Commercial banks can become major competitors in the traditional and electronic brokerage businesses, but they are at risk of losing the game if they don't hurry, two top brokerage executives said Friday.
At the same time, the executives, David S. Pottruck, president and co-chief executive officer of Charles Schwab & Co., and Robert P. Mazzarella, president of Fidelity Brokerage Services Inc., said they did not feel a strong need to expand their own companies' offerings of traditional bank products. The two also rejected the idea of merging either of their firms with a bank or an insurer.
Mr. Pottruck told reporters at the Securities Industry Association annual meeting here: "If customers were saying we want insurance from Schwab, we'd be giving them insurance, the same with a car loan. Right now, it's not the case."
As for banks moving into on-line brokerage, Mr. Pottruck questioned whether time is running out. "I don't think it's too late for anyone, but ... they're starting from the back of the pack," Mr. Pottruck said. "They need to move fast."
Though banks have strong market share in asset management, they have failed to provide customers a "seamless" way to use the Internet to go from traditional banking transactions to brokerage services such as trading, research, and the movement of personal assets, he said.
"I've read that the battle for the Internet is already won, that AOL has won or that Yahoo has won. The reality is that no one really knows who's won. ...There's no guarantee that the incumbents or the upstarts will win," Mr. Pottruck said.
His comments were made at a conference dominated by talk about on-line brokerage services, a business that as recently as last year was seen by some here as threatening and far inferior to relationship-based service. Now, securities CEOs who were once lukewarm to the idea of on-line brokerages sound like they have been fully converted.
John "Launny" Steffens, a vice chairman at Merrill Lynch & Co., said, "The distinction between on-line and off-line services is rapidly fading away." A year ago Merrill Lynch was primarily a broker-dealer network. The prospect of on-line trading was viewed at that time as a danger to Merrill brokers, whose commissions were at stake.
Merrill's recent decision to offer on-line trading has been taken as an acknowledgement that Internet-based services will be a key component of all future financial services distribution.
Fidelity's Mr. Mazzarella, who is also a member of the SIA board of directors, told American Banker that banks, if they act quickly, can get into the new market.
"They have brand, consumer confidence, and a great base of products. They're ready to play."
However, Mr. Mazzarella said it would be difficult for banks to jump into the on-line brokerage fray without an acquisition. The successful banks in the business "are buying brokerages. It could be tough to build from the inside."
Banks also seem to fear their traditional businesses will be at risk from products offered as part of brokerage services.
"You can't be concerned if someone is going to move from one product to another. The ones who will be successful will quit thinking like a banker and become comfortable with the new business," Mr. Mazzarella said.
He named Bank of America Corp. and Bank One Corp. as among the more successful commercial banks operating brokerage ventures. "Both are very aggressive" with technology and sales, he said.
Mr. Mazzarella also discussed Fidelity's efforts to sell traditional bank products. Both Schwab and Fidelity now offer checking accounts. But only Fidelity has expanded its product line to include insurance, mortgages, and credit cards through partnerships with General Motors Acceptance Corp. and American Express Corp.
Those products, Mr. Mazzarella said, are enjoying "some success." But they still suffer from competition with traditional bank offerings. He also said that because Fidelity was not enjoying a huge boost from those nonbrokerage products, the company was not interested in merging with a bank or an insurance company.