As larger banks scramble to offer on-line trading to their brokerage customers, many community banks are skipping in-house sales programs and going straight to the Internet.
Driven by cost and convenience, banks that might once have turned to a third-party provider -- or even hired their own platform representative -- are taking advantage of services that let them link a brokerage site to their own Web site.
"For some of the smaller banks, it's often very difficult to justify the expense of a third-party marketer," said William W. Reid Jr., president and chief executive officer of ICBA Financial Services Corp., the Memphis-based securities arm of the Independent Community Bankers of America.
The on-line brokerage option "gives them the ability to compete without the capital commitment necessary for a third-party program," he said.
The biggest expense of any in-house sales program is the sales representative's compensation, Mr. Reid said. But community banks, especially those with less than $50 million of assets, are often hard-pressed to generate enough walk-in traffic to support a dedicated salesperson.
For the past year and a half the ICBA, in partnership with U.S. Clearing, a division of Fleet Securities Inc. of New York, has offered on-line discount brokerage services to members. (Bank customers can also place trades with U.S. Clearing by telephone.) U.S. Clearing executes and clears the trades and sends out account statements.
Of the 160 banks participating, Mr. Reid estimated, two-thirds offer brokerage services exclusively on-line.
It's easy to see why. Start-up costs for the bank are low, and banks profit from a revenue-sharing arrangement. Most banks view on-line brokerage as an inexpensive way to keep customers from taking their money elsewhere.
"We knew there were opportunities we were missing out on," said David de Give, treasurer of Southern Financial Bank, a subsidiary of $406 million-asset Southern Financial Bancorp in Warrenton, Va.
Before signing on with U.S. Clearing last summer, it had referred customers who asked about stock trading to another brokerage. Now, Mr. de Give said, "we're not giving them an opportunity to look abroad."
Other companies with Internet capabilities have been quick to offer banks a way to get on-line. Two that design and install Internet banking sites -- Home Account in Emeryville, Calif., and Q-Up Systems Inc. in Austin, Tex. -- added brokerage options last summer.
Even third-party marketers are getting in on the action. Invest Financial Corp. in Tampa, Fla., introduced an option last month that lets its bank clients' customers check brokerage account information on-line, and it will eventually offer on-line stock trading.
HomeCom Inc. of Atlanta, which recently acquired third-party provider First Institutional Marketing Inc. of Houston, lets bank clients offer insurance products and annuities over the Web and plans soon to add on-line trading.
Steven Hoffman, senior vice president at Home Account, said that he expected about half of his bank clients eventually to select the on-line brokerage option, many to the exclusion of a retail brokerage.
"It really enables banks to offer a brokerage, brand it, and get paid when the customer signs up," he said. "The bank has nothing to lose."
Brook Newcomb, an analyst at Forrester Research in Cambridge, Mass., questioned whether on-line trading fits community banks' culture.
"The strong suit of community banks has always been customer service," Mr. Newcomb said. "The mainstream investor doesn't trade that often, and they want some hand-holding," he said. "If you're an active trader, confident, making your own investment decisions, why not just go to E-Trade in the first place?"
But community bankers said their customers appreciate that cobranded Web sites maintain a connection to their bank.
"They make sure the bank client sees you as the provider of the service," said Arthur L. Kniffen, a senior vice president at Southern Community Bank in St. Louis, which participates in the ICBA's program. And Mr. Kniffen said the brokerage sometimes solves some very local problems.
"We had a guy this morning with all these (stock) certificates from an estate, and he didn't know what to do with them," Mr. Kniffen said. "I told him: 'Open a (brokerage) account. You don't have to fight all this paper.' "