Changing investment habits will propel Europe’s online brokerage accounts to 14 million by 2004, up from 1.3 million accounts today, according to research by Forrester Research B.V.
According to Forrester’s report “Online Trading Skyrockets In Europe,” Germany will lead the way in Europe thanks to its growing online population and aggressive online brokers.
There are three forces at work behind Europe’s individual investment surge, Forrester found. First, Europe’s governments are encouraging constituents to invest. Last year, for example, Netherlands altered its Pension Savings Act, offering consumers a broader range of tax-free investment funds and increasing the amount that they can contribute. Meanwhile, the privatization of national firms puts more stocks in consumers’ hands. Privatization in the UK caused stock ownership to surge nearly 400 percent to 15 million investors. Finally, Europeans are actively participating in the growth of Net stocks as a result of the flurry of recent IPOs.
“Europe’s rich social programs have traditionally limited consumers’ appetite for investment — only 18 percent of Europeans directly own stocks compared with 40 percent in the US,” said Carsten Schmidt, associate analyst in European Internet Commerce Research. “But this environment is undergoing fundamental change as consumers seek greater control over their assets. While governments are pushing the population toward individual investing, record market performance is pulling investors in.”
To satisfy consumers’ newfound desire to invest, European financial firms are aggressively developing brokerage services with a focus on the Net.
“Discount brokers like Comdirect and e-cortal are setting the pace with aggressive advertising and low prices,” Schmidt said. “These players are grabbing the lion’s share of today’s market and looking for expansion opportunities in other countries. Meanwhile, the big financial firms have moved their entire product range online. US firms like Schwab and E*TRADE, looking for a second wave of growth, have entered the European market with cheap introductory offerings.”
Currently, Germany’s robust services and inexpensive trades from brokerages and banks make it the largest market for online trading in Europe with 550,000 accounts today. By 2004, this number will grow to 3.5 million. According to Forrester, the best online financial experience can be found in the Nordic countries, where 30 percent of consumers own stock and 10 percent already trade online. Despite a combined population of 21 million, the number of online accounts in Denmark, Finland, Norway, and Sweden will reach 3.1 million by 2004. Forrester expects that it will take four years for the UK and France to begin narrowing the gap with Germany.
Complicated pricing structures and thin content characterize today’s online brokerages in the UK. Meanwhile, France will be held back by the limitations of Minitel.
“The future for online brokerages in Europe looks bright, but there are two clouds on the horizon,” Schmidt said. “A price war is looming that will push prices below 10 euros a trade and lead to a market shakeout by 2002. To survive, brokers need to attract mainstream investors with personalized advice, customer education, and easy-to-use analytical tools. But few brokers are preparing to meet these needs.”
For its report, Forrester spoke with 24 brokerages and 26 banks across Europe that offer online trading today or will do so within the next six months. Forrester also spoke with 21 technology vendors and thought leaders. While 84 percent of the companies interviewed plan to offer WAP sites and support for cross-border training this year, only 19 percent plan to add advisory services in the next three years.