Firmatex’s rollout of online brokerage in the UK and Italy will double its losses.
The UK doesn’t really need another online broker. The market isn’t just crowded, it’s a serious crush. Dozens of sites offer a commoditized product, with little to differentiate between them leaving the sector ripe for international consolidation. So why, when Direkt Anlage is buying Self Trade, is Firmatex spending millions on a new launch?
After the heady heights of last winter, the UK online brokerage market has calmed down. The flood of new investors bringing down websites in their enthusiasm to log-on has steadied to a constant stream, and the more established players are taking a look at their business plans. The problem for online brokers is their lack of differentiation. With cost-competition along the US deep-discount path leading only to unprofitability, European competitors have launched a crusade for another source of competitive advantage. And it seems Firmatex believes that the holy grail is wealth management.
By adding savings and life products to its equity trading business, Firmatex will aim to gain loyalty. The notoriously promiscuous online trader switches providers to take advantage of freebies and discounts because the services received don’t differ. Savings and life products create more customer lock-in, but they also propel Firmatex straight into another highly competitive market where it will have to compete with online wealth management offerings from the US investment bank giants and fund supermarkets from domestic superstars such as Egg.
If Firmatex is to succeed in its next series of launches it must find a combination of branding and value-added services that position it favorably against the competition. This is a tough challenge to face unless the company has some real magic up its sleeve. If not a target of E8.9 million in net profits by 2002 seems highly optimistic.
