Will bank brokerage ever catch up with discount brokerages in Australia

The financially and mentally turbulent period since March 2020 has had a massive impact on retail trading patterns – in Australia and globally. 2020 and 2021 were the perfect storm of events colliding. From grave concern about the future of the economy, to unprecedent central bank support, to the fastest V-shape recovery in the history of the stock, to meme stocks rising 100% each day, to cryptocurrencies becoming more valuable and mainstream than ever, to an eventual back-to-normality sort of scenario which is unfolding now.

Not only retailer traders across the globe have started buying shares for investment, but they also started trading frequently and heavily with massive leverages. Just ask American about Robinhood and they will tell you all there is to know about a broker that chose to gamify the market and offer access to leverage. Similarly, in Australia, we have seen the rise of Superhero, and in Canada brokerages Questrade and Qtrade became ever so popular. While Robinhood’s stock decline since its IPO and lost even more recently after releasing its financial reports for 2021, it is still a phenomena turning $250-500m in revenues each quarter.

What’s common between Robinhood, Superhero, Questrade and Qtrade? They all offer free ETF buying and encourage retail traders to trade a lot as these customers no barring on the fees they would ultimately pay, as long as they are trading free instruments (on Robinhood, many stocks are also free to trade). What is also common between all the aforementioned online brokerages? They are all widely popular and their growth has spud up during the pandemic.

In Canada, BMO Investorline, a discount brokerage owned by Top Five Canadian bank BMO, has made its mind to stay relevant in the brokerage space and is now offering free buy and sell of more than 80 ETFs. Moreover, BMO Investorline is offering an incredibly high cashback promotion to the tune of $2,000. That, together with vast improvement in the broker’s online platform and mobile app, have transformed it from an archaic brand into a leading broker, on-par with its competitors.

Is Australia going to be the next? So far, the biggest bank-owned brokerage in Australia, CommSec, a subsidiary of CommonWealth bank, is showing no signs of trying to match up with low-fees brokerages. In fact even as much as visiting the broker’s website could give a prospective customer a flashback right in the 1990s. The trading fees that CommSec proudly boasts on the “Why Move to CommSec” page that each trade is “only” $10.00, while Superhero offers free ETF buying and $5 for share buying in Australia and no fees on ETFs and stocks in the U.S.

It appears like Australia banks could be slow to react. Just look at a other areas such as international bank transfers. You would have expected Australia’s banks to remain competitive for that, but they have shed a ton of market share to Fintech startups like Wise Australia. In fact, there are fewer and fewer Aussies who would conduct their international money transfers through a bank now that it was made clear for customers that they are paying as much as x4 or x8 of what they can do with a bank-beating alternative service (like Wise). Stock brokerages are a bit of a taller order than a bank-to-bank payment services, hence – we don’t see Australian bank-owned brokerages even making an effort in being more competitive.