Brazil’s XP Joins No-Fee Trading Craze as Rivals Race to Bottom

XP’s CEO Guilherme Benchimol said the commissions cut would cost the broker two percent of total gross revenue.

Brazilian financial services platform XP Inc (XP.O) said on Monday that it is ending brokerage fees for stocks trading on its online platform, Rico, which is focused on stock transactions, the futures market, direct treasury and funds distribution.

In addition to Rico, the listed brokerage is slashing 75 percent off fees that it charges on XP Direct (B2C) for the same type of trades, according to a statement today.

XP’s founder and CEO, Guilherme Benchimol said that the commission cuts would cost the company as much as $6 million in quarterly revenue. This figure is the equivalent to about 2 percent of total gross revenue based on Rico and XP Direct online equity trade revenues in the first half of 2020.

However, Mr. Constantino expects the initiative will drive higher net inflows, AUC and cross selling opportunities across the platform to grow other revenues.

“The Brazilian retail investor, with less than R$3 million, maintains around a 3% allocation to equities, which is very low. We believe that the ongoing equitization process in Brazil will accelerate and that number of individuals in the stock market could surpass 10 million in the next two to three years,” he further explains.

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Fees War Escalates

The no-fee offering is likely to boost competition in Brazil’s highly concentrated brokerage sector, in which the country’s top five banks hold more than eighty of total assets.

Founded in 2001 as a financial advisor, XP has been challenging Brazil’s traditional banks. The company had a total revenue of $304 million in the second quarter through June, while its net income was reported at $104.6 million. Further, according to its filing, it has more than 1.5 million clients and $84 billion in assets under custody.

In December 2019, XP debuted its Nasdaq listing at $27 per share in the largest IPO of a Brazilian company, raising $2.25 billion, which valued the company at $14.9 billion.

Online stock trading has become much more competitive since FinTech firms like Robinhood have emerged to meet the growing demand for cheaper or entirely free investment products.

“We strongly believe that the long-term benefits to our ecosystem related to the reduction in fees will more than offset short-term financial impacts. As we saw when we successfully eliminated brokerage fees at Clear, we expect ongoing growing in Active Clients, their engagement and satisfaction and, consequently, a lower client acquisition cost,” added Benchimol.