Investor adoption low for mobile stock trading, says Gartner
January 13, 2010
International research company Gartner Inc said that despite the hype surrounding mobile stock trading in the US, the economic and longer-term values of investments in this technology are open to serious question.
In a research report, Gartner said chief investment officers (CIOs), strategic planners and business-unit leaders thinking of developing mobile stock trading capabilities for their retail customers should consider if the online channel is a better place to invest in improved self-service for their brokerage clients.
“Although all five of the largest US discount brokers offer mobile trading, actual consumer adoption is pretty low with less than 2% of US consumers and 5% of discount brokerage clients taking it up to date,” said David Schehr, research director at Gartner.
“However, more than three-quarters of discount brokerage traders use the online channel. The issue is not just whether these activities can be done via the mobile channel, but whether enough readers and trades will shift to the mobile channel to justify the investment,” he added.
Explaining the rationale behind low adoption of mobile stock trading, Mr Schehr said the fit between active traders’ needs and the value of mobile trading is limited as the hardware form factor of smartphones makes technical analysis difficult, and other alternatives for rule-based trading diffuse much of the need for mobile access.
Instead, he said that most on-the-go trading is more likely to take place in semi-mobile situations in which notebook and netbook computers, combined with increased connectivity, will remain the predominant tools used for stock trading by retail investors.
With a huge mobile subscriber base, India, however, offers a great potential for the technology. Brokerage houses like Reliance Money and Sharekhan had launched their mobile trading platforms for both equities and commodities. Another brokerage Motilal Oswal Securities Ltd (MOSL) is launching its own mobile trading platform by the end of this month, said Manish Shah, associate director for equities and derivatives, MOSL.
However, he said that mobile trading is not as user friendly as one would hope. The biggest problem is with GPRS and its slow connectivity. The real benefit will come when 3G enters the market.
Last month, while speaking at a Moneylife award distribution ceremony, Bombay Stock Exchange (BSE) managing director and chief executive Madhu Kannan had said that the Exchange is planning to launch a trading platform where investors will be able to execute orders over their mobile phones. “People are spending more time on mobile phones these days. India has around 400 million mobile phone users and if we compare that to the (current figure of) 8 million investors, we found that there is a huge potential to leverage this medium,” added Mr Kannan.
Last year, while issuing the framework for mobile stock trading, market regulator Securities and Exchange Board of India (SEBI) said that through these guidelines, it was exploring the possibility of extending the existing framework for Internet trading to enable use of wireless technology for securities trading.
Earlier in 2000, following SEBI guidelines for Internet-based trading, NSE.IT, a subsidiary of the National Stock Exchange had launched a wireless access protocol (WAP) enabled stock trading solution for brokers.
Gartner said it believes that if it is to be profitable, mobile trading will require a high volume of absolute, as well as incremental trading activity— a user who trades via a mobile once or twice a month is unlikely to generate revenue sufficient to cover the costs of developing the technology infrastructure to support the channel.
Based on historical data and discussion with industry participants across the US, Gartner said according to its estimate, even a broad definition of this group would include no more than 500,000 US investors, and is more likely in the range of 2,00,000 to 2,50,000, including occasional traders.
The value of mobile trading is likely to be limited to a small group of active investors who have an interest in maintaining the real-time capability to trade and accept the limitations of a mobile device in return for persistent access and portability. Based on all these factors, the size, and thus the revenue value of this group is likely to be small for the near future, Gartner said.
Advising those thinking of developing mobile trading capabilities, Gartner said they should carefully analyse how much of their client base consists of active traders, and conservatively estimate the incremental revenue that mobile trading will deliver from them.
“Unless there is a strong business case for mobile trading, invest in two other areas—better computer-based online functionality for your more active traders and enhanced research and planning tools for your less active long-term investor segment,” Mr Schehr said.
“If you do decide to proceed with developing mobile capabilities, ensure that they are not stand-alone, but support and link to other self-service channels,” the report said.
Echoing the same views, Mr Shah from MOSL said,” Mobile trading would be more useful for information dissemination which is customised for investors.”