Online Brokerages

Online Brokerages - $3 Trillion In Assets By 2003

The online brokerage segment of the financial services market may be flush in cash by 2003, but it may leave a trail of angry customers in the process, according to a new study from Internet research firm Jupiter Communications.

Online brokerages will have $3 trillion in assets under management by 2003, according to the new research from Jupiter. At the end of 1998, such firms had $415 billion in assets, the company also said.

The "assets under management" figure is important because "it relates to the ability of brokerage houses and others entering the financial space to be profitable in an era of lower per-customer transactions," said Robert Sterling, an analyst with Jupiter's Digital Commerce Strategies, during an afternoon conference call.

"As the average net investor becomes a person of lower income and lower risk tolerance," Sterling said, "we feel the ability of firms to capture assets and to become the primary repository of investors' assets is an extremely important goal for them to pursue."

Only 39 percent of financial services Websites responded to customer e-mail inquiries within one day in the second quarter of 1999 - inadequate for such a service-intensive business, Jupiter said. Additionally, almost 25 percent of firms never responded to e-mail inquiries in the quarter, Sterling also said.

By comparison, 64 percent of retail shopping sites responded to e-mails within a day.

Jupiter said the second-quarter figure is an improvement over the first quarter of 1999, when financial services sites had a 24 percent one-day response rate and retail shopping sites had a 26 percent rate.

Customer service is a very serious issue, Sterling said, and online brokerages "have to address this if they want to continue to grow assets."

"The firms that are able to present competent customer service to their prospects and their customers, and are able to gather assets, are the ones that'll be in the strongest position going forward," he also said.

Even with the customer service problems, Jupiter projects that households trading online will grow from 4.3 million in 1998 to more than 20.3 million in 2003.

Jupiter uses households rather than number of accounts to measure the size of the market because a household may have more than one account, Sterling said.

Also, 41 percent of US households holding stocks either directly or indirectly will have online trading accounts by 2003, and 30 percent of US banking households will manage their bank accounts online by 2003, Jupiter also said.

The online mortgage lending market is trickier to track and predict, because its success up to this point has depended on a favorable refinancing climate as much as on the borrowers' acceptance of the concept, Sterling said..

Because of this, Jupiter predicts that the number of online-originated mortgages could increase to 1.1 million and a total value of $155 billion in 2003, representing about 16 percent of all US mortgage origination, in a "best-case scenario."

In 1998, online mortgage origination was valued at $4 billion, Jupiter added.

Jupiter released its data today in advance of its Financial Services Forum, to be held Sept. 27 and 28 in San Francisco.