There hasn’t been a great deal of fanfare and there was no PR build-up, but this week Europe’s fastest growing stockbroker, Degiro, launched in the UK. In a move that looks like it will provoke a significant shake-up, and possibly provoke a bitter price war amongst the UK’s online stockbrokers, the company charges a flat fee of £1.75 + 0.004% and with a £5 cap for buying and selling shares on the London Stock Exchange. This means that buying or selling £1000 worth of shares in a UK-listed company is more than six times cheaper than the same transaction with the UK’s biggest online stockbroker Hargreaves Lansdown. There are also no ongoing management or inactivity fees to add hidden costs on top of those headline grabbing share dealing fees. Buying international shares such as in companies listed in the US and European stock markets is also several times cheaper than with any of the UK’s other existing online stockbrokers. While ISA and SIPP facilities are not yet offered, they are expected to be available within around 6 months.
Though few members of the British public will have heard of them, Degiro have quickly become a major player on European mainland markets, starting in the Netherlands where the company was founded by former brokers at Binck Bank, the country’s biggest online DIY stockbroker. A few years on and Degiro recently surpassed Binck Bank’s market share, becoming the most used online stockbroking platform in the country. Moves into several other European markets such as Sweden, another country with high numbers of equities markets investors, and Germany followed. If it keeps up its present trajectory, the company is on course to meet its stated objective of becoming Europe’s highest volume retail facing stockbroker within 4 years.
Due to its pricing and the fact that the platform doesn’t include all of the add-on services such as company research, news, and various widgets and tools that many of the UK’s big online DIY stockbrokers offer, inevitable comparisons have been made with the European discount retail chains Aldi and Lidl. Degiro claims that it is able to offer prices which are so much lower than its competitors due to its efficient and lean management and HR structure and the fact that it offers a technology driven service. The focus is on the core product, a simple stockbroking interface and service that mirrors that which professional traders use. The Degiro philosophy is that modern online share dealing is mainly automated and the vast majority of transactions require no human involvement. The tiny transaction costs and the fact that there are no additional annual or administration fees means that the service is likely to appeal strongly to both investors who buy and hold relatively small numbers of company holdings and active investors who make regular transactions.
The company is operating under a European passport system which means that its regulation comes under the auspices of the Dutch equivalent to the FCA, The Netherlands Authority for Financial Markets, though it is also registered with the FCA. How the company fares in the UK market will be interesting to see but if its inroads in other European markets are anything to go by the establishment of online DIY stockbrokers currently dominating the market will be getting jittery. However it pans out it is likely that retail investors will be the winners with transactional fees having fallen dramatically in price wars in the other European territories after Degiro has entered the market.