Zerodha Broking Ltd... [PDF]

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ZERODHA BROKING LTD.

SUPERVISED BY: NIRENDU KONAR PRESENTED BY: 21BSP1173_ABHISHEK KUMAR 21BSP3491_AMIT KUMAR JHA 21BSP3588_SANMITRA BHATTACHARYA 21BSP1220_PARTH SABOO 21BSP1241 _RIYA KESHRI 21BSP1278_VIVEK BHARDWAJ 21BSP1258_SHRISTY KESHRI

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INTODUCTION

Zerodha Broking Limited is an Indian financial services company offering retail and institutional brokerage, currencies and commodities trading, mutual funds, and bonds. Zerodha was founded on 15 August 2010 by brothers Nithin Kamath and Nikhil Kamath. The company is headquartered in Bangalore. Zerodha works on an online discount brokerage model wherein only online trading services are offered to customers. It heavily uses technology to serve its customers and has very few branches & offices. Technology helps them to scale and reduce the operational cost which in-tern helps them to maintain huge profits despite offering low-cost trading.

 Zerodha is the largest retail stockbroker in India, contributing more than 15% of daily retail volumes across all Indian stock exchanges. Zerodha is made of two words; Zero and Rodha. Rodha is a Sanskrit word it means barrier (blockade, obstacle, hurdle or difficulty). The word Zerodha shows the company's commitment to offering the cheapest brokerage to Indian investors. In fiscal year 2021, the Indian financial services company Zerodha, had nearly 3.4 million active customers.

 Marketing strategies The critical factors involved in the success of Zerodha are mentioned below: 1. Standard Proposition - The very first marketing strategy was to be crystal clear about everything. Most users don't trust brokerage service because it involves money. So they considered that thing by being clear about everything. When the company put footsteps in the market, many stockbrokers offered irrational prices and non-transparent pricing to clients. Then Zerodha came up standard proposition with zero commitments. This worked out well for the company. If you pay a look at the FAQ section of the company, you will see the direct response and clear answers admired by most of their users. The company doesn't believe in confusing its clients. 2. Concentrate on New Account Opening - The second reason for their vast success was putting their minds to bring more customers. They didn't have any relationship manager or dealer. They started focusing on getting a new client. Today the company has more than 2.3 million clients. 3. Referral Program and Business Affiliates - The strongest pillar of Zerodha marketing is the referral and affiliate programs. Rather than investing in an advertisement, they came up with the idea of giving commission to their referrals. Many bloggers and YouTubers promote the services through affiliate programs on their platform, and in return, they earn commission on every purchase. The referral program helped Zerodha to discover thousand of leads that too without zero upfront cost. 4. Innovation and Technology - The company understands the importance of change and evolvement for growth. They knew how important it is to take advantage of technology and offer something innovative to their client base— that's why they keep launching applications like Kite, Pi, and much more. The platform was fundamental in the earlier days with minimal features, but then they added advanced features like API integrations, third-party applications, and much more. They keep adding new features so that their consumers won't lose interest.

5. Online Engagement and Digital Marketing - Every business knows how important it is to gain online presence and engagement. This is why they kept their users engaging on the platform by offering to educate about blogs and much more. Varsity offers content that educates users, and it brings a chunk load of traffic. The importance of digital marketing is that it provides a subscriber base and improves the authority of the domain in the eyes of Google. Also, clients find service genuine when they gain something in return, such as learning about the stock market or trading.

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NITHIN KAMATH ON HOW ZERODHA GREW WITHOUT ADVERTISING OR FUND-RAISING:

 In school, I was a below average student academically. I discovered trading and the markets by accident at the age of 17. I’ve been through the boom and bust journey every good trader experiences. In the early 2000s, I borrowed money and blew up my trading account and then worked in a call center for 4 years trying to make up for the debt, while also trading on the side. I met Seema while working there. I quit my job when I met the first person who asked me to manage their portfolio. I became a franchisee of Reliance Money (brokerage firm) to start a formal advisory business. Around this time, Nik, who is a much better trader than I am, joined me. With him trading, we figured I could set aside some time building a brokerage firm that we felt we needed as traders. As we were figuring this out, we came across NOW, a free trading platform that NSE was offering to brokers. Finally, in 2010, we hustled and pulled together just enough money to start Zerodha. Venu, who had been our friend for a long time, and was working with us since our Reliance Money times, handled operations. Hanan, who had been trading with us, started taking care of support. We started out as a small team, had no pedigree education, no background in tech, no experience, but had a passion for capital markets and the intent to help other traders like us. With Zerodha, we were the first to introduce a flat fee model (a maximum of ₹20 per trade), helping traders save upto ~90% of brokerage charges compared to the exorbitant percentage fees which was common at the time. In addition, we offered this single pricing plan to all our clients unlike the then incumbent players who had opaque offerings for different groups of clients. While we started from zero, this transparency slowly got us attention on online communities and via word of mouth. However, our fintech journey really started when K joined us in 2013 and we started our tech team. We should ideally be called FinKech. Our still tiny tech team continues to build products which are unmatched, not just in the Indian brokerage industry, but internationally as well. Nik continued to do what he does best, trade and take care of risk management. He has now set up a very successful hedge fund called True Beacon. Karthik joined us in 2014 and wrote Varsity single handedly, which is now among the top capital market education initiatives in the world.

