If you are into stock trading and have been even distantly involved with the financial services market, there are high chances of Zerodha being the first name that comes to mind.
The company that started with two brothers and their team comprising another three members, is today India’s number one stockbroker and the first discount brokerage company, employing almost 1200 employees.
So, what did the Kamath brothers do right to stay ahead in spite of battling difficulties thrown at them, including the latest COVID-19 phase? Let’s take a look.
Beginnings
Born to a Veena teacher and a bank manager, Nithin Kamath started trading in markets in his last year of engineering in 2000, out of curiosity and resultant interest. In spite of facing a few ups and downs, losing money and then gaining back some more, he kept going on, and his younger brother joined him in 2007.
Nikhil Kamath, just like his brother started trading in his teenage years. In 2008, at a time when he joined portfolio advisory services, the markets fell but he ended up making money. This made Nithin realize that Nikhil was better at trading than him.
Both, became sub-brokers for Reliance Money and Way2Wealth respectively. They then set up Kamath Associates, a firm that managed money for others.
Zerodha
However, both believed that it was the right time to cause a disruption in business.
In 2010 they found Zerodha, an online discount broking company whose main objective is to give lower costs to the customers.
Until that time, Indian investors were used to percentage broking, which means the bigger the order size, the more brokerage. The Kamath brothers introduced the flat-fee business model, which practically caused an uproar in the market.
According to Nithin, “In an online world of technology the cost of the effort involved in executing a trade, doesn’t go up with the size of the trade”. So, by logic, if the effort doesn’t go up, why should the pricing?
Soon, they also introduced standardized deals for all customers, as till then all financial services were non-transparent. Also, the financial crisis of 2008 made it easier to win trust and this propelled them way ahead of their competitors.
However, being a transparent company, Zerodha had its own share of threats too, with competitors copying their model and strategies. And that is when Dr. Kailash Nadh played a big role by taking care of all their technological requirements. In 2015, they launched their first product kite, the web mobile platform, for super-active traders.
Going the Zero-brokerage way
Termed the biggest tipping point of Zerodha, introducing zero brokerage for equity investing was what pushed them way ahead in the market. Until December 2015, they were charging a brokerage fee of Rs 20/trade.
“The idea was to change the perception of the business saying that this is not just for active traders, but also for investors,” shares Nithin. It took them 5 years and 60,000 accounts to go the zero-brokerage way.
Also, introducing a 15-minute onboarding process helped them add 90 lakh customers in 2016.
The COVID-19 Phase
The past two years have been good for Zerodha.
With zero customer acquisition cost and a phenomenal rise of 7 million customers within two years, the company boasts of 9 million customers as of March 2022.
During Covid, Zerodha launched Nudge, another platform to help first-time users, not to make basic mistakes.
Also, Nikhil started another startup True Beacon, an asset management company, that invests in public markets and charges on the basis of a flat fee model.
Nithin Kamath saw a massive jump in his net worth in the last year. Kamath and his family’s net worth rose a whopping 51 percent to Rs 25,600 crore last year.
Even today, with many tech companies opting for funding, Zerodha has remained a bootstrapped venture. Zerodha also runs Rainmatter Capital, a fund and innovator for fintech startups launched in 2018. Today it has 20 startups in its portfolio.
