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Issue 2001-6 Tuesday, April 3, 2001
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  Faced with pure-play direct banks, big actors get organised in order to play the online/offline synergies

Faced with pure-play direct banks, big actors get organised in order to play the online/offline synergies

Online brokerage websites are presently going through difficult times in the United-States, France is still untouched


Deutsche Bank just announced it was going to integrate its new online trading platform "Maxblue" and this is the proof that the German bank really wants to adopt a large-scale Internet strategy.

Indeed, the bank displays pan-European ambitions.

Its new concept should not only blur the lines between online and offline banking, but it should also create a multi-services platform that would integrate banking and broking, saving and investing, insurance and mortgages.

Therefore, Deutsche bank decided to hit hard in the finance world and considers that it will need 20 million customers to reach break-even point with this new European strategy.


According to the bank, there would be a potential 60 million mass-affluent clients in Europe.

Deusche bank hopes to control at least one third of this European market all on its own.

It is obvious that Deusche Bank's strategy consists in marrying not only the different trades that can be found in the finance sector, but also in taking advantage of its offline branches to offer services that would prove impossible for pure-play direct banks.

Deusche bank also mentions that one third of its clients already access their accounts online.

The same thing happens with Hypo Vereinsbank, Germany's second-largest bank, which claims a 114 percent rise in 2000, which represents a total of 1.5 million accounts opened online.

What's more, Hypo Vereisbank is betting that in the future, up to 80% of its client base will use both online and branch services compared to 10 percent today.

The bank expects that, by 2005, 50 percent of its clients will take care of their routine operations online or by telephone.

This tendency to mix online and offline services can also be seen in Japan since the future online Ito-Yokado bank should finally be launched next May.

This bank should have been launched last March but it was delayed, as the bank wants to offer its clients the possibility to manage their operations through the Internet but also in bank outlets. Of course, this decision requires an agreement from all existing banks, and such agreement should quickly take place, once banks have reached a settlement on commission fees.

And finally, Sony's plan to set up its own online bank just got approved by Japanese financial authorities.

Sony Bank Corp will represent a first in Japan, as it will be the first ever online Japanese bank that is not issued from the banking sector.

The new bank will be owned 80 percent by Sony, 16 percent by Sakura Bank Ldt and 4 percent by J.P. Morgan Chase.

These tree companies will invest 305 million in the new bank.

Nearly all Sony bank Corp's clients will be able to deposit, withdraw and transfer money offline through convenience stores and Sakura bank outlets. But only residents of Japan will be able to open accounts at first.

Source : Deutsche Bank 24 - Sony

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    Online brokerage websites are presently going through difficult times in the United-States, France is still untouched.  

The American Internet market has already become extremely mature in many e-commerce sectors and, as a result, we cannot expect to see its rates of increase keep on growing as much as they used to.

What's more, most new Internet users do not belong to the wealthiest social class, as the latter has already been connected to the Internet for a long time.

A continually falling market, coupled together with the disruptions that can presently be seen on the Stock Exchange market, is presently being a real strain on American online broking accounts.

Not only is the level of retail trading volumes decreasing, but there is also quite a lot of competitive websites still on the market. As a result, the only solution is to take cost-cutting measures that include job cuts.

Every week, we witness massive layoffs in the online brokerage sector. After Ameritrade and TD Waterhouse, it is now the turn of CFSB Direct, which recently said that it would be laying off 10% of its workforce and even closing down its customer-service call-center in New Jersey.

As for Schwab, it already dismissed 3.400 employees, which represents 13% of its workforce. On top of that, the company reduced the salaries of its top 750 executives and Charles Schwab himself took a 50% pay cut.

In my opinion, all these drastic cuts prove that the present crisis can no longer be viewed as a temporary one, and that online brokers need to wholly reorganize their business if they want to keep on living.

Please note that new online accounts only grew at a 53% rate in the United-States in 2000, figure that should be compared to the 313% rate registered in France over the same period of time. What's more, according to Baron's, the average number of trades per account dropped by 2.9 in the last three months of 2000, down from an average of 5 trades for the same period in 1999. These figures perfectly illustrate the present difficulties faced by the online brokerage sector in the United-States.

And yet, these actors should take their cost-cutting measures cautiously since it would not be a good idea to reduce the quality of the customer service call center at the end of the line.

And yet, the fact that actors such as Schwab grew by 6,200 employees in 2000 alone, leads us to think that they failed to assess their market potential objectively.

Schwab and many others are presently paying dearly for showing too much optimism, and this proves rather worrying as these actors are considered as professionals in the economy sector.

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