The number of online trading accounts in Europe will grow from 1.85 million at the end of 1999 to 4.4 million by the end of 2000, to an amazing 16.8 million by 2003, according to research by IDC.
“Europe is now in the stage of rapid online trading account growth,” said Luisa Bordoni, vice president of IDC’s European Vertical Market research. “During this take-up phase, brokers must focus on surviving by gaining enough market share to become sustainable players.”
According to IDC, lessons can be learned from expansion in the US market where many firms struggled to keep up with immense growth and competition.
“Companies that are first off the block can gain significant market share at this stage of rapid market growth and the biggest challenge could well come from start-ups rather than from traditional institutions,” Bordoni said. “To date, online brokers have competed on price, although as the market develops and competition intensifies, they will focus on offering value-added services such as research and information, either as a service offered directly or through partnership. Some are also likely to integrate other services, both financial and non-financial.”
Online trading activity in Sweden is growing very fast, with most of the activity coming principally from retail investors. The explosion in online trading has come on the coattails of a booming Swedish economy, strong gains on the Stockholm Stock Exchange and foreign markets, and a surge of interest in Swedish technology and Internet stocks. Over 10 brokerages in Sweden offer online trade services (and almost half of them are pure Internet brokerages).
Germany is predicted to have the largest growth, as many Germans are used to using electronic channels like BTX over their PCs. Also, despite the usually conservative approach to financial investment, Germans have embraced discount brokering with surprising interest. As a result, the online broker sector in Germany is expected to see faster growth than elsewhere in Europe.
Because of the presence of the biggest and most competitive financial market in Europe, lower Internet infrastructure costs, and a less financial risk-averse population, the UK is the third largest online financial trading market in Europe. The UK online trading market, however, has been surprisingly slow to develop, although the largest number of European online brokers are situated in the UK. This may be partly due to early UK enthusiasm for Internet technology, helped by a common language with the United States and the infiltration by the large US discount brokers, most of whom see the United Kingdom as the most popular point of entry into Europe.
Online trading is not new in France. Banks such as Cortal and Abax have been offering such services online via Minitel for several years, but the Internet has started to provide a faster platform with more transparency and greater interactivity while allowing brokers to cut costs and charges. The French online brokering market is dominated by Cortal in terms of clients as well as transaction volume.
There were about 20 online stockbrokers in Italy at the end of 1999. The stock market’s local regulation is being developed to favor further presence of new online entrants. Trading online is offered mostly by banks that are moving slowly toward more value-added services.
Online brokering activity is growing in Switzerland, especially among wealthy private banking customer segments. The trend is confirmed for the next few months, despite cautious expectations by Swiss bankers who see the nature of the Internet running contrary to the traditions of private banking, which has emphasized individual attention in the core business of managing large sums of money. The pressure is felt in the Swiss market, but volumes have also increased in these types of services.
According to IDC, pure-play online brokeragesare popping up across Asia,and an increasing number of the region’s traditional brokerages are offering online trading.
“As of year end 1999, online trading in Asia/Pacific was in an extremely nascent state,” said Matthew McGarvey, a research analyst in IDC’s Hong Kong office. “However, with the growing popularity of the Internet and the general increasing comfort and trust in Internet security, online trading will experience explosive growth and popularity within the region in the next five years.”
In 1999, less than 10 percent of the region’s trades were conducted online. By 2004, IDC expects 40 percent of Asia/Pacific’s trades will be online. During that same time, the number of investors using the Internet for their transactions will increase from less than 2.77 million to 20 million.
“Online brokers will have to prepare themselves to handle heavy spikes in the market,” McGarvey said. IDC expects much of the growth in Asia/Pacific’s online trading will occur between 2002 and 2004. The Asia/Pacific market will also have the advantage of learning from the US market.
“Asia/Pacific has been able to follow the rise and fall of many online brokerage companies in the West and thus will not have to reinvent the wheel,” McGarvey said. “Nevertheless, many aspects of online trading will take on unique characteristics in the region. Asia/Pacific will place a higher priority on online brokerages’ ability to access the numerous markets in the region, conduct transactions in multiple currencies, and offer regional-specific research.”
IDC also found that online brokerages expanding from the US market to Asia/Pacific will flourish in the short term, but will soon lose out to indigenous firms with established histories and reputations within the region.