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Online Investing Expected to Weather the Storm

  |  October 4, 2000   |  Comments

Roughly one-third of all expected US households' stock assets will be in online accounts by 2005, according to data compiled by Jupiter Research, even though the year's stock market woes have taken a bite from the online brokerage industry.

Roughly one-third of all expected US households' stock assets will be in online accounts by 2005, according to data compiled by Jupiter Research, even though the year's stock market woes have taken a bite from the online brokerage industry.

According to the data, the US online investable asset market is expected to exceed $5 trillion by 2005 with a majority of those assets belonging to households earning more than $100,000 per year. In addition to brokerage accounts, the research revealed that 13.1 million US households will use the Internet for banking transactions by the end of 2000, with that number growing to 43.5 million by 2005. Approximately 40 percent of all US households will use Web banking to check bank balances, pay bills, and research credit options -- much in the same manner they use ATM banking today.

"Consumers are increasingly inundated with information from many channels, and, for many, hands-on management of their financial portfolio is not their top priority. Therefore the best offering for these customers is a mediated relationship with their own wealth," said Robert Sterling, a senior analyst with Jupiter Research. "Financial institutions must work to capitalize on the interoperable nature and immediacy of the Internet to take a more active role in the day-to-day needs of customers."

According to Sterling, financial customers will gain access to essentially the same products through a limitless number of institutions. Financial institutions must then channel their resources into cultivating better relationships with existing customers. Certain product categories, such as financial planning, discretionary money management, and life insurance, are particularly important because they represent not just products but relationships.

Assets in Online Investing Accounts
Year 2000 2001 2002 2003 2004 2005
Trillions $1.5 $2.1 $2.9 $3.7 $4.5 $5.4
Source: Jupiter Research

"Because products look alike, it is the people behind the desks that must acquire and build customer loyalty while using technology to manage the drudgery of asset allocation or estimating insurance need," Sterling said.

Jupiter analysts advise financial institutions to shift the role of customer representatives, including that of insurance agents, stockbrokers, and loan officers, to a role that is less focused on pushing product and more focused on building relationships and gathering assets. While some institutions have to alter job descriptions and develop a system of compensation bonuses, it should be based on gathering assets.

The recent downturn in the stock market has had an effect on how online financial services customers use the Internet. An analysis of Media Metrix data found the number of people who visited online trading Web sites decreased nearly 20 percent from March through July 2000, despite an overall growth in online business/finance traffic of 11 percent. Consumer-banking Web sites fared better than brokerage sites, experiencing a 37 percent growth in unique visitors during the same time frame.

The hardest hit brokerage sites seem to have been the online-only brokerages, which lost twice as many unique visitors as the leading sites affiliated with offline brokerages (e.g., Schwab and Fidelity) during the second quarter of 2000. The online-offline brokerages lost only 18 percent of their traffic between March and July, as compared to 30 percent for the top online-only brokerages.

Not surprisingly, the data also found that visitors to financial news sites are twice as likely to have an online brokerage account than the Internet using population overall. While only 10 percent of all Internet users have an online brokerage account, approximately 22 percent of visitors to sites such as CNNfn.com, Marketwatch.com, Fool.com, Bloomberg.com and TheStreet.com have an online account.

The Media Metrix personal finance category, which includes sites such as Nextcard.com, Moneycentral.com, Capitalone.com, Americanexpress.com and Quicken.com, had a higher number of unique visitors (more than 24.2 million) when compared to the online trading category (8.1 million). But Internet users spend more than 30 percent more time on trading sites per day (6 vs. 9 average daily minutes, respectively).

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