Transaction cost, a big worry

When broking houses across the world are giving away freebies in terms of zero brokerage, free account, free advices, what should be the ideal cost they incur for doing all these activities and how do they recover them? This is the question customers ask to broking houses without any clear answers.

The answer, perhaps, lies in technology and how the firms reduce cost per transaction in a way that benefits customers and the broking houses. “It is not true that there are hidden charges behind our offering of free services. In fact, we are one of the world's most cost-effective mechanisms,” said Sudip Bandyopadhyay, CEO of Reliance Money.

However, India remains one of the most expensive markets in terms of transaction costs, according to a survey conducted by global financial consultancy Elkins/McSherry. It says that the average brokerage charge for delivery-based trades in India is around 30 basis points, while the total transaction cost is about 51 basis points, including charges like stamp duty and service tax.

Now if you add the client servicing in a way that satisfies the client, the cost becomes much higher. The survey also says that average commission in India is 30.06 basis points which is higher than other BRIC countries Brazil (23.92), Russia (14.84) and China (22.2). The markets costlier than India include Venezuela, Peru, Philippines, Egypt, Indonesia, Colombia and Chile.

“With internet and mobile broking giving the advantage of quick delivery, people's approach to transactions is fast changing,” says Rajan Varghese, ED and chief technology architect of Microsign Technologies Pvt Ltd. He adds that the time has come where customers are the king and they dictate what the companies should do. “They are demanding more accessibility and convenience in their day-to-day broking.

Choosing an option has become easier for them,” added Varghese whose SaaS (Software-as-a-Service) model, which provide end-to-end solutions, is growing at a rate of 20-25% yearly. And he has valid reasons too. Online trading community is on the increase. Major players like Reliance Money and ICICIdirect.com are taking away a major chunk of the traditional broking house investors to their kitty.

Figures tell the story. ICICIdirect.com alone has 13 lakh customers and is growing at an amazing pace of over 40 per cent. With traditional broking ways hitting a roadblock, the advantage lies in brokerage institutions' quick reflexes and flexible operations.