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Bank on Discount Brokerages for Success Online

According to a report from research firm Jupiter Communications, discount brokerage firms will be more successful than even the most popular banks when it comes to online services.

At the company's Financial Services Forum, Jupiter predicted that discount brokerages will control over 50% of all online personal finance activity by 2002. This is because brokerages, unlike banks, are pursuing portal strategies for personal finance.

The company stated that banks lack the marketing support, comprehensive services, and aggregation powers exhibited by the discount brokerages, and as a result even the largest retail banks are suffering.

"Online banking will reach only 18 percent penetration of the entire banking market, whereas online trading will be done by 31 percent of the total investing market in the US," said Nicole Vanderbilt, group director of Jupiter's Digital Commerce Strategies. "To date, discount brokerages are the only institutions that have understood the needs of the online consumer, and have reaped the rewards in terms of account and wallet-share growth."

Discount brokerages have met with success by making significant investments in customer acquisition through aggressive portal tenancy deals, national off-line advertising, and discount fee incentives, the firm said.

One recent example is E*TRADE which last week unveiled an e-mail application and announced that it will spend over $100 million to promote its online services.

While customer acquisition costs in the online financial services market remain high, often exceeding approximately $250 for each customer acquired, Jupiter said it is important for financial institutions to focus significant efforts in this area.

"For banks to maintain market and wallet share in the face of competition from discount brokers, they will need to reevaluate their online strategies to include more marketing support, a broader range of integrated products and services, and incentive programs that encourage participation in the medium," Vanderbilt said.