Changing investment habits will propel Europe’s online brokerage accounts to 14 million by 2004, up from 1.3 million accounts today. Germany will lead the way with its growing online population and aggressive online brokers. But as mainstream investors start to come online in 2002, brokerage firms will need to rethink their strategies. A new Report from Forrester Research B.V. (Nasdaq: FORR) outlines how firms must cater to mainstream investors by offering personalized financial advice. Otherwise, they risk getting tangled up in a price war.
There are three forces at work behind Europe’s individual investment surge. First, Europe’s governments are encouraging constituents to invest. Last year, for example, Netherlands altered its Pension Savings Act, offering consumers a broader range of tax-free investment funds and increasing the amount that they can contribute. Meanwhile, the privatization of national firms puts more stocks in consumers’ hands. Privatization in the UK caused stock ownership to surge nearly 400% to 15 million investors. Finally, Europeans are actively participating in the growth of Net stocks as a result of the flurry of recent IPOs.
“Europe’s rich social programs have traditionally limited consumers’ appetite for investment — only 18% of Europeans directly own stocks compared with 40% in the US,” explained Carsten Schmidt, associate analyst in European Internet Commerce Research. “But this environment is undergoing fundamental change as consumers seek greater control over their assets. While governments are pushing the population toward individual investing, record market performance is pulling investors in.”
To satisfy consumers’ newfound desire to invest, European financial firms are aggressively developing brokerage services with a focus on the Net. “Discount brokers like Comdirect and e-cortal are setting the pace with aggressive advertising and low prices,” added Schmidt. “These players are grabbing the lion’s share of today’s market and looking for expansion opportunities in other countries. Meanwhile, the big financial firms have moved their entire product range online. US firms like Schwab and E*TRADE, looking for a second wave of growth, have entered the European market with cheap introductory offerings.”
Robust services and cheap trades from brokerages and banks make Germany the largest market for online trading in Europe with 550,000 accounts today. By 2004, this number will grow to 3.5 million. The best online financial experience can be found in the Nordic countries, where 30% of consumers own stock and 10% already trade online. Despite a combined population of 21 million, the number of online accounts in Denmark, Finland, Norway, and Sweden will reach 3.1 million by 2004. Forrester expects that it will take four years for the UK and France to begin narrowing the gap with Germany. Complicated pricing structures and thin content mar today’s online brokerages in the UK. Meanwhile, France will be held back by the limitations of Minitel.
“The future for online brokerages in Europe looks bright, but there are two clouds on the horizon,” Schmidt stated. “A price war is looming that will push prices below [EURO]10 a trade and lead to a market shakeout by 2002. To survive, brokers need to attract mainstream investors with personalized advice, customer education, and easy-to-use analytical tools. But few brokers are preparing to meet these needs.”
For the Report “Online Trading Skyrockets In Europe,” Forrester spoke with 24 brokerages and 26 banks across Europe that offer online trading today or will do so within the next six months. Forrester also spoke with 21 technology vendors and thought leaders. While 84% of the companies interviewed plan to offer WAP sites and support for cross-border training this year, only 19% plan to add advisory services in the next three years.