Kamath’s claim: a US broker earns big from charges — why not Zerodha?
On X, Kamath pointed out that a US-based brokerage pulls in roughly $150 million from certain charges, which could translate into about $100 million of profit. That naturally raises the question: if that works in the US, why can’t Zerodha adopt the same approach?
Where the US broker’s money comes from
- Payment for order flow (PFOF) — brokers earn by routing customer orders to market makers.
- Interest income — interest on customer cash balances and margin loans is a steady revenue source.
- Premium services — subscription fees for advanced tools, research, and priority execution.
- Securities lending and other capital markets activities — lending shares, clearing or marketplace fees.
Key reasons the same playbook is harder for Zerodha
- Different regulation: Some monetisation methods common in the US, like PFOF, face scrutiny or restrictions in other jurisdictions. Rules on order routing, disclosures and customer protection vary significantly.
- Customer expectations and pricing model: Zerodha built its brand on low-cost or zero brokerage for many products. Shifting to visible per-trade fees risks customer backlash and defections.
- Market structure: Average trade sizes, product mix (options, derivatives, equities) and liquidity differ between markets. Lower ticket sizes make per-trade fees less lucrative.
- Tax and transaction costs: Local levies, stamp duties and GST can eat into per-trade margins, reducing the net revenue available to brokers.
- Scale and unit economics: Achieving the same profit margin often requires a different scale or product mix. What works in a large, high-margin market may not map directly.
Could Zerodha change course?
Yes — but it would be a strategic choice, not a simple copy-paste. Possible moves include introducing tiered premium services, expanding margin and lending products, or offering new institutional services. Each option comes with trade-offs: regulatory compliance, reputational risk, and customer churn.
Bottom line
Kamath’s comparison highlights how different markets let brokers monetise in varied ways. The US example shows what’s possible under a specific regulatory and market setup. For Zerodha, the decision to adopt similar charges depends on rules, brand positioning and whether customers will accept a change in the value proposition.