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This article first appeared in Capital, The Edge Malaysia Weekly on August 21, 2017 - August 27, 2017

While the entry of ride-sharing platforms such as Grab and Uber is disrupting and redefining the taxi industry, Rakuten Trade Sdn Bhd is hoping to do the same, but in stock trading.

It has been three months since the low-cost online equity broker introduced its services here and it has exceeded internal expectations, according to managing director Kaoru Arai.

The online trading platform has revealed the potential growth in the number of young traders who invest in the stock market, allowing them to invest with lower incomes, which is not possible with traditional brokers.

According to Arai, 20% of the company’s 2,000-odd clients are in their twenties and thirties. He says most of them are novice stock traders, so their trading volume is still “very small”.

Comparing Rakuten Trade’s experience with Lazada, Arai says shoppers would start buying small items first and when they feel more confident, they would buy more.

Rakuten Trade is looking to capture a 30% share of the retail investor market, in terms of total trades, in three years. That is also when it hopes to post a profit.

The company is a 50:50 joint venture between Kenanga Investment Bank Bhd (KIBB) and Rakuten Securities Inc of Japan and was established in April last year.

“At the time, we were looking for a business partner for growth in Asean as Japan’s online retail market had reached maturity. In Japan, we are the second largest online equity broker after SBI Securities. Together, SBI and Rakuten Securities command more than half of the retail trading value,” Arai tells The Edge in an interview.

“The most important thing is, our online broking business is purely retail, thus, our partner must understand the individual retail business in order to make sense to us. And decision-making must be very fast,” he adds. KIBB has one of the largest retail investor customer bases in the country.

A search on Bursa Malaysia’s website shows that in July, local retail investors accounted for 18.35% of the total value traded, amounting to RM39.4 billion, after local institutional investors at 46.64% and foreign institutional investors at 22.29%. However, out of the total volume of 37.1 billion shares traded, local retail investors took up the biggest share at 44.4%, followed by local institutional investors at 26.14%.

According to iMoney.my — a financial comparison website — Rakuten Trade offers the lowest brokerage fees compared with the existing online trading platforms of local brokerages.

For trades below RM1,000, Rakuten Trade charges a flat fee of RM7. From RM1,000 to RM9,999.99, it is RM8; and from RM10,000 to RM99,999.99, it is 0.1% of the trading value. For trades above RM100,000, it is a flat fee of RM100.

In comparison, the minimum brokerage fees of other online equity brokers range from RM8 to as high as RM29.68, iMoney.my data shows.

Arai says Rakuten Trade is able to offer such competitive commission rates and low subscription fees because its human resource cost is low. Its online trading system — iSpeed.my — eliminates the need for any human intervention during the trading process as the platform links directly to the stock exchange.

It allows stock traders to sign up for an account online to transfer and withdraw funds seamlessly, have fast access to research materials and market information as well as a unique reward programme, Arai says.

“On Aug 1, we launched a loyalty programme, under which clients can earn Rakuten Trade points when they open a trading account, refer their friends to the platform or transfer their shares to Rakuten Trade. These points can then be converted into AirAsia Big points, BonusLink points or B Infinite points.

On plans to offer access to overseas investments, Arai says much will depend on its success in Malaysia. Looking at the immediate term, the company plans to provide margin trading services.
 

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