Online Brokerage Assets Soaring To $3 Trillion, Despite Poor Service

While the assets that online brokerage firms manage will soar to a hefty $3 trillion (US$) by 2003, the industry continues to lag far behind other e-commerce players in delivering prompt service to its customers.

These are the conclusions of a quarterly customer service survey released Wednesday by Internet market researcher Jupiter Communications.

Slow To Respond

After contacting 125 leading Web sites from five business sectors, Jupiter found that only 39 percent of the financial service sites responded to customer inquiries within 24 hours. At the same time, online retailers responded to 64 percent of its customers’ questions within one day. Jupiter declined to name the sites targeted in the survey.

“Twenty-five percent of the financial services sites replied to customers within two days and 10 percent within five days,” said Robert Sterling, a Jupiter analyst. “But 25 percent of the firms didn’t respond at all.”

Sterling added that this is a serious problem the online brokerage industry must address if it hopes to keep up with the skyrocketing demand for buying stocks online. Jupiter predicts that households trading online will grow from 4.3 million in 1998 to more than 20.3 million in 2003. However, the number of trades and commissions per household will drop because those with less income will also be trying their hand at online trading. The mean income of household trading online is predicted to drop from $62,000 in 1998 to $55,000 by 2003, according to Jupiter.

Nevertheless, online brokers’ revenue from interest, fees and research services will increase, until they represent 80 percent of online brokerage revenue by 2003 — up from 36 percent of the total in 1998.

Why Do Customers Put Up With Bad Service?

Sterling said online brokers were currently getting away with shoddy service to their customers because of the cost and hassle involved in switching to another broker.

“It’s a pain to switch,” he said.

He added that online retailers fared much better in the customer service survey for several reasons: they’re not receiving the deluge of calls online brokers are and their margins are so thin — they must be more responsive in order to survive.

Online Mortgages A Mixed Bag

Turning to online mortgage lending, Jupiter said that its continued growth depended as much on a favorable refinancing climate as on borrowers’ acceptance of the concept.

Depending upon interest rates, the number of online-originated mortgages could increase — in a best case scenario — to 1.1 million in 2003. While this represents about 16 percent of the total U.S. market in 2003, Sterling said that brick-and-mortar mortgage originators would continue to garner 84 percent of the segment.

“They still visit real estate offices and bring donuts with them,” Sterling added.