Kite: Zerodha’s Disruptive Fintech Platform

Another day, another fintech platform that changed the course of the industry forever. If you are thinking that if it is a life altering platform, why haven’t you heard about it, I won’t blame you. When I first opened my demat account, I tried looking for Zerodha on playstore. However, when I could not find anything, I realized that they have made the application under the name of “Kite“. The application is developed in house by Zerodha in 2010. In it’s simplest form helps you buy and sell stocks, in the market. Also, Zerodha is now the largest stock broker in the country.

Even if you are not connected with the entire world of equity, stocks and related stuff, the story behind Zerodha is worth your time.

My Encounter with Zerodha’s Kite?

Pandemic was still 2 months away from us and I found myself taking keen interest in stock markets and related world. I would spend hours reading, watching YouTube videos about the markets in general. Skill skeptical of jumping into the pool of direct stocks, I talked to one of my colleagues. He suggested me a platform called ICICI Direct. I waited to gather courage until one fine noon of 17th March, 2020 (6 days to lockdown 1.0)

So, I applied for a demat account with ICICI direct. All the online verification was done and I even got a call from their executive confirming that they’ll be sharing my credentials in about 7 working days. Who knew that the definition of working days was about to change forever.

The Lockdown:

On 23rd March, Modi Ji asked each one of us to stay at homes. Like many others, I had some disposable income during that time as dining out, experience based expenses etc. were cut down to zero. Reliance was also at it’s 5 year low during that period. With all this piling up in my head, I decided to give ICICI a call. Only to hear an automated machine asking me to check on their website for help due to lockdown restrictions. I tried reaching out to them via mail, SMS, Social Media and customer support, with no help whatsoever.

I decided to move to my second best option: Kite by Zerodha. Submitting a request with documents was a 15 minute job. Every document was sought online. I got a call from their executive the same evening. He mentioned that as per the SLA, they open the account in 24 hours, however due to Covid, it’ll take about 3 days to open mine.

Day 3: I woke up and my phone accompanied me to the washroom and there it was. Credentials to my Zerodha account. In some unordinary circumstances, team Zerodha performed normally. If foundation of your relationship starts off on a high, loyalty is usually a by product.

Kite’s Story and Disruption Model:

Zerodha and hence the kite, was founded by Kamath brothers: Nithin Kamath and Nikhil Kamath.

Nithin bootstrapped and founded Zerodha in 2010 to overcome the hurdles he faced during his decade long stint as a trader. For those of you who don’t know, bootstrapped is a self funded startup. A culture where everyone is gunning for funding, Nithin decided NOT to sell any stake in the company for funding their dream.

He was named one of the “Top 10 Businessmen to Watch Out for in 2016 in India” by The Economic Times for pioneering and scaling discount broking in India.

Nikhil is an astute investor with over a decade of experience and an impeccable track record, who specializes in modelling sophisticated long term investment strategies and portfolios. He heads investments and risk management at Zerodha. A lesser known fact is that Nikhil dropped out from school when he was 16 to enter into trading business. He took up a job at a BPO for Rs. 8000 per month salary and traded in his part time.

Disruption:

To really appreciate this, we need to take a step back to understand how brokers make their money. When you buy or sell a stock, they may charge you a fee because they have enabled this transaction online. Alternatively, they could charge you a share of the transaction amount. After all, that is what brokers do in real estate industry as well.

That is exactly what was happening in the pre 2010 era. For a retail investor, this was not a pain point. Paying a sum as lumpsum for a transaction was just fine. However, for a trader, who transacted in multiple stocks, even in a single day, the crunch was real.

Here’s when things get interesting. These retail investors that I just mentioned, only formulate 5% of the total volume being traded in the market. On the other hand, the massive chunk, 95% comes from these traders who deal in stocks it for a living.

So, now you know, these stock brokers were minting huge sums of money.

Zerodha realized this and came up with a tech backed product. They would charge a flat amount per trade rather than charging the share of customer’s transaction value. Apart from that, if you are not buying and selling in a single day, the transaction is free.

They marketing themselves as zero commission broker and it paid off.

Zerodha is currently, India’s largest stock broker with an 18% market share.

What Differentiates Zerodha?

This low cost zero commission model by Zerodha was picked from the west. However, certain apps like Robinhood are under scrutiny for not doing enough to tell their customers about risks of trading. The point where you keep customer satisfaction above your own personal gains is when you become a successful company. Here are some key differentiators of Kite by Zerodha:

1. Education:

In tandem to a classic tech product, Zerodha focusses a lot on educating it’s clientele about the stock markets. They have a dedicated application called Varsity that is meant for byte sized learning. Apart from that, they have also partnered with Finshots to help their customers demystify financial jargons.

2. Information:

Zerodha makes sure that it’s customers never stay in the dark. So any information from the system, policy, changes point of view, in the stock market is informed to the customers diligently through notifications and elaborate articles. For example, about a month ago, there was a glitch in NSE and transactions weren’t going through the entire day. Zerodha informed the customers about it in the morning, kept on following up and updating on the situation and finally took a call to square off positions in the evening.

Similarly, if a stock is notorious for being illiquid in the past, Zerodha will give you a prompt before investing into it. Also, you would have to go through a separate authentication layer just to make sure you know what you are doing.

3. Eco System:

Kite is just one aspect of the Zerodha ecosystem. They also have multiple other products like Sensibull, Smallcase, Sentinell, TradingQ&A, Coin. All these apps are meant to assist investors in taking smart decisions while investing. Some of these apps also assist mutual fund investments. All of this is very nicely integrated to each other so that a customer’s experience is uniform across platforms.

In nutshell, Zerodha is trying to create a universe of platforms. With so many touchpoints, it would be harder to switch from Zerodha and further incentivize a new customer to join in.

Conclusion:

Recently, Zerodha became a unicorn by hitting $1bn in the valuation. This is one of those rare moments when a bootstrapped company is able to do it. It is indeed the longer, tougher, unsexy part of the startup ecosystem. Even after that, Kamath brothers have not thought of settling down. They are on to their next venture called True Beacon where Nikhil has set up a portfolio management service managing funds for ultra HNI clients. If this is not inspiring, I don’t know what is.

What are your thoughts on this?

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Until next time..

This blogpost is in association with Blogchatter’s #BlogchatterA2ZChallenge.