SBI Securities’ “Zero Revolution”: free stock trading (2023)

Discarding fees, betting on the customer base

At the heart of this decision was that SBI discarded, of its own accord, one of its largest revenue sources — trading commissions — while it was still turning a profit on them. Online-brokerage commissions were drifting toward zero in a race to the bottom and were fated to lose their power to differentiate. Rather than be cornered into it late, SBI Securities moved to make them free, choosing to maximize the customer base of accounts in exchange for the fees it surrendered. By timing the move to coincide with the new NISA, a change in the system, SBI turned it from mere price competition into a single stroke that enclosed the base while widening the investing public.

Whether the bet pays off turns on how much of the gathered customers it can convert into revenue. Margin-trading interest, foreign exchange, investment trusts, referrals to group companies — unless the pillars of revenue that replace commissions all turn together, going free will turn into an attrition of strength. Once commissions are zero, the difference between firms shifts to lineup, service and the depth of the group, and the value of a brokerage moves from intermediating trades to owning the customer base itself. SBI Securities’ Zero Revolution remains a decision that thrust that question at every online broker.