Bullish on Online Stock Broking with Relaunch of Commodities & Derivatives Exchange and Adoption of Advanced Data Analytics & AI in the Philippines: Ken Research
Resilient Financial Brokerage Industry
Even with declining equity trading, brokerage industry in the Philippines is all set to catapult to one of the leading financial services sector. Revenue for the brokerage firms is primarily derived from brokerage fees in equity trading which has been declining for past few years, even though the number of trading accounts has grown significantly from 640.7 thousand accounts in 2014 to 1.08 million accounts in 2018. The market is growing both in terms of quantity of people serviced and quality of service.
New brokerage firms have entered the market and are focusing on developing technological capabilities to complement the rising trend of online trading. Technological developments in trading and introduction of new financial products in the market will act as a huge catalyst for growth of brokerage market.
Improving Philippines Stock Market Performance in SEA
The Philippines Stock Market has been one of the top performers in Southern Asia even at the wake of external political disturbances in South-Asia due to US-China trade war, etc. The brokerage industry which had previously suffered due to volatility in equity market & regulatory oversight has now seen significant changes leading to a stable economy which is well-shielded from destabilizing macroeconomic factors from outside the Philippines. The Peso has also stabilized over the past few years and is one of the strongest currencies in Asia. Political stability has also played a significant role in strengthening of the market, resulting in increase in investments by both domestic & foreign investors in the past few years. A higher volume of investment across all these segments increases revenues for brokerage players. The Securities and Exchange Commission (“SEC”) implemented ASEAN Capital Markets Forum (“ACMF”) Pass, which facilitates the movement of finance professionals across international borders. This has integrated the financial services community of ASEAN countries together to work towards a common goal of financial services sector development in the region.
Online Trading Gaining Momentum
Traditional financial services firms and banks enjoy a high customer base due to their first mover advantage and strong foothold in the market. However, lack of technological advancements has limited their scope and service quality. Online trading has started gaining momentum at the start of the current decade and played a pivotal role in driving the retail brokerage market. Online trading is transformed the traditional trading in Philippines and it is expected that by 2025 around 70% of the trades would be placed through mobile platforms. Introduction of discount brokerages could be the next big thing that could alter the market dynamics greatly. The number of online brokerage accounts has grown at a staggering CAGR of 37.0% from 2013-2018 whereas the proportion of traditional accounts has declined from 72.7% in 2013 to only 42.6% during 2018. The no. of online trading accounts has increased by 60.9% in 2018 reaching 625,673 accounts by end of 2018.
Rebooting the Exchange
Commodities’ trading in the Philippines was suspended back in 1996, owing to operational inefficiencies. The SEC is in process of setting up a new commodities exchange to restart derivatives trading but is facing problems in finalizing the products which can be commoditized and to gain cooperation of different stakeholders. There is also a lack of consensus on establishing a system of standardizing measures and verification and setting tax rules for commodities trading. Rebooting the exchange will give the brokerage houses an opportunity to capitalize upon additional financial products. The new segment is expected to drive the brokerage revenue of brokerage firms in tune of 1.5X to 1.75X as well provide better hedging opportunities attracting FDI in the country.
Sustainable Future Growth with Investor Education
Growth of Philippines Financial Brokerage Market is anticipated to be driven by growth in trading volume through improvement in investor participation, surge in implementation of new technologies, collaboration between financial services firms, banks and fin-tech companies and growth of fin-tech firms. Economic growth in past few years has raised the personal-deposable income of Filipinos (especially the middle class), who are looking for other avenues to invest the extra income apart from increased savings., In addition, the low- interest rates in the Philippines have increased the demand for portfolio management and advisory services. Investor education initiatives will also prove constructive for the growth of brokerage industry as there is inertia amongst non-investing population towards the investment industry. This is mostly due to their misconceptions regarding presence of numerous financial & operational risks in the industry. The emergence of new technologies like artificial intelligence, block chain technologies & advanced data analytics is expected to transform the way financial service firms operate. Digital disruption is also anticipated to make Philippines financial markets more transparent, accessible, inclusive and efficient. Moreover, it will also help the regulators get a better sense of the risks that participants typically take and could help in identifying new patterns of trading or system abuse in capital and derivative markets in real time analysis. The industry is also witnessing higher demand for dealership & portfolio management activities as the no. of ultra-high net worth individuals( Net wealth > USD 50Mn) have grown from 13 to 400 during 2000-2017 and is likely to expand further at 10% a year in the next 5 years.
Expected Double Digit Growth
All these development might help in eradicating barriers which has slowed the industry revenue in the past few years. The revenue from commissions has declined at a CAGR of 5% between FY’2014 and FY’2018 primarily due to the decrease in equity trading volume in the country. We now anticipate the overall brokerage market to grow at a CAGR of 12.5% between FY’2019-FY’2023. “Philippines Financial Brokerage Market Revenue is expected to reach over PHP 12.5 Billion by the year ending 2023”, according to Namit Goel, Director Research, Ken Research
The various new avenues for this industry that are expected to enter the landscape for the realization of this projection are initiation of commodities & derivatives trading, Mutual funds market expansion, introduction of discount brokerage business model in the market, digital disruption models and many other competencies.
For more information on the research report, refer to below link:-
Philippines Financial Brokerage Market
Ankur Gupta, Head Marketing & Communications