Although low-cost trading platform SelfWealth (ASX: SWF) has seen customers reduce their online trading activity, many opting for rival platforms that are even cheaper, there is a silver lining amid rising interest rates where the Company is accruing more revenue as interest through the $736 million they hold as cash on behalf of their customers.
For most of those customers being mum-and-dad retail investors, the amounts individually may not be that relevant, but collectively – every small RBA increase is a big win for SelfWealth, as long as their customers don’t withdraw the cash to collect the interest themselves.
In the last three months, the RBA has lifted interest rates +0.25% in April, +0.50% in May and +0.50% in June for the current cash rate to sit at 1.35% in a bid to quell rising inflation after two years of low interest rates during the pandemic.
For SelfWealth, these increases will continue generating more revenue for the Company and help alleviate the substantial amount of revenue they have lost as their customers have abandoned the platform either for rivals, or ceased trading altogether. In the case of the latter, it follows the sharemarket boom of 2020 when retail investors flocked to the market to capitalise on the March 2020 COVID crash before the market returned to it’s pre-COVID levels within 18 months prompting many investors to cash out their investments for sizable gains, some of which are still sitting as cash balances on the SelfWealth platform accruing interest for the fintech company.
“I am very pleased with the performance of the business over the past year, particularly delivering solid revenue growth over the past six months in difficult market conditions, as we transition from a ‘cheap’ ASX trading platform to a leading retail wealth management platform,” said SelfWealth Managing Director, Cath Whitaker.
“The strong underlying revenue performance, despite falling retail trade volumes, validates the strength of our business model and our strategy to continue diversifying revenue streams through the cycle.”
For the quarter ended 30 June 2022, SelfWealth reported $5.74m in operating revenue which is primarily generated from brokerage fees on customer trades, and interest held on cash balances. This represented a 13% increase on the previous June quarter.
Highlighting the reluctance of investors to actively trade, the client cash balances held on by SelfWealth has increased 41% over the past 12 months from $523m to $736m with active trader growth stagnating. This has prompted the Company to explore a new revenue stream when they announced plans to open crypto trading markets to customers on the platform in January 2022 in a bid to reduce customer outflows to rival Stake.
While the crypto trading capabilities are still yet to be launched, SelfWealth still intends to be the first Australian retail broker to offer crypto and shares on the one platform. Testing of the crypto functionality and portfolio integrations are currently underway with the Company expected to launch the service soon.
Like their reliance on equity market forces, the timing for their crypto launch is hardly favourable considering cryptocurrency is set for a long winter due to the market correction over the past few months, prompting the collapse of several billion dollar crypto companies.
When SelfWealth announced their plans to offer crypto trading services, Bitcoin (BTC) was trading around USD $45,000. Since then, BTC has cooled substantially to now be trading around $19,000 as crypto investor sentiment wanes.
Despite these challenges, SelfWealth – which has been undergoing a Boardroom struggle with major shareholders – have had net operating cash outflows of $7.1 million for FY22. They do however still have an $11.4m cash balance, excluding all cash held on behalf of customers.
Included in those cash outflows are $4.1m spent by SelfWealth on advertising and marketing over the past 12 months in an attempt to compete with online retail platforms Stake and Superhero.
Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, a bloodstock enthusiast and former equities analyst.
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