online stock broker Degiro has reported a record quarter, showing strong growth and is approaching the 300,000 accounts milestone. The pan-European fintech, whose transaction fees to buy and sell shares are on average around 90% less than competitors, is part of a new wave of budget investment platforms disrupting the industry.
Over the past two decades, the rise of ‘budget’ no frills airlines has irreversibly changed the aviation industry.
Where once, in certain circles, there was a degree of social stigma over choosing Easyjet or Ryanair over British Airways or another national carrier, it can safely be said that is largely no longer the case. No frills airlines are now the dominant business model.
Their scale and buying power now means that far from being confined to small regional airports that almost ridiculously include the name of an only very tenuously ‘nearby’ major city, which most of us will remember well, they are now being wooed by major international hubs. It’s the national carriers that are now playing catch-up, often by converting to the business model of the upstarts that once fed from their low-profit scraps.
It is more than likely that within another 10 years, the online stock trading market will have been similarly inverted. Budget and even zero-fee online stock brokers and investment platforms have sprung up and started to gain traction over the past 5 years or so. Over in the USA, Robinhood has doubled its user base from 2 million to 4 million account holders since summer 2017. While the zero-fee stock broker and cryptocurrency exchange’s entry into the UK market seems to keep being delayed it is surely only a matter of time. The company recently closed a funding round at a valuation of $5.6 billion. Around this time last year, Robinhood was valued at $1.3 billion.
Degiro isn’t yet on the same scale but the Amsterdam-based company’s most recent quarterly results demonstrate its ultra-low-fee model is gaining traction. The first three months of 2018 may prove to be a watershed moment for Degiro. The broker’s turnover was €14,271,998, up 49% on last year. Transactions showed growth of 51% to reach 4,592,645.
Degiro’s UK & Ireland user base is still relatively small but growing quickly. The online stock broker has yet to launch ISA and SIPP products, and funds. When it does so it can be expected to start providing a real challenge to the market leaders, whose fees are several multiples of those charged by the fintech platform. A major strength is also the cheap access investors have to international markets, with 28 stock exchanges across Europe, Asia and North America available.
Online stock and fund trading fees have been dropping in the UK recently but in comparison to those offered by new tech-centric no frills pretenders are still high. The market leaders such as Hargreaves Lansdown, Interactive Investor and Barclays charge between £6 and £12 to buy or sell shares. Degiro charges £1.75 + 0.004%. Their cheapest competitor, iWeb, charges £5.
Budget stock brokers earn their money through additional services, like budget airlines charging for refreshments and luggage. Robinhood, for example, also lends out the cash users keep on their accounts to facilitate margin trades and sells orders to market makers. Because budget stock brokers are regulated, they still have to maintain capital reserves and liquidity, so these practises shouldn’t put client funds at any risk. Like no frills airlines, the end game of budget stock brokers is to make money through volume and selling add-ons.
The UK’s current market leaders in the online investment platform industry would be wise to learn from the result of complacency of national carriers in the aviation industry two decades ago.
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