This article talks about the business strategies and revenue model of Zerodha, a discount brokerage firm.
Zerodha is a fintech startup offering financial services to various investors in retail brokerages, currencies and commodities trading, mutual funds, and bonds. Zerodha has emerged as one of the largest discount brokerage firms in India. The name Zerodha is made up of two words, “zero” and “rodha” which means barriers in Sanskrit. Thus, the name signifies zero barriers. The disruptive pricing model and in-house technology of Zerodha have made it the biggest stockbroker in India in the terms of active retail clients and retail trade volumes. It is handling more than 15% of the trade volumes across different exchanges in India.
How did Zerodha Start?
In the year 2010, two brothers Nithin and Nikhil Kamath launched India’s first discount brokerage platform and named it Zerodha. The main purpose behind Zerodha was to remove all barriers to trade and investments in India. In the year 2013, they built a tech product to enable people to trade stocks on a more user-friendly platform. The two brothers never shy away from experimenting with new products and ideas. Thus, they launched Zerodha Varsity in 2014, which is an initiative to educate people about financial markets. They even launched an Indian Fintech Fund and Incubator, Rainmatter in the year 2015. Finally, in September 2015, they launched their flagship product, new age online trading platform, Kite. Since the launch of Kite, Zerodha has launched several other platforms as well such as Coin, a mutual fund investing platform. In 2019, Zerodha officially became India’s largest stockbroker.
How Zerodha Works?
Zerodha is a discount brokerage firm, which means that it charges a reduced commission or low brokerage on the transactions as compared to brokerage charged by traditional stockbrokers. Discount brokerage is one of the main attractions of Zerodha, making Zerodha one the largest stock brokerage firm in India. Zerodha also got the first-mover advantage in the discount brokerage industry in the country. Zerodha puts in constant effort and keeps coming up with unique strategies and innovative ideas. Zerodha uses a host of apps in order to operate various services offered by it. These apps or platforms are as follows:
- Kite: Kite is the flagship platform of Zerodha. It is basically a trading platform that investors can use to trade stocks and commodities on a regular basis. Through Kite, investors can add funds, trade in financial instruments, and withdraw funds as per their requirements. The revenue model of Zerodha majorly depends on Kite.
- Varsity: Varsity is a platform designed to educate people about stock markets and related concepts. It acts as a financial guide for beginner and amateur investors. Varsity provides stock market references, tutorials on how to trade, and advice on how to benefit from the market.
- Coin: Coin is a mutual fund purchasing platform offered by Zerodha. Investors can easily transfer funds between their Kite and Coin accounts.
- Quicko: Quicko is a free income tax filing tool offered by Zerodha. Zerodha has partnered with Quicko under their Rainmatter initiative.
- Sentinel: Sentinel works with Kite to give users real-time alerts on all their holdings through cloud-based analysis and real-time data sourcing.
- Kite Connect API: Kite connect is a product especially for developers to design an entire trading platform using Kite’s extensive systems. Kite connect helps users to develop trading platforms to attract customers to invest in the market and thereby making margin off the companies that bring them in.
What is Zerodha’s Revenue Model?
With more than 4.5 million clients under its belt, Zerodha generated around Rs. 1,000 crores profit for the financial year 2021. Though Zerodha charges one of the lowest fees and commissions on transactions, still it is one of the most profitable companies among its peers. This is possible due to Zerodha’s innovative business plan and unique revenue model that allows it to make the most money with minimal capital outlay. Have a look at how Zerodha makes money:
1. Brokerage Fees and Commissions: Zerodha’s main source of revenue is from various fees and commissions that it charges from its users. These charges are as follows:
- Account Opening Charges: The account opening charges on Zerodha ranges from 200 to 800 depending on factors such as type of services, type of users, online or offline account, and so on.
- Equity Intraday and Equity Futures Brokerage: The brokerage charged on intraday and future trades is lower of 0.03% or Rs. 20 per executed order. Thus, Zerodha charges a maximum of Rs. 20 per intraday and future transactions in comparison to full-service brokers who charge a percentage of the trade value.
- Equity Options: Again, Zerodha charges a flat Rs. 20 per executed order, unlike other brokers.
- Account Maintenance Charges: Zerodha also charges annual account maintenance charges of Rs. 300.
- Other Charges: Zerodha also charges some other fees such as payment gateway charges of Rs. 9 per transfer, delayed payment charges, pledging charges, and so on.
2. Optional Value-Added Services: Zerodha also offers various value-added services on its platform Kite. These services and charges on them are as follows:
| S. No. | Value-Added Services | Charges |
| 1 | Smallcase | Rs. 100 per transaction |
| 2 | StockReports+ | Rs. 150/810/1440 monthly/semi-annually/annually |
| 3 | Screener | Rs. 100 monthly |
| 4 | Sensibull | Rs. 800 monthly for Lite
Rs. 1300 monthly for Pro |
| 5 | Streak | Rs. 500 monthly for Basic Rs. 900 monthly for Premium Rs. 1400 monthly for Ultimate |
| 6 | Kite Connect | Rs. 2,000 monthly |
3. A Large Number of Transactions & Clients: The volume of transactions on the platform is significant for business growth and survival. Zerodha follows a unique business strategy, as rather than charging more for each transaction, it concentrates on developing a quality product, increasing the number of its clients. Even though they charge a maximum of Rs. 20 per transaction, when this Rs. 20 is multiplied by millions of transactions, it can generate a substantial amount of revenue for Zerodha.
4. Incubation of New businesses or Startups: Zerodha’s launched Rainmatter in the year 2015. Rainmatter is Zerodha’s incubator, which has launched several successful startups in the fintech sector. Some of the successful startups that Rainmatter has incubated or invested in are Smallcase, a thematic investing platform, Streak, CRED, Tradelab, etc.
5. Zerodha’s Mutual Fund AMC & True Beacon: Zerodha entered the AMC business by launching its first alternative investment fund in the year 2019, called the True Beacon. The fund was created to tackle the market volatility for High-Net-worth Individuals (HNI) with a minimum investment of $2 million. True Beacon successfully returned more than 13% in its first year. Owing to the success of True Beacon, Zerodha further applied for a mutual fund AMC license to establish its own diversified fund portfolio in the coming year.
6. No Marketing Strategy for Higher Profits: Zerodha follows no marketing strategy as its founder Nithin Kamath believed that they could design a product that people will advertise themselves. This strategy has been effective as Zerodha launched the world’s cheapest brokerage that offers greater services for a fraction of the cost.
Summary
In today’s fast-moving world, Zerodha has emerged as one of the most valuable fintech startups, changing the way India trades stocks and securities. Not only does it facilitate online trade and investments in stock markets but serves their client countless services through its several platforms. Through its robust business plan and revenue model, Zerodha was able to generate annual profits of Rs. 1000 crores for the FY 2021, which is comparable to those of big legacy bank brokers such as ICICI Direct and HDFC Securities.