The financial services industry has historically been susceptible to disruption by evolving technology. The broking business isn’t far behind, said Motilal Oswal , CMD of Motilal Oswal Financial Services. He added that stockbroking products have remained traditional but the way they are traded has changed. Excerpts from an email interview:
Given the impact of technology, what strategy is the broking industry pursuing?
In the broking business, almost 49% of [revenue] now comes from the online channel and almost 25% of business comes from the mobile platform.
We have launched an electronic know-your-customer-based account opening process whereby the customer account opening and onboarding are done completely online; [no] physical documentation is involved. We have also introduced real time based chatbot to resolve customer queries instantly.
The trading time has been extended for the exchanges. What would be the impact?
All the market management processes are digitised. There shouldn’t be any transition issues for brokers. However, their fixed costs could go up as brokers will need more manpower. We hope an increase in volumes will offset the expenses.
Your Q4 numbers have been healthy...
This performance is the outcome of our strategic objective outlined a few years ago to achieve greater linearity and higher Return on Equity [RoE].
Our asset and wealth management business topline [grew] +66% year-on-year, whereas revenue from the capital markets segment were up 47% YoY. 54% of revenue in FY18 came from linear sources such as asset and wealth management and housing finance. The share of revenue from the capital market vertical was 38%.
Your target is 20% return on equity. How do ensure this for all your verticals?
Our overall RoE last year stood at 27%. As a group we are committed to deliver 20% of RoE in each of our seven businesses. Having said that, some businesses are still in investment phase; it will take time to deliver the desired RoE. The group’s strategy is clear that we will remain invested in a business if we believe that 20% RoE is achievable. This strategy makes us different from our peers as we chase profit first and scale next.
What are the competitive dynamics?
In broking, there are discount brokers who offer discounts on brokerage and earn through volumes. On the other hand, there are players like us who believe in service and prefer to be a full-service broker.
We believe that research, advice, and relationship are our biggest differentiations which add huge value.
In stockbroking, there were practically no modern products for retail investors...
In stockbroking, products are traditional but the way they are traded is very different. There is limited scope in terms of changing products fundamentally as there might be regulatory constraints.
However, some structured products or any further forward integration of products is possible by keeping technology at the front end.
What are your future growth plans?
Our strategy to diversify our business model towards linear sources of earnings like asset management and housing finance continues to show results, with the bulk of the revenue pie now coming from these new businesses.
Each of these businesses offers significant headroom for growth and operating leverage as they scale up. We are excited by the overall positioning of each of our seven businesses to capitalise on various tailwinds created by financialisation of savings, the shift from unorganised to organised [players] due to demonetisation and GST, and several other macro trends.
