The coming explosion in online brokerage offers banks an opportunity to boost their business, according to a study by International Data Corp.
Shaw Lively, research manager at International Data, a division of International Data Group of Framingham, Mass., said 53% of people who invest online also visit bank Web sites for account information or to make transactions. By comparison, 39% of the investors visit credit card sites, and 35% hit mutual fund sites.
"The question for firms is: How do we participate in this?" Mr. Lively said.
The number of U.S. households investing online will triple in the next four years, to 19 million, the study predicts. That growth will be driven largely by high-net-worth investors, but even households earning less than $35,000 a year are expected to make up 4.5 million of those investing online in four years, Mr. Lively said.
Customer service problems such as execution delays are likely to inhibit this growth, though slowdowns have decreased in recent years, he said. These problems are likely to wane as the current flurry of trading cools, Mr. Lively said.
Later, he added, service will become even more crucial to any firm that has online capabilities.
As more U.S. investors begin using online financial services, companies are likely to evolve away from the predominant transaction-based business toward four business models, Mr. Lively said.
The most prominent model will be the integrated financial service company, such as TD Waterhouse Group or FleetBoston Financial Corp., which will offer a full array of financial services online. Niche players, such as J.P. Morgan & Co., will target specific group of customers.
"Best of Breed" firms, such as Ameritrade or Datek Online, will strive to be innovative in specific lines of business, while multi-channel delivery firms will essentially be brokers that interact with their customers through a variety of channels, Mr. Lively said.
Market leaders like Charles Schwab & Co. and Fidelity Investments will fit into a number of these categories, he said.
Firms will need to use all communication channels available to develop personalized relationships with their customers, Mr. Lively said. The study showed that while 60% of Internet investors reviewed their financial data on paper in the last six months, only 17% did so online, and 34% called a customer service representative.
Households are more likely to use the Internet for information than for transactions, Mr. Lively said.
While 22% viewed their bank account and 33% checked a stock quote, 9% made a trade, the study showed. Only 2% applied for a mortgage, and 4% applied for a loan.
Online brokerage as it is now understood will soon cease to be a stand-alone entity, Mr. Lively said. As an example, he noted that Merrill Lynch is never referred to as an "online broker," though it now has online capacity.
The United States has the most online investors, and outside the United States, Internet brokerage is growing fastest in continental Europe and Korea, the study showed.