CommSec takes on low-brokerage rivals with new international share trading platform amid revenue decline

CommSec is taking on low-brokerage rivals with a new platform to trade shares in 13 offshore markets, as a decline in retail investor activity during the Covid era has hit revenues.

CommSec is taking on low-brokerage rivals with the launch of a new platform to trade shares in 13 offshore markets, including the US, UK and Japan, as a decline in retail investor activity during the Covid era is leaving its mark on revenues.

The new international share trading platform is a leap forward from CommSec’s previous offering that let investors trade US stocks online through a somewhat clunky connection to US trading services firm Pershing, or via the phone.

It will offer trading in markets such as Hong Kong, Canada, Germany and Switzerland, and CommSec says it will be easy to set up, have a “seamless” integration with its website and eventually be available on its mobile app.

With 2.7 million accounts, the Commonwealth Bank subsidiary operates the country’s largest online broker, but over the past five years its dominance has been challenged by fintechs that offer access to the US – by far the most popular offshore market with local investors – at near zero commissions.

CommSec’s trading revenue in the first half of 2023 fell 35 per cent to $124m from a year earlier and was less than half of the $256m posted in the December 2020 half at the pandemic’s peak, as rising interest rates put a strain on Australian’s investment kitty.

“We’ve seen a slowdown in market volumes overall since the height of the pandemic, but we’re trading at a much higher rate than we were before the pandemic,” CommSec executive general manager Richard Burns said.

“But for retail investors, with rising interest rates and inflation, there is probably a little bit less disposable income to put into investing, and there’s a bit of uncertainty around the direction of the market.”

The broker added a million new customers during the first year of the pandemic despite keeping its tiered commissions unchanged at between $10 to $30 per trade worth up to $1000 to $25,000, respectively.

That was even as new entrants such as neo-broker Stake started offering $3 trades up to $30,000 after introductory periods of zero commissions.

CommSec’s market share in the traded value of Australian stocks as of December 31 fell to 3.7 per cent, from 5.4 per cent in June 2021. Meanwhile trading platforms such as Stake, Raiz, Superhero, Stockspot, and the local arms of global firms like eToro have attracted active traders with their claims of low to zero trade commissions.

Stake became the largest Australian broker for US shares with its offer and now ranks No.3 behind CommSec and National Australia Bank’s nabtrade in the online broking market, according to Investment Trends.

CommSec has finally decided to cut commissions after years of holding off. The brokerage is now halving commissions for small trades (up to $1000) to $5 and to $10 for trades worth up to $3000.

More Australians are investing directly in international shares and particularly younger investors, who make up more than half of CommSec’s new account openings. Monthly volumes on new accounts rose 18 per cent in July.

“(The new platform) is a combination of a whole lot of work the team has been doing, and it’s exciting to be able to bring it to market,” Mr Burns said.

“CommSec has been the market leader for a long time and I think competition is a good thing. We know we just have to keep improving and doing that for our customers.”

In response to the challengers, in July 2019 the bank launched its micro-trading app CommSec Pocket for young customers, offering them access to seven “pocket” exchange traded funds for investments as modest as $50 (compared to minimum investments of $500 for ETFs on CommSec) with commissions of only $2 a trade.

The platform saw about $1.3bn invested in the first three years to June 2022, and $300m in the year ending June 30. It will also add three new thematic ETFs into the platform in August: a corporate bonds fund and a global growth fund – both from Betashares – and a VanEck sustainable equity fund.

Existing CommBank customers will be migrated into the new platform, and the previous service will be decommissioned.

Commonwealth Bank reports full year results on August 9.