Prakash my first customer, Austin who helped Zerodha get started, Om and Bharat our CAs (who really are CFOs), and my parents who have always supported my life decisions, have been key in this journey. I have a team of young boys and girls, the Z team, with whom I spend a lot of time at work. We discuss, debate, and ideate everything business and fun. And behind the scenes, our ~1100 member strong team runs various parts of Zerodha. Today, Zerodha is the largest retail brokerage firm in India by all measures, and one of the largest retail trading platforms in the world by activity. We have achieved this without ever advertising, or raising any external capital or debt. We focused on innovative products and services, and it took us a slow and steady 10 years along with a lot of luck. It isn’t about the big beating the small anymore, but the fast beating the slow, as we have proven. Having a nimble organisational structure focused on creating value for customers without chasing revenue, growth, or valuations, is our big moat, our secret sauce. This sounds counterintuitive and goes against what is taught to entrepreneurs today who are constantly pushed to continuously raise capital, and to measure success and growth in terms of notional valuation and meaningless growth metrics, instead of creating businesses that are profitable and sustainable. After the success of Zerodha, and more recently, the media bestowing on us glamourised labels like “unicorn” and “billionaires”, I felt I should share my personal perspective on business and life, and what success really means to me, beyond the labels. If nothing else, I want to tell people that it is possible to be successful at business by questioning the true cost of revenue, valuations, and growth, instead of continuously chasing them. And that success is relative, impermanent, and a lot of luck too.

 PROBLEMS IN ZERODHA: As we already discussed, the Zerodha was growing in fast and furious mode, day by day trading volume was going up, and the platform was making a record of the highest number of trades and so on. However, with this pace, problems also started creeping in. I have been a trader most of my life and absolutely understand our clients being upset when trades are affected by technical issues. But now, being on the other side as a broker and a technology company, I know that there is no way to run a business with zero downtime. Every business, exchanges to stockbrokers, banks to ecommerce sites, everybody experiences technical issues and downtimes. Tech giants like Google, Stripe, Cloudflare, Facebook, etc. have had multiple global outages in the last three months. Two prominent Indian banks have had constant downtimes in the last two weeks.  At the market opening, especially between 9.14 to 9.20 we have an exceptional amount of activity in terms of logins and order placement. The connectivity between our trading platforms and the exchanges, the bridge, is managed by Thomson Reuters’ Omnesys, an exchange approved OMS (Order Management System) vendor. Thomson Reuters is the largest OMS vendors in India powering several

dozen brokers. Almost all brokerages use OMS vendor to power their platforms, albeit at a much smaller scale – both in terms of orders and number of users. Today at the market open, the OMS developed connectivity issues, which resulted in orders piling up. We witnessed several lakh orders piled up waiting to be pushed to the exchanges. This caused a snowball effect of customers placing more orders to make up for the hanging orders, increasing the pile up exponentially. The Thomson Reuters team tried to bring the pending order queue down, but it wouldn’t happen. Since the OMS is their proprietary system that is licensed out to stock brokers, our technology team does not have any control over the internals of the system. This is not the first time such issues have happened, and over the years, we’ve built more and more layers of technology in-house to reduce the dependency on the OMS and other similar systems. In fact, as of today, over 90% of the activity load half a million of our concurrent clients produce every day is handled by our systems efficiently, but the rest of the 10% that still goes to the OMS sometimes acts as the weakest link. Thomson Reuters’ OMS, despite being one of the best in the industry, has struggled to cope with our growth. Example -In 2017, a client called Prasad Bhavana said he could have realized 365.70 Lakh by selling Tata motors futures, but due to the shortage of margin Zerodha has squared off his position earlier and so he could realize only 284.82 lakh, resulting in a huge loss.As per the client, the Zerodha did not inform him regarding the shortage of margin else he would have added margin and would not have squared off the position. However, the matter went into arbitration, and the judge in 2:1 capacity, has ordered in favor of the client and found Zerodha guilty and asking it to pay Rs.37 lakh as compensation.

 Why Zerodha is distinct from other? 

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The reason for the same is that most users don't make impulse purchases when it comes to stock marketing. Trading involves investment and the risk of losing money, so the users try to be very cautious and attentive. Zerodha analyzed their customer mentality, and they knew if stock marketing would become an impulse, it won't benefit them. So they started shifting their focus to word to mouth marketing. Most of the users on Zerodha are recommended by another. Such users won't lose interest in trading because they really want to make the best out of it. The reason why Zerodha is distinct from its users is their approach to educate their users first. Zerodha does not provide stock recommendations but unlike a full-fledged brokerage platform.

 Rivals of Zerodha: If you are looking for close competitors of zerodha, that means you are looking for a broker who offers kind of same services as them. Here are the broker who i think are the most capable competitors of zerodha. 1. Upstox- Almost same services with almost same brokerage structure . 2. Finvasia- Same services but pricing is different as they are offering zero brokerage trading. 3. Fyers- Services and pricing structure as same as zerodha. Provides free API. 4. Angel Broking- Same services but margin offered is way higher. 5. 5 Paisa- Better services and brokerage is lowers (Rs.10)