Digital Technologies to make deep inroads into the Broking Industry in 2021

Amid the ongoing COVID pandemic, retail investors have come in droves to the Indian equity market. According to a report by investment banking firm Jefferies, these investors bought stocks worth around $12 billion during January-September 2020. Though the ‘work-from-home’ operating model enabled many new investors to look at direct equity investing as an option, digital technology played a crucial role in making that a reality.

No doubt, digital and technological interventions have brought in a paradigm shift in the way we invest in recent years. But a black swan event like the COVID pandemic is likely to give a further push towards digitization. So, as we enter the New Year leaving 2020 behind, it is pertinent to discuss some of the trends that can shape the future.

5G rollout can be a game-changer

It is a well-known fact that the rising penetration of smartphones and cheap data services enable investors in tier 2 and tier 3 cities to enter the stock market. 5G will help improve connectivity further in tier 2 and tier 3 cities. Given that internet speed is so critical, 5G technology can certainly bring some tangible digital changes for the broking industry. We can see mobile trading being more robust and new features that are not possible today due to bandwidth constraints. Streaming more prices, better quality data faster will be a definite outcome of 5G.

5G and cloud computing will help make data more local. With low latency and high throughput points available at the consumer end and cloud computing penetrating all parts of India - we can expect news and data to travel much faster. Brokerage firms will need to invest more in their product to make it sophisticated and rich; thus, they can take the advantage of the new digital tech. Secondly, as more extensive computing and machine-to-machine communication will be possible through 5G technology, the smartphone will emerge as the first trading point.

It may not make web-based trading irrelevant but the broking industry has to develop ‘mobile-first’ offerings. Hence, The IT infrastructure on the broker’s end has to be robust to take on the additional volume without any performance costs.

Cloud penetration to rise

Cloud computing has emerged as the broking industry's backbone in recent times. And this dependency on cloud-based services is only likely to grow this year. New-age brokers with innovative product offerings have been able to leverage cloud computing, and this year is expected to be no exception. Also, 2021 may see brokerage firms opting for a multi-cloud environment, a combination of public and private clouds.

At the peak of the COVID pandemic last year, the Securities and Exchange Board of India (SEBI) allowed brokers to operate terminals from home or other remote locations other than registered offices. If this becomes a permanent feature—as demanded by many— then cloud-based services will boost. For example, some brokerage firms allow investors to buy a bouquet or portfolio of stocks rather than buy individual shares. These portfolios are created based on their growth potential.

Most cloud providers already have multiple centres in India or plan to soon. Once that happens, brokers will replicate their setup from one location to multiple locations across India to better serve customers.

Thus, for providing these value-added services, broking firms design their own solutions or integrate solutions of outside service providers. And to achieve this, APIs (application programming interfaces) are integrated with the cloud platforms. As the appetite for value-added services grows among investors, more and more APIs are likely to be integrated. This, in turn, will drive the demand for cloud-computing services.

Sharp ML algorithms with AI-powered solutions

Brokerage firms can use algorithms based on machine learning (ML) to derive useful insights from data sets. From screening potential stocks to discovering patterns for better decision making, these algorithms bring in a paradigm shift in the way we invest in the market. This trend is likely to pick up.

Similarly, AI-powered solutions around customer analytics are likely to gain pace. Most brokerage firms have entered into other financial services segments such as mutual funds and insurance to provide diverse investment solutions to their clients. For this, they need to deeply understand their customer. This will enable brokerage firms to design customized offerings for the client. Brokerage firms will try to provide deep insights into the pattern evolving from the investors’ past trades of the investors.

Client onboarding and digital servicing

Automation has been the norm for the financial services industry in recent years, and the broking industry is no exception. From AI-powered chatbots to digital onboarding without any human interface, the industry has already automated several recent past processes. This year, we will likely see more automation coming into play.

More young investors throng to the market, brokerage firms will take great care to improve their user experience (UX). Clutter-free and straightforward UX designs with self-explanatory instructions will rule the roost.

As the wave of digitization sweeps the financial services sector across the globe, the broking industry will see the rising adoption of digital technologies this year. And with more customized service offerings based on deep insights drawn from AI and ML-powered solutions, technology is definitely set to be the showstopper of the year!