Many of Europe's 160 separately branded brokerage sites will be integrated into parent banks, sold or wound up by 2007, according to Forrester Research, which surveyed 27 of the largest European online stockbrokers.
Forrester says that 200 broker sites have shot up over the past three years with leaders like Germany's Consors Discount Broker capturing 500,000 customers and €5 billion in assets within two years. But the fall in the equities market has undermined business plans based on continued growth. Consumers are trading half as often as a year ago and online brokers have slid from near-profitability in 2000 to staggering losses.
To have a chance of survival, Forrester advises brokers already serving a critical mass of frequent traders to focus investment on maintaining and nurturing this high-end, risk-friendly customer base.
Charlotte Hamilton, analyst, Forrester, says: "Break-even can only be achieved if brokers choose between a high-cost, high-revenue strategy serving frequent traders or a low-cost, low-revenue strategy to serve the growing ranks of infrequent traders."
But Forrester reports that only a handful of separately branded brokerage sites will survive in each major European market. These 'elite brokers' will be firms that already have more than two-thirds of frequent traders, few in number and expensive to recruit, but trade 10 times more often than other investors. To survive, firms must each spend around €220 per user to break even in one year, it says.
The research group recommends that large banks fold their brokerage sites into multichannel banking offerings and serve infrequent traders. The resulting integrated brokerage service could earn €10 euros per customer in 2005 while doubling its investor base. The banks must also cater for infrequent traders, adopt the right market channels and cut infrastructure and service costs.
"Banks' brokerage sites must tempt risk-averse infrequent traders to trade up to three times per year by helping them to lower portfolio risk through limit orders and stop losses," says Hamilton. "Firms should off-set infrequent stock-trading by cross-selling other products targeted at less active traders."
She adds that bank-integrated brokers should start reducing costs in 2003 and maintain cost-cutting through 2005 while still doubling user numbers. They must streamline their brokerage technology platforms down to basic tools and leverage existing infrastructure to benefit from cross-channel CRM.
Hamilton says: "Firms must grow organically to lower recruitment costs, migrating banking users to investments at only €100 per user."