April, 2000
Roundtable:
Brokerages' Brave New World
Who'll win the online finance wars? A panel of
experts sorts it out.
At a recent conference hosted by the Securities Industry
Association, MONEY managing editor Robert Safian
moderated a discussion with four online brokerage
authorities (see bios below). Here are excerpts from their
comments about the opportunities and threats that the
Internet presents to financial services companies.
Q: Which firm is best handling the balance between waiting
to see how the online market develops and racing to stay
up with the most innovative player of the moment?
Burnham: If you look at the top 10 online brokers, five
are brand-new Internet brokers....For me E*trade
epitomizes those five; it has aggressively gone out and
staked its claim. You can question whether their tactics are
sound or financially responsible, but I think they have
become an incredibly important force.
Swerdlow: I think that the traditional players such as
Schwab and Merrill are incredibly well-positioned. Merrill was
very slow out of the gate but is moving a lot more quickly
now.
Marks: I would say all and none are doing things well. One
thing that all online brokers deserve credit for is how well
they've handled the surge in volume over the last three or
four months....[But] we don't see the most basic product,
online bill payment, which should be the linchpin financial
relationship. To me that's inexcusable.
Gomez: The three firms that have really distinguished
themselves are E*trade, DLJ Direct and Schwab.
Schwab...attacked the new market without stopping to
think about whether this would be a threat to its existing
business. As a result, they devoted all the resources
required to get to the top of the heap.
Q: To what extent should the business model be about
generating transactions and to what extent about gathering
assets?
Swerdlow: It's all about asset gathering. It is impossible
to expect that the online consumer today will be the online
consumer in the future. We project that occasional traders,
people who trade on average less than 10 times per year,
are going to be much more the norm, about two-thirds of all
traders in 2003.
Burnham: Catering to active traders is a great business.
They are wildly profitable. A firm like Schwab talks about
asset-gathering, yet they have to cut prices to hold onto
their active traders....Going blindly after asset growth
doesn't generate revenues - you have to find asset
productivity....At the big firms that have gone after asset
growth, Schwab and Fidelity, asset productivity is very low.
Q: So the folks at E*trade are going after a different
consumer than the folks at Merrill?
Burnham: Sometimes it's the same person...a fairly
conservative...investor, [who makes] four to eight trades a
year, who [takes] a little bit of money and is trading it
actively.
Q: Why is bill payment taking so long to get in place?
Marks: The biggest problem...is that it's no fun. Online
trading is fun. You can make money. It's great. People enjoy
it....Bill payment takes something you hate doing and makes
it a little less painful, and that's a tough sale. |
