There are so many things to hate about Facebook as a product. And even though that’s mainly our own fault as a society for supporting it, the strategy of first ‘scooping up as many users as you can and THEN working out how to monetise them’…well, dammit…it worked.
Everyone knows, from the movie, that it was originally designed by the Winklevii to rank hot chicks at Harvard, then the Zucks lizard impulses drove him to steal it and convert it into the thing it is today, noticing that the internet was starting to value things based on ‘likes’ – as that created ‘influence’. And ‘likes’ then became more valuable than ‘true’ or ‘good’.
So the gameplan now for a lot of tech industries is to just follow the Zuck model. Give it away for free or unprofitably, make it addictive and suck people into making it part of their day-to-day life, with little nudges from time to time to remind them to use your product, or that they’re missing out somehow. Add in some games or competitions, where people compete for little meaningless prizes or badges.
Then jack up the price.
In the case of Facebook, the ‘price’ came in the form of selling our data, allegedly using it for nefarious purposes like rigging elections and controlling content to drive public opinion one way or another. And selling us ads disguised as news content after telling the advertisers what we like. So, its not really free – there’s actually quite a big cost, but its still pegged as ‘free’.
People are now relying it on it for their understanding of major global events, or political leanings, or the reality of UFO’s. So, its pretty dangerous. And we lost a lot of quality news content as a result of ‘like-chasing’, and created the Kardashians.
Uber on the other hand was similar and different. Taxis needed improvement. They were grubby, expensive things that never turned up when you needed them. So Uber ‘disrupted’ them.
Newer cars. Drivers and passengers that were incentivized to behave better, an app with tracking, and much lower prices. Only used to cost a few bucks more than a bus to get into the city.
Now, I reckon an Uber costs about as much as a taxi ever did and I can’t even remember the last time I was offered a mint or a bottle of water. Now the standard Uber is a 15-year-old Hyundai Excel still reeking (smelling sweetly?) of the KFC they just dropped off, and ‘Uber Comfort’ costs more, but is about as good as what the standard Uber user to be (sans water and mints). Even Uber food delivery has started introducing pricing tiers, so you have to pay extra to get it while it’s still warm! (I’m told…)
So it makes sense, (but not, like, good healthy sense) that we are now seeing this same sort of ‘disruption’ in share trading products.
Good disruption and Bad disruption
In my opinion, there is good disruption – where we end up with something better all round, like Netflix (more content and better options at a lower price), and then it continues to positively grow the industry. The actors and writers still get paid, the industry still thrives. The only downside was for shops like Blockbuster, who actually got smoked by clinging to old technology, not Netflix. Still renting out DVDs even though streaming over the internet became a thing.
And there is bad disruption, where the short-term outcome seems fantastic for the consumer, but then…much worse.
First the company takes large market share, probably whilst losing money, then they can use that market share improperly, to the longer-term detriment of the consumer of the product. They don’t fix or create anything, they just convince you that a cheaper price and a flashy interface is somehow better in every way, and all that really important stuff you actually needed – well, you’ve never been in a serious car accident so why would you need airbags or seatbelts or brakes…
The low, low (usually commercially unmatchable) prices means that new products either start carving off important features to compete purely on price, or new companies don’t build a better product in the first place as they can’t get the funding to compete.
Then, when a certain amount of monopoly power is attained, either jack up the price, or start looking for novel ways of bringing the profit margin back in.
So then you’re stuck with a generally sub-standard product that ends up costing as much as the old good ones did, and less new competitors who could have innovated better products.
So what are the costs to the company providing these low cost trading products?
A lot of people complain about Commsec (et al) brokerage, but remember, to buy shares in a company from a stockbroker used to cost 2% a trade. Its still costs around 5% to buy a house, so buying part of a company was already much cheaper. Commsec is around 0.1% – 0.12% now, which is not really super expensive to start with.
To exist as a company that lets you buy and sell shares, that company has to comply with financial services legislation. They need to have their compliance systems and employees to manage that compliance, and an AFSL.
When an account is opened, they need to prove that person is who they say they are and not a crook, and therein is another unavoidable cost. And then ongoingly train staff to monitor all of the compliance and money laundering risks.
When you ask them to transfer your shares from another trading company to your new account, they need to have someone do that admin – and pretty much every single broker in Australia will require a piece of damn paper with your real signature on it to do so.
You can probably get a million-dollar mortgage from Commsec with electronic signatures, but to transfer shares out of Commsec you will need to send them a piece of paper that you downloaded, printed out and signed with a pen. If they really want to be dicks about it, and they do, they will also demand a copy of your driver’s licence to compare signatures. It’s the only thing they have left to stop you leaving, so they make it hard – and no-one is immune from these shenanigans.
Then, you’ll have questions about your account, so there are client services staff. And continuous tech development, so there’s more staff. Add them all to the compliance and legal and marketing teams, and you get the idea. Its not just the raw cost of transactions to cover.
Then, there is the cost of the data you need to know what and how to trade in the first place.
