The Future of Internet Brokerage
After consulting work with leading financial services companies, including Charles Schwab and the Swiss Bank Corporation, I wrote a paper on “The Future of Internet Brokerage” which was published by the think tank SRI International in 1998. The predictions in the paper have been borne out over time, as Internet-based brokerage has become dominant, the number of interpreters has multiplied, the cost of personalization had dropped, integration services like Mint have been adopted, and transaction costs are approaching zero (e.g. Robinhood).
The paper is available here.
From the introduction to the paper:
The Internet has already changed the nature of the brokerage business. Internet-based brokerage has given clients reduced prices, more convenient trading, greater access to information, and new value-added products and services. A new generation of brokerage companies has arrived on the scene, challenging the established players and changing the rules of the game. The impact of the Internet on the brokerage industry marks a paradigm shift on the order of the introduction of discount brokerage.
What is so exciting, and strategically challenging, is that the changes associated with Internet-based brokerage have just begun. Forrester Research estimates that the number of online accounts will grow from 1.5 million in 1997 to 10 million in 2000 and to 12 million in 2001. It expects the value of assets managed online to rise from $120 billion in 1997 to $688 billion in 2002. Along with this massive influx of clients and assets will come growing client demands, continuing aggressive competition, and further advances in Internet capabilities. As a result, financial services companies and other online players will need to consider carefully the future of Internet brokerage and plan accordingly.
In the next two to three years, the marketplace will look considerably different than it does today:
• The low cost of distribution over the Internet will cause sources of financial information to multiply. Clients will seek to compare and purchase financial products from varied sources quickly and easily.
• As the online financial environment becomes more complex, demand for interpreters— both human advisers and automatic systems—will intensify. Interpretation costs will drop, making personalized service more accessible to a wider range of investors. In turn, interpreters will be important partners in firms’ efforts to provide value to their clients.
• Clients will tire of navigating through multiple portals to plan their financial lives and conduct transactions. They will seek enhanced value through greater integration of all aspects of their financial situations. As a result, they may choose one or two portals through which they manage their finances. Providers will compete to make the cut. Providers will also increasingly see advantages in presenting their products and services through each other’s portals.
• The transactional model that has dominated the financial services industry will give way to a relationship-based model. Engaging clients in a collaborative conversation will be the key to keeping their loyalty, and customization of products will be easy and affordable thanks to new technologies and capabilities.
Photo from http://quoteinspector.com. License: https://creativecommons.org/licenses/by-nd/2.0/
