While online share trading platform Selfwealth (ASX: SWF) may be best known as a website where investors can buy and sell shares, it makes no secret of the gains it makes on interest from cash held in customer accounts as a handy means of revenue.
Brokerage on trades has generally been Selfwealth’s most reliable source of revenue but as the Reserve Bank of Australia has raised interest rates for six consecutive months (250 basis points) to a cash rate of 2.6%, Selfwealth is cashing in with bonus revenue. Earning interest on cash held in customer accounts as net interest margin (NIM), rising interest rates are great for asset managers like SelfWealth which don’t pass the income on to their customers.
This was evidenced by $7.15 million in operating revenue for the September quarter, a 24% increase on the July quarter and 30% increase on the previous corresponding quarter when the RBA cash rate was near zero.
As of 30 September 2022, Selfwealth customers held $638 million in their cash accounts on the platform, which is capitalised on by generating interest revenue for Selfwealth. That figure was down from the $738 million at the end of July as customers withdrew funds to collect the interest themselves, or used the cash to purchase shares on the platform which holds $7.7 billion in assets for its customers.
“In the first quarter of FY23, we benefited from the rising interest rate environment, with record quarterly revenues of $7.15m. However, we remain focused on the long-term sustainability of our business model with less reliance on interest revenue,” said Selfwealth CEO, Cath Whitaker.
“To that end, we are improving our user experience (web and mobile) to continue winning share of our target market. In parallel, we are also investing in the development and launch of new asset classes that our customers value.”
As big winners at the start of the pandemic when retail investors took advantage of the global economic crash in 2020, Selfwealth has since battled in the online share trading space as rivals have entered the lucrative Aussie market. Opting not to compete with the likes of Stake and Superhero on low-cost brokerage, Selfwealth has pivoted to be a wealth management platform for retail investors, (aka mum and dad investors).
This will soon include options to trade Exchange Traded Bonds (ETBs) and cryptocurrency – asset classes that Selfwealth is investing in promoting.
The pivot comes following a difficult FY22 where revenue increased 10% to $20.2 million but the Company fell victim to reduced trading liquidity as the global economy recovered and investors happily took profits from the pandemic crash of 2020, resulting in a net loss of $6.2 million.
Since reporting that loss, Selfwealth has made concerted efforts to stem their expenses, which resulted in cash outflows of $845k in the September quarter, a major improvement on the $1.8m outflow in the July quarter.
With ETB and crypto products expected to be offered on the Selfwealth platform in the coming months, the Company has flagged an increase in advertising across metro Sydney, Melbourne and Brisbane in their bid to become the investment platform of choice for retail investors.
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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