Schwab, E*Trade Plan to Lead Charge Into U.K. Online Market
By CASSELL BRYAN-LOW
THE WALL STREET JOURNAL INTERACTIVE EDITION
July 12, 1999
U.S. online brokers are making moves on the largely untapped British market, betting the Internet boom they have seen at home will infect investors across the Atlantic Ocean and provide a fertile source of new profits.
Charles Schwab Corp., the leading U.S. online broker, launched Web trading in Britain a year ago. E*Trade Group Inc., its main rival, will start this summer. Other popular U.S. firms, such as Ameritrade Holding Corp., and DLJdirect, the online trading unit of Donaldson Lufkin & Jenrette Inc., plan to join them soon.
Their arrival in Britain could give a boost to its sluggish online trading industry and bring a host of benefits to investors, including lower costs and convenience. Right now, there is only a handful of Web brokers in Britain and just 1% of all stock transactions in that country are done online. In contrast, the U.S. has 140 Web brokers and 35% of all trades are made online.
Ameritrade
www.ameritrade.com
Barclays Stockbrokers
www.barclays-stockbrokers.com
Charles Schwab Europe
www.schwab-europe.com
DLJdirect
www.dlj.com
E*Trade U.K.
www.etrade.co.uk
Stocktrade
www.stocktrade.co.uk
National Westminster Bank
www.natwest.co.uk
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Online Trading Boom Spreads Beyond U.S. to Nations Abroad (May 18)
Naturally, U.S. brokers see opportunities in the United Kingdom. Schwab, which says it is Britain's biggest online brokerage firm with 26,000 accounts, already is taking aggressive steps to stay ahead of its rivals. It is offering customers free online trades in July. Schwab charges 15 pounds ($23.39) to 75 pounds for online trades depending on the number of shares. However, those commissions aren't cheaper than for non-Internet trading.
Schwab, along with Barclays Stockbrokers, which is owned by Barclays PLC, and Stocktrade are the key online players in Britain. But they will soon be joined not only by E*Trade and DLJdirect, but by NatWest Stockbrokers, the brokerage arm of the U.K.'s National Westminster Bank PLC.
Guy Knight, head of marketing for Charles Schwab's business in Europe, says his firm's offer of commission-free online trading in July isn't just intended to attract new accounts but also to nudge existing clients who trade over the phone to try the do-it-yourself world of online trading. "You just need to give people an opportunity to give it a go," he says. Schwab says about 30% of its overall U.K. stock trades are now placed over the Internet.
Schwab's promotion comes as E*Trade, an online investing pioneer and No. 2 in the U.S. market, prepares to make its British debut. E*Trade is running final tests on its trading system there with a small group of people, says Julian Costley, the firm's U.K. chief. He says the public launch is "imminent." Mr. Costley declined to discuss E*Trade's plans in detail.
He did say E*Trade will be looking to compete in pricing, but cautioned against expecting rates to match the rock-bottom levels in the U.S., where some firms now offer trades for as low as $5. "We're not coming in to set a new price point," Mr. Costley says. E*Trade also plans to allow customers to trade, not only British stocks, but those in the U.S. and a range of international markets by the end of the year. Schwab also allows its U.K. clients to trade U.S. stocks.
The U.S. firms face big challenges in Britain beside stiff head-to-head rivalry. They will confront a society with a lower rate of personal-computer use and Internet penetration than in the U.S. But there is rising interest in investing as British workers play a bigger role in their financial security.
The entry of well-established U.S. online brokerage firms could shake up the Internet investing market in Britain. These firms -- and their British competitors -- could help take stock investing in Britain to the masses just as in the U.S.
Indeed, analysts already are predicting strong growth. Fletcher Research, in London, projects that the number of U.K. online investors will almost double by the end of 2000 from 178,000 at the end of 1999. The firm expects that the value of online trades will surge to 7.1 billion pounds from 3.3 billion pounds over the same period.
And the Association of Private Client Investment Managers and Stockbrokers projects that online trading will account for about 15% of all stock trading transactions by early next year, up from 1% now. Some analysts have optimistic predictions that online transactions will account for as much as half of all trades by 2002.
U.S. online brokerage firms, which have been looking to diversify their business overseas and generate new sources of revenues, are hoping to share in that growth. Schwab says it is adding new customers in the U.K. at a rate of about 500 to 1,000 a week.
Scott Appleby, an industry analyst at BancBoston Robertson Stephens, says that for these firms the U.K. serves as "a marketplace with considerable potential, and a launching pad for the rest of Europe." Some European countries, such as Germany, are experiencing considerably more growth in Internet services and online trading than Britain. Germany has Internet penetration levels much closer to those of the U.S. In Britain, Internet penetration levels are about half the rate in the U.S., according to Jupiter Communications, a New York research firm.
But analysts say the U.K. penetration rate -- a significant obstacle to online investing -- is increasing as companies that provide access to the Internet lower their prices. Jupiter projects that U.K. households with Internet access will nearly triple by the end of 2001 from 2.61 million in 1998.
Online stock trading also hasn't taken off in Britain because stock ownership hasn't yet blossomed to the levels seen in the U.S. Not having been encouraged by the government to take as active an investment role in their retirement planning as in the U.S., many Britons got their first taste of stock ownership during the privatization of public utilities in the 1980s. Moreover, the development of online stock trading also has been hampered by the slow migration to the Internet by local financial institutions. Many still don't offer basic functions such as the ability to review account information online.
Even as they rush to open business, online brokers themselves could deter investors from using the Internet to trade because of complicated pricing structures, warns Cliff Condon, an Amsterdam-based analyst for Forrester Research. "The commissions make it very confusing for consumers to work out if this is a bad deal," he says.
For example, Barclays Stockbrokers, currently the No. 2 online brokerage firm in Britain, charges a 1.5% commission on the first 5,000 pounds worth of trades, 0.85% for the next 10,000 pounds and 0.5% on trades after that. Schwab is charging its customers 15 pounds to 75 pounds based on the amount of shares traded.
In the U.S., most brokers charge a flat fee for a certain number of shares, say 1,000, and a fixed fee for each share over the limit. For example, Schwab charges U.S. customers $29.95 to trade up to 1,000 shares and 3 cents a share over that amount. Mr. Costley, of E*Trade, says his firm plans to offer a simple pricing structure in the U.K. |
