Strike a right combination between discount brokerage and traditional brokerage model

Discount broking has picked up as a segment in India with brokerages offering execution services only on a flat fee model. The number of discount brokers in India is up from single digit to now 20-30. However, the industry is stuck at offering a base model only. Consumers have the option to transact online by opting for a pay-per trade model; however that is a complete no frills model. No demat services, advisory services or working capital being blocked by the broker.The problem with discount brokers in India is absolute lack of flexibility. Imagine a Monday when the markets were down by 5% and you had Rupees 50,000 in your trading account and desired to buy stock worth Rupees 1,00,000 with a commitment to pay off the balance Rupees 50,000 by the settlement day Wednesday (T+2), it would not be possible to do so with a discount brokerage in India. You could only buy stock worth Rupees 50,000. Now imagine, that you got lucky and the stock was up by 5% the following day - that would mean a notional opportunity loss of Rupees 2,500 (50,000 * 5%), far more than the savings in brokerage with a discount broker. There is a classic saying to explain this situation being faced by clients of discount brokers in India."Penny Wise, Pound Foolish". So, the need of the hour is multiple variants from a base model to a full-loaded model. What the brokerage industry in India really needs is a combination of the discount brokerage and traditional brokerage model. The low cost savings of a discount brokerage and the flexibility and service range of a full service broker. While discount broking appears to be the future, discount brokers in India need to offer a no frills base model and then higher variants with incremental features at higher pricing. The power of picking and choosing the services needs to be put in the hands of the consumer.

There are a couple of stock brokers in India who are actually doing so. They are unbundling the pricing structure of the brokerage industry. Their base model no-frills discount broking service offers trading at flat Rupees 20 per transaction - irrespective of the exchange, segment or size of the transaction. They now also offer customers the flexibility of buying more shares than for the amount lying in their trading account unlike the current discount broking industry practise.