The SelfWealth Ltd [ASX:SWF] share price has made headway this morning, with its latest activities report boasting some solid growth metrics.
Shares in the Aussie fintech are up 11.54% at the time of writing, to trade at 58 cents per share.
The alternative peer-to-peer online brokerage platform has caused quite a stir since pitting itself against the Big Four banks.
SWF is going after their brokerage fees.
SWF shares have made a return of ~450% since April, when the share price really began to rocket.
While the numbers released today are a certain positive for the company, we look at a potential development in the future, which could dampen the enthusiasm around the SWF share price.
Happy hour for amateur traders
SWF’s Q4 results for FY2020 gives us a glimpse of just how many amateur traders might have entered the market during the COVID-19 pandemic.
Quarter-on-quarter growth of active users grew by 46% in Q4.
Operating revenue is up 101% quarter-on-quarter to $4.18 million. Meaning SWF just made their first ever quarterly positive cash flow from operating activities.
And quarterly trade volumes grew 112% quarter-on-quarter.
SWF is not alone when it comes to enjoying the boom of new investors.
Stock trading app Robinhood added a staggering three million new users from the beginning of the year to May.
Average daily trading volumes on the app have tripled over the same period.
What does all of this tell us?
Well, it could suggest that investors are rebalancing their portfolios considering the impact of COVID-19.
It could also indicate that a lot of the fiscal stimulus people have received is being injected into the stock market.
Focusing solely on user growth could lead you astray though.
SWF share price reflects trading on trading
In May, ASIC issued a warning to new retail investors saying that that things could end badly for people chasing quick profits and playing the market.
In essence, buying SWF shares could be a form of investing in this kind of trading.
Where more new traders and a greater volume of trading equal more profit.
For now, at least, ASIC’s warning appears to have put little downward pressure on SWF’s latest results.
However, this influx of new traders could dry up as the economy gradually reopens and people return to work.
Another major concern for the SWF share price is its fees.
Although it is going head-to-head with the banks on brokerage fees, the Big Four could quite easily reduce their fees to zero, effectively undercutting SWF completely.
For instance, in October last year, several US brokerage giants slashed their fees to zero — offering zero commission stock and ETF trading.
SWF already offers zero commission on trades but charges a flat fee.
If the battle for clients heats up in Australia, like it did in the US, then there is certainly risk out there for SWF.
Right now, in Australia, there are several fintechs going after various business segments of the Big Four.
If you’re interested in Australia’s up-and-coming fintechs and how they’re beginning to eat into the big banks’ profits, be sure to check out our free report where we reveal three leading ASX fintechs. Download your copy for free here.
For Money Morning