Bottom Line for Financial Firms: Services

The dot-com crash and the downturn in the economy may have left consumers and businesses with little appetite for online trading, but industry analysts say customers remain hungry for financial service providers that can offer a variety of services.

This has not been a great year for online brokerage firms. Online traders lost 18 percent of their established investors in the last six months, and saw only an 8 percent rise in new investors, according to J.D. Power and Associates. Gomez, meanwhile, says online brokerage accounts grew just 1.96 percent from the first quarter to the second quarter, a poor showing indeed, when compared with the 15 percent growth during the same period last year.

What customers want is an easy and efficient way to manage their portfolios, J.D. Powers says. That translates into one-stop access to myriad online services and access to multiple accounts — even online accounts that customers have with other investment firms and financial services providers. "The name of the game is consolidation," says Nancy Salk, J.D. Powers director of investment services.

Financial Services (download the PDF)

Jupiter Media Metrix agrees, predicting that so-called "financial syndicators" — companies that can offer customers one-stop access to a variety of services — will serve 18.3 million online banking and brokerage users by 2006. "Common industry knowledge is that consumers rarely change banks; instead, they open additional accounts with additional banks or financial service providers," Jupiter analysts Patricia Lueer and Rebecca Greco wrote in their Sept. 17 report Retaining Customers via Integration. "With an increasing number of financial products available online, it is more relevant than ever to create compelling offerings and barriers to switching."

Online financial services providers have already begun to branch out. E*Trade Securities, which started life as an Internet-only broker handling stock trades, now offers credit cards, mortgage banking and 401(k) management. Last month, the company signed exclusive deals with Visa U.S.A. and Visa Debit Processing Service to offer a single automated teller machine card that customers can use at E*Trade ATMs to access both their bank and brokerage accounts.

Charles Schwab & Co., in addition to stock trades, offers accounts for estate planning, life insurance, retirement planning and portfolio advice. The company also offers brokerage customers checking accounts.

Consumers certainly seem interested in integrated online financial services.

Jupiter estimates the number of users who will do their banking online will grow from 7.3 million in 2001 to 9.4 million next year, and 14.7 million by 2006. The company pegs online traders at 1.1 million users this year and 1.5 million by 2002, and 3.6 million by 2006.

"Online financial services will become part of the everyday Internet," Jupiters Lueer and Greco predict. "Growth in online financial transactions, as well as an overall increase in Internet penetration — 32.5 million users will be online by 2006 — will drive the convergence of the financial services industry."