New Report Sees Online Brokerages Adding Banking To Their Portfolios

Carla Johnson, InvestorsOffshore.com

19 March 2001

A report released last week by Meridien Research concluded that online brokerages the world over are adopting a convergence strategy which involves adding banking services to their product portfolios. As market conditions and consumer demands progress, states the report, online brokerages have realised they must enhance their business with the addition of banking services to 'strengthen customer relationships, increase site stickiness and generate additional revenue streams.'

Authors of the report, Christine Barry and Jennifer Schmidt, explained: 'We believe an expanded product portfolio is imperative for online brokerages to survive. This strategy is ideal for them to strengthen customer relationships and improve the stickiness of their sites. It also reflects a consumer preference for convenience and a shift back toward a full-service model.'

The report, entitled Online Brokers: Taking Stock in Banking, says the decision of online brokerages to diversify with such convergence strategies is down to a volatile market, changing consumer demands and, not least, the repeal of the Glass-Steagall Act.

The Glass-Steagall Act, introduced in the 1930s depression era, effectively separated commercial banking from investment banking and kept banks, insurance and securities businesses apart. But the recent repeal of this law has given online brokers three choices to consider if they want to expand their services to include banking. They can merge, ally or acquire a bank. They can create their own technological capabilities in-house. Or they can license banking platforms from external vendors.

According to Meridien around 10 million people worldwide have online brokerage accounts, with the majority based in the United States and the greatest growth in accounts in Europe and Asia. In Korea, for example, more than 60 percent of trades are placed online.

Meridien's research discovered that suppliers of online banking solutions, not online brokerage solutions, are at the front of the queue when it comes to providing the technology needed to integrate brokerage and banking services.

More details of the report can be found at: http://www.meridien-research.com.

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