As the pandemic set in, one of the primary beneficiaries was online or e-brokers as millions of retail investors embarked on their investment journey by opening new accounts and trading stocks and options with unparalleled frequency. The old guard of specialist hedge funds and sophisticated long-only asset managers have been humbled by the hordes of retail investors taking over. For instance, A survey of 2,000 investors in the United Kingdom showed that 4 in 10, or 39% had “dramatically” cut spending and were funding investments. Investors favoured traditional investment asset classes, although 24% were exploring cryptocurrency as an alternative investment as it had “not been negatively impacted by Covid-19”.
Due to digital inclusion schemes, several financial service providers are bent on operating at scale and bringing those who have largely remained outside the financial system under its wings. FinTechs and tech applications are disrupting the industry and the competition within the system is allowing even the least common denominator to opt for tech-backed market services at very low fees and commission rates. In fact, it is backed further by a steep decline in costs per every transaction made in purchasing or selling shares, and brokerage firms are adopting the same to compete with their traditional peers. It is an indication of where millennials are preferring to go to avail of seamless access. They can get market advisory while availing services at nominal rates.
The UK has been one of the major markets experiencing a strong increase in retail investor activity with platforms such as Hargreaves Lansdown, AJ Bell, and Interactive Investor experiencing increases in new account openings and inactive accounts reactivating. According to a recent research study by Mordor Intelligence, titled E-BROKERAGE MARKET IN THE UNITED KINGDOM , the e-brokerage market in the United Kingdom was valued at EUR 586.8 million in 2020, and expected to reach EUR 768.3 million by 2026, registering a CAGR of 4.59% over 2020-2026.
According to Industry Survey 2020, 33% of the British owned shares. The most popular reason the British gave for investing (55%) was that savings accounts offered poor interest rates. Three-quarters of generation Z (75%) and millennials (74%) said they would invest after the pandemic, while only 4 in 10 (41%) of the silent generation said they would invest.
The pandemic was a key pioneer in the shift towards e-brokerage solutions. Most of the new investors are short-term speculators rather than long-term investors. The average age of new entrants during the pandemic was less than that of existing investors. The average self-directed investor has less than 50,000 EUR and the new investors have even less. These first-time investors are also interested in ESG investing which can be used to shift the speculators into long-term investors. For instance, in 2020, the Financial Times estimated that 15% of the UK stock market was held by individual shareholders and 271.8 million trades were executed in the London Stock Exchange despite the spread of COVID-19.
However, the demand is expected to sustain in the coming years. For instance, as per a poll carried out by Barclays in July 2021, 76% revealed that they will continue with the investment done over lockdown. On average, UK investors will invest 19% more each month post the lockdown. This number is expected to be 36% in the case of Gen-Z investors. As per the poll, only 6% of UK investors are expected to reduce their monthly investments.
Going forward, the retail investment sector is set to experience a change in the landscape with the anticipated shift towards Web 3.0. Currently, Web 2.0 is the way the internet is being experienced. However, it draws criticism as the servers via which the internet is accessed are owned by centralized powers like giant tech corporations and governments. The idea of Web 3.0 decentralizes networks and the infrastructure related to ownership with a focus on having an internet where services and content are built and stored on public-based blockchains. As blockchains are managed and controlled by public networks and not individual companies, this will create a paradigm shift in the internet that currently operates. Email and other internet activities including financial applications in the future will run on the blockchain, peer-to-peer networks, and other decentralized platforms. Non-fungible tokens (NFTs) have been one of the first applications of the Web 3.0 network and have gained traction amongst the public over the last year mainly driven by the anticipation of Web 3.0 and the metaverse. NFTs can be bought, sold, and traded. As they are built by the Ethereum network, platforms such as eToro enable retail investors to purchase NFTs via Ethereum.
With the rise in the number of investment avenues and asset types, retail investors are shuffling between multiple financial apps. The multi-facet financial apps that are user-friendly allowing users to have central access to their investment portfolio will be the preferred go-to option for retail investors in the future.
The e-brokerage market is here to stay as traditional offerings continue to make way for new-age technology-driven solutions. Discount brokers offering low-cost trading platforms while offering seamless execution are ideal for all investors as they offer lower brokerage rates, reduced transaction time, and superior customer experience. The new investors and traders understand how discount brokers help investors add more value to their investing behavior. The new generation of users will only grow to appreciate the utility of these apps in bringing them closer to capital markets.
