Germany’s largest robo-advisor Scalable Capital enters the market for virtually free securities trading, as shown in a communication sent out by the Munich-based fintech company on Monday, June 15th.
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The pricing model of Scalable Capital
The pricing model is a challenge to the Berlin neo-broker Trade Republic and to established competitors such as Comdirect and Flatex. For example, the “Free Broker” pricing model offers a free deposit; 99 cents are charged for each order (for Trade Republic it is currently still $1.12 (€1). There is also a kind of “all you can trade” model for $5.61 (€4.99) per month. According to the notification, this offer, called “Prime Broker”, includes an unlimited number of trades and any number of savings plans, also free of charge. With annual debiting, there are even only $3.36 (€2.99) per month.
In concrete terms, however, according to the available documents, Scalable merely acts as an investment intermediary. The actual business of managing securities accounts is carried out by Baader Bank in the background. The fact that Scalable Capital is venturing into the still young, but already highly competitive “free brokerage” market shows the potential that the fintech industry attributes to the new model. The approach originated in the USA, where market leader Robinhood is now valued at around $8.3 billion.
In Germany, Trade Republic made the topic acceptable, followed by providers such as Justtrade, Smartbroker or Gratisbroker. Last week, the Dutch trading specialist Bux also announced that it wants to send its own “free broker” to the German market. At the beginning of this year, US pioneer Robinhood actually wanted to launch in the UK and soon after in Germany, but this launch was delayed.
How the “free brokerage” works and how the providers still want to make money with this business model
In short, the approach usually boils down to the fact that in most cases the providers cooperate with only one trading center – and receive a kind of kickback for the trades executed there. For Trade Republic this trading partner is the “LS Exchange”, for Scalable Capital it is the electronic trading platform Gettex, which belongs to the Munich Stock Exchange.
Scalable Capital did not enter the trading business earlier, because the company wanted to concentrate its forces on other fields first, as explained by the founder Erik Podzuweit. In fact, the Munich-based company, which originally started out as a pure B2C robot, is now also quite successful in the B2B sector. The Austrian Raiffeisen Group, for example, uses Scalable’s white-label solution, as does the Spanish Santander subsidiary Openbank. Podzuweit does not deny that the brokerage solution is also intended to offer its own white-label customers an even wider range of products in the future. However, the Scalable boss emphasized that the focus is initially on the end customer business. “We are convinced that low-cost retail brokerage has enormous potential in this country and that this market is only just beginning to develop.”
What is striking is that while most investment finches concentrated on a single product in the early years, the leading players are gradually expanding their product range. Scalable – which started out as a pure digital asset manager – now also offers its customers access to overnight and fixed-term deposit offers (and now also to shares, ETFs and ETF savings plans).Its Berlin-based competitor Liqid has also recently added savings coupons to its virtual shop window.
Conversely, the deposit broker Raisin (“Weltsparen”) has long since opted for a robotic model similar to the “Weltinvest” model, while its rival Deposit Solutions (“Zinspilot”) cooperates with the Berlin-based robo-advisor Quirion in the investment sector. Industry experts assume that this trend will continue in the next few years – after all, it makes sense to persuade customers who have once been won over (and often expensively) to buy additional products.
Admittedly, the fintech companies – originally set out to challenge the banks – are now also competing with each other with this strategy. There is even the danger of self-cannibalization. Thus, many digital-affine customers looking for long-term investment opportunities weigh between Robo-Advisor and a (usually even cheaper) ETF savings plan – Scalable Capital now offers both products. “We do not see this as cannibalisation but as an addition to our range of services,” said Podzuweit. “And more importantly, the development is taking place anyway. Neo-brokers will be a natural fit in a few years.”
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First published in finanz-szene.de, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
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