The two leading German online brokers have reported rapid business growth in the UK market.
The UK Internet stockbroking environment has been extremely competitive in the last year. eBrokers have spent millions of pounds in their desperate attempts to grab a large slice of the small market pie. US brokers such as Charles Schwab have used their expertise in online stockbroking and their big parents to defeat the fledging online operations of UK brokers, while continental European rivals have failed to have any impact despite spending millions of pounds.
Yet Commerzbank’s Comdirect and HypoVereinsbank’s DAB are two of the UK’s fastest growing share dealers. This expansion comes despite the market’s recession, the slow growth of customer numbers and the decreased market velocity. These companies are pursuing a long-term plan, investing now for the future, spending money on advertising, setting out clear pricing structures and giving great attention to controlling costs.
On the other hand, how long can the German online brokers continue to invest heavily in a business where the returns are not as great as expected? Comdirect and DAB both fell into loss in Q2 as the number of trades each German customer made fell sharply. If the recession lasts long enough, then it is doubtful that their UK growth can continue. Aggressive strategies are particularly risky and expensive when the future is unpredictable.
The UK market is appealing and challenging due to the high number of private shareholders, few of whom currently use the Internet to deal. Recent surveys suggest that the online channel is appealing, with almost 20% of people who purchase investment services doing so online.
However, it’s important to make the distinction between eBroking as a distinct activity and eBroking as a distribution channel. The integrated services (call centers with similar costs to the online channel) that they offer shows that DAB and Comdirect view it as the latter. As such, direct profitability may not be a requirement.
