The brokerage segment’s profit margin gradually narrows, so what do securities companies race for market share?

In the third quarter, the gross profit from brokerage activities of securities companies was only about 700 billion dong, down nearly 37% compared to the previous quarter and the lowest level within 7 quarters. Gross profit margin shrank to 23%, much lower than the previous quarter’s 28% and peaking at 37% in the fourth quarter of 2021.

The stock market is going through one of its toughest periods since the wave of new investors landed. Liquidity is increasingly “shrink” with the average matching value of the session falling below 10,000 billion dong. In that context, the revenue from brokerage activities of securities companies is also shrinking.

According to statistics, in the third quarter of 2022, the total brokerage revenue of securities companies reached about VND 3,100 billion, down 23% compared to the previous quarter and only equal to nearly half of the boom period in the fourth quarter of 2020. 2021. On the other hand, the expenses of securities companies for this activity in the third quarter also decreased by 17% compared to the previous quarter and 54% lower than the last quarter of last year, about 2,400 billion dong.

As a result, the gross profit from brokerage activities of securities companies in the third quarter of 2022 was only about 700 billion dong, down nearly 37% compared to the previous quarter and the lowest level within 7 quarters. This is also the first time that securities companies have gross profit below trillion from brokerage activities. Gross margin shrank to 23%, much lower than 28% in the previous quarter and peaking at 38% in 1Q2021.

One of the reasons why the gross margin of brokerage activities of securities companies is getting narrower comes from the increasingly fierce competition among securities companies. The race for “zero fee” has not ended as hot as more and more securities companies reduce fees, even free transactions.

Meanwhile, revenue from brokerage activities also gradually shrunk as the wave of new investors cooled down. After a period of continuous hot growth, the number of new accounts opened by domestic investors has continuously decreased sharply recently. In September, domestic investors only opened 102,000 new accounts, the lowest in 14 months since July 2021.

It should be noted that many securities accounts will fall into the “passive” state due to passive opening. Customers who open an account at a bank will be automatically opened a securities account by securities companies associated with the bank while there is no real need for trading. As a result, the number of new investors entering the market may be much lower than the new account opening statistics. On the other hand, it is inevitable that there are investors leaving the market after the recent difficult period.

Race for market share to do?

Although revenue is shrinking and gross profit margin is also thinning, the brokerage business still plays a very important role in the operation of securities companies. Because, the benefits from the “huge” customer file can bring much greater than the normal transaction fee revenue.

One of the obvious benefits is the positive impact of having a large customer base on lending operations. Of course, investors often prefer to use margin at securities companies that already have accounts, although the interest rate factor may cause customers to change their mind. The larger the customer base in some respects, the higher the demand for margin loans.

In addition, a large customer file will also help securities companies bring products to investors more easily. Previously, if investors participated in the stock market because they mainly invested in stocks, now the demand has changed. Investors need securities companies with good asset management capabilities, ensuring profitability despite the ups and downs of the market. This means that when stocks are less attractive, the demand to invest in bonds, fund certificates or other products will increase.

Grasping this trend, securities companies have also gradually built up an ecosystem of many different products. Typically, VNDirect with products such as D-Bond, D-Money, D-Cast and retirement savings packages, Saving piggy bank or setting up own investment funds (VNDAF Active Investment Fund), .. These products will be more effective when marketed directly to customers.

Moreover, the gloomy trade may only be a short-term problem due to the influence of interest rate hikes and market clearing activities. Basically, oriented securities will become more and more popular and the number of investors will continue to increase is an inevitable trend. In Vietnam’s securities development strategy to 2030, the Ministry of Finance sets a target that the number of investors on the stock market will reach 8% of the population by 2025 and 10% of the population by 2030.

Obviously, the growth potential in the long-term is very large and shaping the brand and increasing the presence right now is very necessary for securities companies. This is also the reason why the race for brokerage market share is still very hot.

Piece of cake is increasingly fragmented

In fact, the position of securities companies in the market share game has been mixed in the past 3 years. In the previous period, the market share race was almost exclusively confined to SSI, VCSC, and HSC groups. At that time, investors did not have many options when the number of securities companies with real potential was still limited. Although the above securities companies charge high fees, they still attract customers thanks to their established brands.

However, the situation has changed rapidly when the number of investors participating is increasing, along with the strong rise of competitors. The heavy reliance on institutional customers while the market has almost no IB transactions (financial brokerage) in the past 2 years, has made SSI, VCSC, HSC catch up the game slower and gradually. lose market share.

Meanwhile, securities companies that focus on retail development with a focus on individual investors have risen strongly, even surpassing their seniors like the case of VPS. With a strong brokerage team, this securities company has risen to the number one position in terms of brokerage market share on all 3 exchanges and derivatives in recent quarters. VNDirect is also retail-oriented, but the strategy is somewhat more focused on asset management, so the market share remains quite stable.

In fact, the brokerage segment at many securities companies brings in very low profits, even no profits due to having to pay large commissions for brokers. Therefore, a number of securities companies have boldly abandoned human brokerage activities such as DNSE, TCBS, Pinetree, … instead of fee reduction programs for users. The move to trade off revenue for customer files and this direction is also making the race to reduce fees between securities companies become more and more intense.

In addition, the appearance of foreign securities companies also makes the competition increasingly fierce. In the past, it was rare for the top 10 brokerage market share rankings to have foreign elements, but now Mirae Asset, KIS Vietnam have regularly appeared in this list. Some other foreign securities companies such as KBSV, Maybank Kim Eng also entered the top 10 brokerage market share many times.

Unlike the development direction of many domestic securities companies, securities companies with foreign capital do not have to spend too much money to maintain a large brokerage team. Instead, this group is making good use of low-cost capital. The preferential interest rates on margin loans are helping this group attract more and more customers’ attention. With the strong financial potential of the parent groups behind, foreign securities companies are forecasted to have more fierce competition in the coming time.

Ha Linh/Market Lifestyle