The head of TD Waterhouse Group Inc. made a case for the power of branch networks in a presentation this week to American Banker's Financial Services in Cyberspace conference.
"People in banking are completely missing the point when they talk about brick-and-mortar being outdated," said Frank J. Petrilli, president and chief operating officer of the banking and brokerage provider.
Branches are a crucial customer acquisition tool for TD Waterhouse, which solicits 30% to 50% of its clients through 160 offices in the United States. Many customers -- 1,500 a day -- soon gravitate to on-line accounts.
"Getting customers through the branch network is a key competitive advantage for us," Mr. Petrilli said. Since the brokerage's start in 1979, its ever-expanding branch network has helped propel TD Waterhouse to its position as the world's second-largest discount brokerage house. It is bigger than E-Trade, Ameritrade, and DLJ Direct combined, Mr. Petrilli said, though market leader Charles Schwab dwarfs it.
Once TD Waterhouse customers convert to the on-line mode, their trading activity increases by a factor of four, Mr. Petrilli said. The size of their accounts increases by 25% as they consolidate funds from other institutions into the core brokerage account.
The Toronto-Dominion Bank affiliate plans to bulk up to 200 U.S. branches in 2000, which would give it a presence within 25 miles of 80% of the investing public, Mr. Petrilli said.
Besides attracting the large segment of customers who feel comfortable knowing they can go to a physical site, the branches are continuous advertising outlets. The cost of opening a branch on a busy street corner is about the same as buying a double-page ad in The Wall Street Journal for one day, Mr. Petrilli said.
TD Waterhouse has long maintained a low-key approach to advertising, a tactic that has helped keep its customer-acquisition costs low. The firm spent only $58 per new account in the second quarter, compared with some of its on-line brokerage competitors that have costs of up to $250, Mr. Petrilli said.
Nevertheless, its account total has grown at a compound annual rate of more than 58% in the last 11 quarters, and asset totals have risen 65% a year in the same period. It continues to gain market share, from 1% of the on-line trading market in the first quarter of 1997 to 11.7% currently.
Using the proceeds of a recent initial public stock offering, the firm is becoming more aggressive with advertising. For the first time it is spending heavily on marketing and advertising, beginning with a $100 million advertising budget for next year.
The campaign is part of a plan to build a powerful brand and become "the leading global provider of on-line financial services," a goal it shares with E-Trade. TD Waterhouse already offers a full range of banking services through Waterhouse National Bank.
Like E-Trade, TD Waterhouse has begun entering foreign markets, including Japan and continental Europe. A five- to 10-year goal is to have "one Web site for every major securities market in the world, linked and cleared through one back office," Mr. Petrilli said.
