research and advisory firm Financial Insights, an IDC company, today announced the release of two new studies, which examine what happened to eTrading after the "gold rush" and how some of the strongest online retail brokers responded to the changes brought on by the dot-com crash in order to provide a picture of key business and technological attributes that enabled them to survive the difficult business conditions.
At the end of the 1990s, an "an irrational exuberance" gripped the European investment industry, triggering a veritable gold rush. When the markets crashed in 2000-2001, a new generation of online retail brokers needed to adapt their strategies or die.
These two studies look back on how the industry reinvented itself through consolidation and rationalization, and the evolutionary landscape from the perspective of a few online retail brokers which were among the most responsive to the market crash: Boursorama, Cortal Consors, and Directa Sim.
"Only a few players survived this turmoil and almost all of them have responded to the changing environment by quickly widening their revenue streams and adding new services, such as asset gathering and advice," says
Simona Macellari, EMEA manager of Research and Consulting at Financial Insights. "The industry has moved from etrading to online savings with a heavy emphasis on client advisory tools and this requires a much richer and more adaptable knowledge management system, integrating a wide range of information sources. As usual, technology firms will be challenged to keep pace with the new demands and compete effectively with in-house teams, but there are still interesting opportunities for major outsourcing deals."
In this study, Financial Insights highlights the key business and technological strategies that allowed them to survive the end of the gold rush and indeed prosper, while so many others failed. Key findings include:
Â· The old brokerage world of etrading is rapidly disappearing and being replaced by online savings and advisory models that imply even more investments to align marketing and information systems.
Â· Economies of scale and scope were also critical, which means standardization and centralization wherever possible. Consolidation and rationalization of operating units below critical mass look set to continue. Where country-specific differences inhibit sharing a common platform, agile brokers look to outsource.
Â· Selective sourcing and leveraging IT assets through white-label services have been strategic contributors not only to brokers' survival but also to their present prosperity. However, these approaches too depend on an appropriate IT architecture, such as multi-entity, multi-jurisdiction, multi-lingual, and multi-time zone systems, with real time position keeping across multiple service providers; the use of open technologies and the development of collaborative, service oriented architectures (SOAs) is very important.
Â· Sustaining value in a manner that is cost-efficient for customers becomes
increasingly challenging, with customer loyalty ever more transitory as low- or no-fee attitudes take hold. Online brokers that merely compete on product breadth and hesitate to embrace new customer relationship models will surely lag behind. The old product based trading and sales desks are likely to give way to relationship managers able to advise clients across asset classes. CRM is likely to become increasingly important with real time automated processes and integration across multiple channels
Â· The pure execution-only aggregator business model may be sustainable only
with great difficulty in the current market, even with the benefit of a high-performance/low-cost transaction platform.
These Financial Insights studies, eTrading After the Gold Rush, Chapter 1: eTrading is Dead, Long Live eTrading! and eTrading After the Gold Rush, Chapter 2: Who Survived and How, by Simona Macellari (Financial Insights #FIN1663 and Financial Insights #FIN1666, October 2005), examine how the etrading industry responded to the changes brought on by the dot-com crash in order to highlight how the technological platform has evolved to be aligned with the different business model and business processes and how some of the strongest online retail brokers responded to the changes brought on by the dot-com crash in order to provide a picture of key business and technological attributes that enabled them to survive the difficult business conditions.