Live pricing from the ASX costs up to $20 plus GST per person per month. And you even have to pay for old prices, and old news, and someone to convert the data from the ASX into a useable data stream. And you have to host the whole thing in the cloud, and all the associated costs of doing a tech-client thing, like CRMs and automated emails and data security and computers and more. To avoid all this, old share prices are cheaper than live ones, but then they’re old prices…and stocks are volatile.
Then, they have to send your trades to a trading and settlement partner (unless they want to stump up the massive bond to send them straight to the ASX and guarantee that each client will settle on time, which would also require them having more staff to monitor that the trades weren’t breaking any ASX regulations).
The trading partner has a cost per trade levied by the ASX, and has to cover their own costs too, like printing contract notes and keeping records and communicating with CHESS. Which include staff, tech, compliance…and so forth.
So even a product stripped down to a buy/sell button can’t avoid these costs. And that money that its costing them has to eventually come from somewhere, as the trading platform company is not a charity.
There is no single best product for every trader, and until there is, each individual player will only get so much market share. Each individual trader wants different features or data-sets as part of their own strategy, and cost is only one feature – people will still pay ‘extra for better’ because no-one can cover all of these costs, do $3 bro and still deliver all of the features that everyone wants.
So which platform should you use, if not the cheapest one?
I’m not saying don’t use the cheapest one.
What I’m saying is that you can’t expect $3 brokerage to be all roses. Either they will try and upsell you to the US trading, where they make 0.7% on the cash you move to and from USD, which is a pretty sweet clip. Or it will not have live ASX pricing – so you’ll be getting ‘punched in the dark’ by people who do have live pricing, just to save literally $2 a trade. Or there’ll be some other catch.
Others have done the low, low price by pooling your shares into one account and not paying you interest on your cash and trying to upsell you to a fee-paying super fund. Another was doing it by trying to upsell you to a social following platform, but that didn’t work so they were relying on the interest they keep from your cash holdings – and that didn’t really help them either. (A shout-out to them though, at least they have started giving you live ASX prices throughout.)
The FIRE investor, or the long-term blue-chip holder who doesn’t trade much, and doesn’t trade specs:
- it probably doesn’t really matter what you use, but its better to have your own HIN. You probably want a bank account that pays interest, and a slightly higher brokerage cost shouldn’t matter to you as much. You’re probably at one of the big 4 or maybe the green-coloured one already, so if that ticks all your boxes, then it’s good for you. We still have a place for you though, its just a harder change to justify to you, as you’d have to actually open a new account (takes about 5 minutes of your time).
The ASX_Bets gambler rolling $1000 trades:
- you’re probably the perfect target for the lowest absolute transaction cost merchants. Its cheap, you don’t care about informed decisions or risk and you just need cheap brokerage. Unless you want to take it further and play the T+2 funding game – then its Tom all the way. You’re already using the market like a SportsBet account. You can come and have a look at us, but honestly, we’re selling information and tools but you probably only want a buy/sell button, a screenshot and a chat room.
The avid market follower. Anyone that does large amounts of brokerage and wants to save a lot of money but not add systemic risk. Someone who uses high-level charts. Someone who sits on decent chunks of cash. Someone who needs up-to-the-millisecond data and wants to see each line of their stock in the market, and trading tools, and for it all to be on mobile and PC. Who wants to give feedback and make platform design requests, and may have multiple accounts that they want to link to the one trading platform:
- You guys. You are our target market. We designed this platform and business model with you in mind. We are trying to make the ‘Formula One’ of trading platforms, aiming to give you everything you need and more, not the cheapest most chopped-down thing possible. You probably already know that it doesn’t make sense to save money on a financial product if you are compromising quality or data, in the same way that you don’t go to Red Dot for discount medicine.
I’m hoping this is the last time I enter the ‘race to the bottom’ debate, but I’ll probably get dragged back in by some journo looking for a quote. Its literally a race to THE BOTTOM! Why anyone would think it appropriate to strip out all of the important stuff in the name of ‘disruption’ and end up with a buy/sell button with just a guesstimate on the price you got is beyond me.
This isn’t good disruption, this is the sort of disruption that ends up with worse outcomes for everyone.
But we have a different set of goals. Come and be part of that journey, support it, help us grow, and put your own stamp on it. Cheap bro is just a feature of ours, not our primary design guide. This is money you’re investing and when it comes to the sharemarket you need more of everything, not less.
So come and join our ‘Race to the Top’! We are pretty confident; as everyone else seems to be running the other way.
At Marketech our platform is about technology, providing you the tools and technology to trade. We encourage our high-function trading platform to get you live pricing, live charts, live market depth to ensure you have the tools and trading capability at your fingertips, and on your mobile phone or PC.
You trade your own stock on your individual HIN. It is your cash in your own Macquarie account where you keep the competitive interest you earn.
Our subscribers get access to brokerage starting at $5, and then 0.02 per cent for trades over $25k. If you want to trade the market you need immediate access wherever you are and the seamless Marketech mobile app means you are live anywhere anytime.
For more information, visit www.marketech.com.au. Any queries regarding Marketech should be directed to Marketech and not to Stockhead.
This article was developed in collaboration with Marketech Stockbroking Pty Ltd (AFSL 486148), a Stockhead advertiser at the time of publishing. This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.