Online Brokerages to Lead Finance Sector

The online brokerage market will lead the financial services sector in growth, raising the asset pool to more than $3 trillion by 2003, but the financial services sector lags behind other businesses in customer service, according to Jupiter Communications.

Jupiter’s research found that less than 40 percent of financial services Web sites responded to customer inquiries within one day, which Jupiter considers inadequate for such a service-intensive business.

Jupiter’s latest quarterly customer service survey, which reviews customer service response rates on 125 leading Web sites from five business sectors, found that only 39 percent of financial services sites responded to customers’ inquiries within one day, compared to 64 percent of retail shopping sites. The numbers are an improvement from first quarter 1999 results, when financial services sites had a 24 percent one-day response rate and retail shopping sites had a 26 percent one-day response rate.

“We are seeing that new online financial services customers are mainstream, risk-averse consumers who have far less tolerance for technology issues and customer service issues,” said Rob Sterling, an analyst with Jupiter’s Digital Commerce Strategies. “Key players are going to have to think more like retailers and invest in the infrastructure to help support a more mainstream customer base.”

According to Jupiter, the online brokerage sector will see the biggest gains, with assets increasing sevenfold from $415 billion at the end of 1998 to more than $3 trillion by the end of 2003.

Highlights from Jupiter’s research into the online brokerage, banking, and mortgage markets include: Online trading households are expected to grow from 4.3 million in 1998 to more than 20.3 million in 2003. The number of trades and commissions per household will drop, but online brokerage revenues from interest, fees, and non-transaction services will increase, to represent 80 percent of total online brokerage revenues by 2003, up from 36 percent of the total in 1998. Jupiter analysts expect 41 percent of the US households holding stocks to either directly or indirectly have online trading accounts in 2003.

A smaller but significant 30 percent of US banking households will manage their bank accounts online in 2003, growing from just under 4 million in 1998 to 26 million by 2003. Revenues directly derived from online banking services through monthly fees will grow more modestly due to competitive pressures, cementing online banking less as a driver of revenue than of cost savings, customer retention, and geographic expansion. the success that online mortgage lending has enjoyed to this point has depended as much on a favorable refinancing climate as on the borrowers’ acceptance of the concept.

According to Jupiter, depending on interest rate levels, the number of online-originated mortgages could increase, in the best case, to 1.1 million in 2003, with a total value of more than $155 billion — up from just over $4 billion in 1998. This will represent about 16 percent of all US mortgage origination in 2003.

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