Starting in mid-2026, neobrokers will have to forgo rebates from Payment for Order Flow (PFOF). The EU's ban on routing trade flows to exchanges with their own market makers is unavoidable. The industry must reinvent itself,. Rebates account for about one-third of operational revenues at Trade Republic. A similar situation likely exists at Scalable Capital.

How they plan to compensate for this loss of revenue remains unclear, as the neobrokers are so far keeping quiet about it. However, there are only a limited number of pathways available. „One option would be to establish their own electronic trading platform – a so-called Multilateral Trading Facility (MTF) –as a solution,“ says Rupert Graf Kerssenbrock from software, services and consultancy firm Lucht Probst Associates (LPA) in a conversation with Börsen-Zeitung.

This would be the exchange-light model, where trading participants like market makers, banks, and funds interact simultaneously on a platform to trade stocks, ETFs, bonds, and similar assets. But for the operation of such a trading platform, neobrokers would need their own regulatory approval, Kerssenbrock points out. This requires a lot of time and might therefore be unrealistic.

A more modest solution would be for the neobrokers to focus on market making and handle it themselves, which has so far been done through partners like L&S Exchange or Gettex/Baader Bank. Companies like Trade Republic and Scalable Capital already have the necessary licenses.

„Simultaneously, neobrokers can expand their operations as systematic internalisers (SIs) in stocks and ETFs. But engaging only in bilateral or direct trading with customers often leads to suboptimal price quality“, notes Kerssenbrock. Here, the broker effectively provides the service directly to the end user.

In effect, neobrokers would be imitating the business model of many traditional banks in the trading sector, which also operate as market makers and SIs, and are supervised separately by BaFin. This is important, as MiFID II/MiFIR contain various rules for investor protection, such as transparency requirements.

Kerssenbrock highlights that, in light of the end of rebates, neobrokers likely already have concrete plans in their drawers to facilitate a direct transition with the elimination of Payment for Order Flow. Scalable Capital could also be tied to another major project: it is said that the Munich-based company is looking to apply for a full banking license and is already working on the infrastructure for it.

Although co-founder Erik Podzuweit recently downplayed such ambitions, he did not deny the reports. After Trade Republic received its full banking license a year ago, it would only be logical for Scalable to follow suit. This would allow the startup to expand its range of products. Account management, deposit and card business, as well as other investment products would provide additional and diversified revenue.

However, the time required for this should not be underestimated. According to Kerssenbrock, the BaFin approval process for the deposit business can take 12 to 24 months due to its particular significance.

There are also implementation risks with IT migration. For example, Trade Republic experienced disruptions in recording dividends when the company parted ways with its service provider HSBC, while simultaneously gradually activating checking account functions. This led to a barrage of customer complaints, and management was forced to expand customer service through outsourcing.

This is the flipside of rapid growth. Neobrokers still enjoy strong demand, mostly stemming from low-margin operations related to ETF savings plans. Kerssenbrock emphasizes that this must be looked at in the long term. „Many customers start their asset accumulation journey, and as their portfolios grow, they develop a need to invest in individual stocks and implement hedging strategies. That’s how brokers profit.“

The crucial question is whether proprietary trading by market makers is sufficient to offset the lost revenues from rebates. The expert sees little room for increasing order fees from a flat 1 euro. „Trade Republic has earned about 3 euros per forwarded order. If they were to charge 4 or 5 euros as an order commission, customers could also buy securities from Flatex. I believe that more than 2 euros per order is not feasible, especially since it would move too far away from the claim of being a free provider“, he says.

Can this be offset through their own market making? It will have to come down to a mix of calculations, says Kerssenbrock. Because with expanded banking services, additional revenues come in, while also incurring higher regulatory costs.

Trade Republic demonstrates that it is possible to tailor the entire offering to the core product of custody. The company has linked cashback from the credit card as small savings to the custody account. One can be optimistic that further innovations will emerge from Trade Republic that connect banking and custody with a focus on securities savings. Furthermore, neobrokers should significantly benefit when the planned retirement savings account comes into play.