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Competition is heating up in the online brokerage industry.
The industry leader, SBI Securities Co., and industry number two, Rakuten Securities, Inc., have scrapped commission fees for domestic stock trading. Firms ranked third and below followed suit and removed their commission fees for clients with a new NISA, or Nippon Individual Savings Account, a tax exemption program for small investments by individuals.
The chosen strategy of the brokerage firms is to prioritize expanding the scale of their business rather than their earnings from commission fees, which have been a primary source of revenue.
Number of accounts increasing
In January this year, the number of new accounts for both SBI Securities and Rakuten Securities reached a record high of about 280,000. The number of accounts with SBI Group companies topped 12 million on Feb. 5, and the number has “steadily continued to increase since February,” according to the group.
The expansion is spurred by the decision to scrap commission fees for Japanese stocks trading. SBI announced in 2019 its plan to debut the zero-commission service and implemented it at the end of September in 2023. The number of accounts with the brokerage firm was about 11.69 million as of the end of 2023, up 22% from a year ago.
Rakuten Securities immediately followed suit and scrapped its commission fees the day after SBI’s service launched. Rakuten saw an 18% year-on-year increase in the number of its accounts to 10.2 million at the end of 2023. “We’re seeing an accelerating increase in the number of new accounts, which has been extremely favorable,” Rakuten Group Chairman and President Hiroshi Mikitani said.
Commission fees are the two securities firms’ main source of revenue, accounting for about 10% to 20% of sales. The impact of the zero-commission service was clear from their 2023 performance.
Rakuten Securities’ operating profits for the October-December quarter in 2023 dropped 48.2% from the previous quarter of July to September.
“Rakuten Securities followed suit and scrapped commission fees, but it’s in a difficult situation. We’re seeing differences in the strategies,” a spokesperson for SBI Securities said and added that the firm diversified its revenue sources, such as in-company stock management, in the lead-up to launching its zero-commission service.
Yet SBI Securities also reported a 13.5% decline in operating profits for the same period.
Other firms follow top 2
Following the two industry leaders, Monex, Inc., au Kabucom Securities Co. and Matsui Securities Co. scrapped commission fees in January for customers with a new NISA.
“Some clients came back to us after moving to SBI Securities,” Matsui Securities President Akira Warita said.
Competition is intensifying among online brokerage firms, with newly emerging firms growing rapidly. The number of accounts with PayPay Securities Corp., a leading company in security trading via smartphone, topped 1 million at the end of February.
There are also signs of collaboration between brokerage firms and other industries.
Monex Group aims to take in nearly 100 million users from NTT Docomo, Inc., with which it formed a capital and business alliance agreement last year.
“Our market share declined a little in October last year, but the decline has eased since November,” Monex President Yuko Seimei said. “We believe the effects [of intensifying competition in the industry] will weaken even further thanks to our alliance with Docomo,” she added.
Reorganization moves
Yet an executive of a leading securities firm specializing in over-the-counter services is skeptical of the moves in the online brokerage industry.
“Commission fees are equitable compensation for our service. I don’t think [the zero-commission service] is a sustainable business model,” the executive said.
In the United States, brokerage firms began offering commission-free services in 2019. Some companies have been eliminated from the industry due partly to the accelerating competitive environment. TD Ameritrade Holdings, a leading online brokerage firm, was acquired by Charles Schwab in 2019, while E*TRADE Financial Corp. was acquired by Morgan Stanley in 2020.
“Japan’s online brokerage firms are a mess right now and in the process of reorganization,” Hayanari Uchino from the Daiwa Institute of Research Ltd. said. He added, “It’s necessary to ascertain whether the commission-free service can be maintained.”
