amex getting into the online broker business....
American Express Taking Traders Online
By Richard McCaffery (TMF Gibson)
October 5, 1999
Credit card and financial services veteran American Express (NYSE: AXP) threw its hat into the online brokerage services ring today by announcing plans to offer clients financial research, planning tools, advice, and even free equity trades for those with hefty account balances.
Yes, that's right. Free equity buys for those with minimum account balances of $25,000. For account balances over $100,000, both buys and sells are free, and for the rest of us average Joes -- those with accounts less than $25,000 -- buy and sell trades will cost $14.95. All trades over 3,000 shares have an additional charge of $0.03 per share. It's a midlevel pricing strategy with a shiny twist for its best accounts.
By way of comparison, Merrill Lynch (NYSE: MER) plans to offer online trades for $29.95. Charles Schwab (NYSE: SCH), the number one online trading service, also charges $29.95, and deep discount broker Ameritrade (Nasdaq: AMTD) charges $8.
American Express regards the new venture, American Express Brokerage, as a major step in advancing its Internet strategy, and every financial services company better have one. The Internet has quickly changed the financial services industry because it provides access to the sector's hottest commodity: information. Couple that with technology that allows trading and you've got fire.
Companies that didn't embrace the technology regretted it. Look at Merrill Lynch, the gigantic broker and financial services firm that regarded Internet trading as a threat to Americans' financial lives as late as last year, then spun around with an online trading service of its own shortly thereafter.
American Express has actually been hip to the Web for five years. The 150-year-old firm got started with its Expressnet service in 1995, which allowed customers to check bills and apply for credit cards. By 1998 customers were checking out their 401(k) accounts online and small business owners were applying for loans.
The company spends $250 million annually on internal investments to build its online capabilities. Externally, it has taken $71 million worth of minority investments in 14 different companies. The major focus of the investments is to leverage a benefit for its own Internet strategy.
And in August, after a strong second quarter, American Express Chairman and Chief Executive Harvey Golub outlined a broad Internet strategy that includes using the Web to improve internal operations, offer online services across all of its business units, and turn americanexpress.com into a major Internet destination.
Behind the new trading services, American Express can leverage the weight of its more than 9,300 financial advisers to make its online services play successful. It already has more than two million clients.
It remains to be seen what the venture means for American Express investors. Will clients trade more actively, generating new fees for the company? Will the online trading capability cannibalize its financial advisor services? Who knows. The chips will fall where they may. The good news, really, is that the company is moving its trading services onto the Web. Any financial services company that doesn't will get left behind.
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