Zerodha Not A ‘Trusted Broker’? Know What Co-Founder Nithin Kamath Said

Zerodha Kite: Discount broking apps provide a platform for stock market investors through which they can sell and buy stocks for a reduced fee or commission compared to traditional brokerages. With the rising use of technology, such apps are becoming popular. However recently a user’s LinkedIn post flagged concerns regarding the ‘trust’ factor involved in using such apps.

Sachin Jha, a Product Marketing Manager by profession, said in his LinkedIn post that he was asked to delete his Zerodha account after his wife joined an investment bank.

“I emailed Nikhil Kamath that I have to delete my Zerodha account.

Because of my wife….. So, When my wife joined an investment bank, we got a harsh mandate: “Close all Zerodha accounts. They’re not a ‘trusted broker’,” Jha said.

In its mandate, the bank urged Jha and his wife to close all Zerodha accounts as the discount broker is not a ‘trusted broker’. Jha stated that the reason the bank urged the couple to close Zerodha accounts was because Zerodha lacks a physical banking presence, unlike traditional platforms which offer the same features for buying and selling equities. Notably, the lack of a physical banking designation is often regarded as a compliance risk by many global financial institutions.

Jha said in his post that since he loved the app and its user interface, he mailed Zerodha Co-founder Nikhil Kamath before closing his account. In his mail, Jha urged Kamath to fix the issue.

Jha claimed that while he was not expecting a response, he got one within ten minutes. In their response, Zerodha acknowledged the gap and added that they were ‘fixing this with banks’. The discount broking platform also asked Kamath for their workplace’s details to complete the compliance and shared their plan to bridge the gap.

Despite the response, Jha closed his account as per his LinkedIn post. However, he claimed that Zerodha had won his ‘trust for life’.

The push for digitisation has played a significant role in India’s investing story. While platforms like Zerodha have seen success with a fully digital model, challenges in gaining ‘institutional trust’ still prevail. Kamath too has acknowledged the shortcoming of having an online-only presence. Kamath said “A tangible presence is essential” for broader financial services, including lending and institutional partnerships.

Despite the acknowledgement, Zerodha has not applied for a banking license so far citing regulatory risks. In-lieu of the banking route, the brokerage has focused on strategic partnerships to increase its credibility and mitigate issues related to institutional trust.