19 July 2019

Internet finance rears ugly head on brokers

Internet finance is bringing a quiet revolution in the brokerage industry and it is not a pretty sight.

Brokers are dismayed by the ultra low commission charged by online finance operators, threatening their business and potentially setting the stage for more predatory pricing.

It’s an albatross around their neck and it’s not about to stop growing.

Internet finance companies, although a relatively new industry, has been drawing huge amounts of funds from bank deposits and making a killing in a loosely regulated market. 

Now, they’re muscling in on brokerages which make a living off tiny commission margins.

The latest example of this type of squeeze play is the ultra low commission charged by Yong Jin Bao, a product jointly offered by Sinolink Securities Co. Ltd. (600109.CN) and Tencent Holdings Ltd. (00700.HK).

The commission fee is as low 0.02 percent, a trigger that could cause brokerages to lose clients to online funds.

The Hong Kong Economic Journal’s EJ Tactics column examines the implications for China’s securities industry.

In Hong Kong, ever since brokers were allowed to freely set their commission levels, a 0.05 percent commission rate has been common for online securities transactions. Super low commission rates would have been tantamount to self-inflicted harm.

That does not seem to be the case for Sinolink and Tencent. Their partnership is based on a mutually exclusive agreement centered on their core resources in mobile and internet securities trading, account opening and other customer services.

Tencent helps Sinolink with structural design, platform development, product planning and positioning.

Yong Jin Bao has attracted a daily average of 17,600 new accounts in the 15 days since its Feb. 20 debut, about half of the market total during the period.

It was launched on the same day as a mobile app designed to speed up account opening and rifle data on securities transactions to users.

Interestingly, Yong Jin Bao is within the authorized commission range of 0.009 percent to 0.3 percent, which means it could go even lower.

Judging by developments in Hong Kong after the liberalization of commission rates, it’s likely that mainland brokerages will increasingly rely on margin financing and improved one-stop services to defend market share.

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Freelance journalist

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