Pandemic sparks digital brokerage boom; incumbents unfazed

Singapore

THE pandemic-induced retail trading frenzy has sparked a flurry of new online brokers in Singapore as more consumers put their dollars to work on digital platforms.

Dangling commission-free trades, cash credits, free shares and even fractional trading, the fresh entrants are laser-focused on courting younger investors, turning up the heat on the local brokerage landscape.

Robo-adviser Syfe on Thursday (Dec 16) announced the launch of Syfe Trade, a fractional trading product for US stocks starting from as low as US$1. It is targeting to onboard over 100,000 users in Singapore in the first 6 months.

Payments fintech Revolut will also roll out a stock trading feature next year for Singapore customers to buy fractional shares in US-listed companies, with no account minimum required.

Other new trading platforms such as Futu Singapore's moomoo and Tiger Brokers are aggressively chasing sign-ups with welcome gifts of cash coupons and free Apple shares, among others.

"There is probably a rush now to attract the younger customers and hold on to them... it helps to entice them to jump onboard through jazzy incentives," said associate professor Lawrence Loh from the NUS Business School.

There are now over 15 digital trading platforms for retail investors in Singapore, fanning fears of an oversaturated battleground.

Prof Loh added: "There will be more convergence in the financial domain with different players entering through different routes with different value propositions."

Despite the small market and razor-thin margins, analysts reckon there is still room for more contenders, with longer-term expectations of greater consolidation within the industry.

Leveraging heavily on tech, online-based brokerages can provide fast and personalised services to woo younger users and service them at a much lower cost, compared to one-to-one services.

A recent OCBC survey found that 86 per cent of Singaporeans in their 20s have investments, up 22 percentage points year on year.

"The growth potential is certainly attractive to new entrants and digital players. With an agile strategy and the right business model, sustained success and continued growth can be achieved," PwC Singapore fintech leader Wong Wanyi told The Business Times.

Over the longer term, a successful fintech may clinch a partnership with a bank or eventually be subsumed into the banking ecosystem, she said.

For now, Wong flagged that existing players may be challenged to offer more simplified or user-friendly interface with expanded offerings - essentially packing in more with less. There may also be some pressure to reduce cost, which can be achieved by eliminating existing inefficiencies.

Seasoned players that BT spoke to remain unfazed by new blood, armed with growth strategies that go beyond cut-throat price wars and freebies.

"We expect the new entrants to do one-off giveaways. But Singaporean investors are smart, they value quality and service at the right price," said Phillip Securities managing director Luke Lim.

More competition is beneficial for investors when fees go down, but it "cannot be just down to fees" when it comes to demonstrating value for investors, said Jean Paul Wong, general manager of FSMOne.com, a digital trading platform by iFast Corporation.

"If it's just about pricing, the traditional incumbent stockbrokers would lose substantial market share given their fairly exorbitant pricing for stocks and exchange-traded funds (ETFs)," he told BT.

Much like in the ride-hailing industry, having innovative value-added services will be a key differentiator among the many digital trading platforms.

The likely winners are those that can build financial super-apps, offering complete suites of online services, said NUS' Loh. "The brokerage space will be a springboard to realise this realisation. We will see even more offerings tied to the core brokerage service."

Old-school players have been upgrading their tech, expanding their product range and rolling out more personalised services in the face of fresh competition.

In September, DBS launched a new settlement feature on its Vickers trading app to allow for more efficient and timelier settlement of contracts for customers who actively trade in foreign markets.

The bank has seen over 100,000 downloads on its newly refreshed Vickers app, as trading volume in 2021 more than tripled from 2019.

PhillipCapital said it has been investing "millions" to upgrade its tech infrastructure over the years, with a revamped version of its online trading app to come. It will also offer systematic trading to US stock options and ESG thematic investing in 2022.

Saxo Markets, which has been operating in Singapore for over 15 years, plans to release more financing options and portfolio-based margining for accredited investors.

"The many new investors and traders who have entered the market will ultimately upgrade to higher quality platforms with broader product ranges," said Adam Reynolds, Asia-Pacific chief of Saxo Markets.

The firm currently manages some S$10 billion in assets here, with new clients up 24 per cent year on year in H1 2021. Among the new users, about 75 per cent were under 40 years old, reflecting the global trend of younger investors entering the market.

Millennials in their 20s are investing in higher-volatility assets such as cryptocurrencies and foreign stocks, OCBC's survey found. Over a third of them are more likely to excessively speculate, compared to just 17 per cent among those aged 55 to 65.

Riding on the global crypto boom, Saxo has plans to launch more crypto trading choices next year; its users currently gain crypto exposure through ETFs and exchange-traded notes. Meanwhile, new entrant Futu is reportedly mulling a crypto-related licence in Singapore to expand its suite of products.

But not all players are readily feeding into the rising demand for high-risk investments.

FSMOne.com does not offer options trading and crypto trading as they "do more harm than good, especially for newbies investors", said Wong. "Complex or gambling products offer no long-term value to investors looking to grow their investment portfolios."

PwC's Wong observed that some players may pivot to provide more comprehensive and personalised services to targeted customer segments that continue to value the human touch, and may choose to prioritise them above the mass market segments.

"Firms that have a very clear strategy and focus on addressing the needs and interests of their identified target segment will more likely be able to differentiate themselves," she said.

There is more than enough of the pie to go around, for now. Beginner investors are still riding the high of the pandemic-led market surge, propping up demand for digital brokerage services.

"We expect retail trading activity to stay at an elevated level in 2022. With much uncertainty regarding inflation and future US Federal Reserve monetary policy, occasional market jitters will provide plenty of trading opportunities," said Andras Ivan, analyst at broker comparison site BrokerChooser.

Phillip Securities' Lim told BT the Singapore market is "big enough" for the group to offer a new web-based trading platform catered to a different market segment. Launched last year, Phillip Nova is targeted at investors who want to avoid the hassle of installing yet another app on their devices.

"Competition will only make us stronger and help us to serve clients better," said Lim.