Interview Gijs Nagel

Director Retail DEGIRO

Can you tell us something about yourself, your study and how you started with DEGIRO?

My internship for the HEAO education ‘Management Economics and Law’ took place at AOT, a market maker company in Amsterdam, now known as BinckBank. Within this company I came in contact with trading on the stock market. I do not know if you remember that people traded formerly on the stock market through open outcry. People were shouting the price they wanted to buy and sell at the exchange. I started at a time when this ceased to exist, and all the trading continued on screens.

After my graduation I stayed with AOT and I have been trained there. This training was entirely focused on trading, especially on valuation of options and everything that has to deal with these options.

Initially, it was my intention to continue studying. However, it suited me so well that I continued to work. Within BinckBank I worked with a team. This team and I started in 2007 for ourselves. DEGIRO was a result of this team.

How did DEGIRO started? Where is the foundation?

This team consisted of five men who started a company that issues and manages mutual funds. However, beforehand, we needed a solid infrastructure that we would be able to act on all stock exchanges worldwide. We built this infrastructure all by ourselves. Everything that was for sale was very expensive and inadequate functioning. Especially with software it is nice if you have it under control. It makes you flexible and less dependent on others. In 2008, this infrastructure was placed into a separate company, which is now called DEGIRO.

We soon faced a lot of demand from other fund managers for our infrastructure. Especially professionals, who trade on stock exchanges around the world, were interested. By means of DEGIRO they were able to act at much lower rates than they were used to.

This caused a rapid growth in the business segment. There is now for about ten billion transactions running on our infrastructure. This is for our company a small margin, but due to the high volume sufficient to keep the business running.

Every transaction we do extra for our customers immediately yields a positive contribution to the profitability of DEGIRO. Therefore we will now approach also the private market DEGIRO. We are placing the private market together with the business market. They both get the same low rates.

Why are you placing yourself so far below the average market price and not something more moderate?

A private investor nowadays makes almost full use of the Internet. When a customer places his order online with us, there is no difference between these private customers and professional customers. We use for our retail customers therefore the rate of the professional market. These are about 80% lower than the prices private investors regularly pay. In our opinion, the companies did not pass through the advantages they received in the past years to their customers. So we are not really cheap but others are in our opinion quite expensive.

In recent years there have been a lot of changes mainly on the cost side of brokers. Infrastructure costs, such as fiberglass and renting space in data centres have become a lot cheaper. Our competitors insufficiently passed on these benefits to the customers. We saw this as an opportunity to also give the private customers these low prices, which actually should already exist. With this step, private investors have now got everything they need; a quick access to markets worldwide and professional fees. Nice detail is that the news today goes quickly to private investors through the Internet. News via Twitter is, for example, often faster than conventional news services such as Bloomberg or Reuters. Many people together are better than just one journalist.

How did you come up with the name ‘DEGIRO’?

A transfer system is a software system that keeps track of what exactly is from whom. In DEGIRO money is coming in from customers who then start investing with it. We will keep track of what is traded, by whom and who owns what. So that will be done by our giro system (transfer system). We thought: “Lets use the foundation of what we do as our name.” Initially, the name was not as important as we only focused on professional customers. Meanwhile, we also serve many individuals and increasingly more people are asking where the name comes from. This does not really matters for business customers.

Can you tell us more about your business model and how it works?

Our costs are related to the staff, we mainly employ programmers expanding and improving our infrastructure. There are also costs for data centres and lines to Hong Kong, Frankfurt, London and the USA. We are also busy developing tools for investors who want to create a lot of diversification within their portfolio. With these tools you can soon be in hundreds of equities all over the world with only a small amount of money. We make this happen by letting people invest in fractions of shares. We are going to promote these tools too.

What developments do you see in the broker market and what would you like to see?

We think that three players will remain in Europe. It will be them who are now already handling the cost structure that is the standard over ten years. These parties attract investors to themselves. We are also planning an expansion of our services throughout Europe. We are now ready to operate in 27 countries. The market will therefore be changing a lot from small local players to some big players. The first steps can already be seen. We want DEGIRO to play a major role in this part.

This consolidation is already much more advanced in the United States. This is mainly due to the fact that players reach economies of scale in an earlier state; it is one country with one market. Our rates are comparable to the rates applicable in the U.S.; we are even cheaper for many markets. In the Netherlands there are about 50,000 active investors, and that is an insufficient number to benefit from economies of scale. Our rates are based on a significant market share in the European market.

If European countries and standards are converging, we can benefit from this. Take for example something like iDEAL. Normally, you have to deposit money at your broker with a normal transfer. That slows people down because many people who see an opportunity to invest, want to be able to act immediately. If you make a payment by iDEAL it is processed immediately. So we can put the money in the account of the client within a second. The customer can start investing right away. Unfortunately, there is now no such thing as an iDEAL throughout Europe. We need to look at this per specific country. All this disunity causes us to not be able to offer our high standards in each country. We have to figure out how it works everywhere. This creates inefficiencies. With a standard that is so much easier.

What do you want to achieve in the future with DEGIRO?

We will first focus on the rates and access to global markets because this is our unique selling point. In addition, we would like to focus more attention on our structure. We created a structure that is very safe. If people hold money, this is free of charge, placed in a separate cash fund. So the customer faces no risk of holding money at DEGIRO. This fund is not linked to us as a company, so if something goes wrong with us, the customers just keep their money. The money in the cash fund is invested in AA bonds, just about the safest out there. In a bank your money is guaranteed up to 100,000 euros. Everything above this amount depends on how the bank is doing. This is not the case for us. We will provide customers with more clarity, so that customers know this and it will become known that our structure is very safe. Furthermore, we will also focus on the spread. For now, you can still invest only on major exchanges, but we are working to smaller exchanges too.

We want to be the biggest online investment broker in Europe. We also want to make DEGIRO a strong brand. A brand that exudes confidence, spread preaches and gives investors the right tools to eventually achieve a return that you need for your pension for instance.

If competitors are now going to match your prices, how do you distinguish yourself from the competition?

We obviously looked at this. There are not many companies that can go this far because they work inefficient. That is because most online brokers who began twenty years ago have a system that is already dated earlier and they still embroider upon software that is already old. At BinckBank now, for example, six hundred people work, while offering fewer markets than we do. We offer with only forty people more markets. This gives an enormous distinction in terms of costs.

Most competitors can therefore not beat against our rates. We are currently not worried about it. The players, who can reach these low rates in the future, will be the ones who will be left. We expect to be one of them. We are now working to build a lead. By the time they are ready, we may again sit much lower than the rates that we now use.

This interview is translated from Dutch to English by the Editorial Board of Asset | Accounting & Finance.