The PSE announced yesterday [link] a three-way deal between the exchange, GCash, and the stock brokerage AB Capital, to allow GCash’s 67-million users the ability to directly invest in the stock market, starting this November.
PSE President, Ramon Monzon, said that GCash’s projections estimated that it could facilitate up to 9 million new investors participating in the PSE, which Mr. Monzon referred to as a “game changer”.
The PSE currently has 1.7 million investors. Mr. Monzon also said that they would “eventually” look at allowing fractional share purchases “so that more GCash subscribers are able to invest”. Globe Telecom [GLO 2170.00 1.40%] holds a significant stake in GCash through its 40% stake in Mynt, GCash’s parent company. Ayala Corp [AC 730.00 1.35%] also owns a 7% stake in Mynt.
How will this work? It’s not clear, at this stage, what additional steps GCash users will need to take in order to use the platform to trade stocks, or even whether that trading will take place on GCash’s system (using AB Capital as a routing backbone), or if it will take place on AB Capital’s own system (using GCash as a trusted funding source and authentication gateway).
What about Maya? The PSE didn’t mention Maya, but it also didn’t mention that this agreement with GCash and AB Capital was exclusive, either. It’s in the PSE’s best interest to open up stock market participation to as many people as possible, and given our very loose constellation of brokerage houses that the PSE has cultivated over the years, it is perhaps evidence of a mindset that would err on the side of open inclusivity. It feels less likely that any other payment processors would also use AB Capital, so there will no doubt be other brokerages getting into this digital payment interconnection game.
Is this a big deal? Absolutely. Even if GCash’s projections are not met (and there are some who already question whether those projections are possible), we’ve all seen with our own eyes what low-friction digital platforms did to the retail investor ecosystem in the United States: non-investors were able to go from reading a story about Game Stop in the morning, to owning a small stake in the company in the evening. While we don’t know if that kind of turnaround time is possible through the GCash/AB Capital partnership, any tightening of the lag between inspiration to invest and the ability to actually do it will result in greater participation.
COL losing grip on retail? Since its founding in 1999, COL Financial [COL 3.40 0.87%] has been the PSE’s leading brokerage for retail accounts. It was the first brokerage to truly court the average retail trader, and it grew alongside (well, a few steps behind) the US discount brokerages like E*Trade that were working the same market at around the same time. COL has been the dominant force in retail investing in the Philippines for as long as I’ve been trading. This deal with AB Capital has the potential to change that. While it’s not clear how GCash transactions will be routed, and what share of any commissions will go to AB Capital, the deal itself gives AB Capital a huge marketing advantage to any GCash users that might want to “graduate” from point-and-click retail investing to a fuller client experience.
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I cannot understate how potentially huge this deal (and the others that may follow) will be for the PSE.
Even if GCash’s projections end up being wildly optimistic and “only” 20% of the estimated 9 million new investors come on-board, that would still double the number of active investors in the country.
How will the PSE change to handle that influx? Will it be able to work with its regulator (the SEC) to expedite the modernization of the long list of rough edges that have worn away at the patience of retail investors throughout the years?
Certainly, bringing payment processors into the PSE “family” raises hopes that we will be able to do away with a lot of the archaic payment and refund customs of the exchange that (still) require in-person bank visits.
But what about the PSE’s recent attempts to reduce the number of shares available to PSE EASy investors for upcoming IPOs?
Will a flood of new and excited retail investors overwhelm smaller PSE EASy allocations and lead to headaches and frustration?
I’m excited about what the PSE’s done here, but adding millions of new users won’t change the concerns that I already had for the PSE’s approach to retaining retail investors.
Now is the time for the SEC and PSE to make some impressive improvements!
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