Traditional banks could lose out to online brokers
By Mary Kelleher
Tuesday June 22, 6:57 pm Eastern Time
NEW YORK, June 22 (Reuters) - Traditional banks are in danger of losing customers to online brokers like Charles Schwab Corp. (NYSE:SCH - news) that offer Internet trading but also serve up products resembling a standard checking account.
''The brokerages are pointed square at the heart of banking deposits,'' James Punishill, an analyst at Forrester Research said. ''Brokers are using the Internet to offer additional banking services like bill payment and account access to go along with the debit cards they offer.''
Bank deposit growth has waned in recent years as customers have lodged money in popular stock mutual funds instead of savings accounts to earn a higher rate of return.
The surge in online investing and the rapid proliferation of discount brokers have pushed these same customers onto the Internet not only to buy and sell stocks but also to bank and manage money, analysts said.
Banks like Wells Fargo (NYSE:WFC - news) and Citigroup Inc. (NYSE:C - news) are doing a good job of shifting customers over to the Internet to reach more people, make paying bills more convenient and lower costs, but analysts said they must watch the encroaching online and traditional brokers.
''The online brokers are a definite threat to banks overall, just in terms of controlling customer assets,'' Paul Johnson, an analyst at International Data Corp., said. ''If you look at not only what full-service brokers are offering their customers, now you are seeing discount brokers like E*Trade Group Inc. (Nasdaq:EGRP - news) making a strong play into the banking sector.''
E*Trade, one of the fastest-growing U.S. discount brokers, recently announced plans to buy Internet-only bank Telebanc Financial Corp. (Nasdaq:TBFC - news), which offers more attractive rates since it does not have physical branches and has lower costs.
''What we see as more of a competitive threat, however, are the online brokers,'' Thomas Hanley, an analyst at Warburg Dillon Read, wrote in a recent research report, adding Internet-only banks did not threaten traditional banks because customers enjoyed having many alternative ways to bank.
''Several online brokers already offer banking products such as check-writing, bill paying, credit and debit cards and insurance products as well as...trading capabilities,'' Hanley said.
Schwab recently offered ATM access at no charge to customers who use Schwab Acess, a new cash management account providing online checking at Schwab. It also offers products like certificates of deposits linked to the Standard & Poor's 500 index.
The traditional Wall Street firms, which long resisted the Internet for fear of losing handsome commission fees, also are pushing online and offer products that would compete with bread-and-butter banking services.
Merrill Lynch and Co. Inc. (NYSE:MER - news), the top U.S. securities firm, at the beginning of June unveiled plans to offer full-scale Internet trading to its customers for as little as $29.95 a month.
In one of its new accounts offering online trading, customers would also get a Visa card, free ATM withdrawals and checking services. For more than 20 years, Merrill has offered a so-called Cash Management Account with bank-like features including a debit card and checking.
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and News: Charles Schwab Corp (NYSE:SCH - news)
Citigroup, Inc (NYSE:C - news)
E Trade Group Inc (Nasdaq:EGRP - news)
Merrill Lynch & Co Inc (NYSE:MER - news)
Telebanc Financial Corp (Nasdaq:TBFC - news)
Wells Fargo & Co (NYSE:WFC - news)
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