The growth of online brokerage accounts is about to slow.
The last three years have witnessed explosive growth in online brokerage. This growth has been largely due to a bullish US stock market and a booming US economy. But this is a trend about to be challenged with a significant slowdown in the growth rate of new online brokerage accounts in the coming years.
The US market turned bearish in March/April 2000. Uncertainties regarding interest rates, the world oil market, and the US federal election, as well as indications that US economic growth is slowing, have all contributed to volatile US stock markets. Additionally, there are simply not enough potential brokerage customers to sustain the current level of industry growth in new accounts. The high number of recent new entrants has left many players fighting over the remaining account growth in a saturated marketplace.
So what will happen when growth in new accounts slows? An option is consolidation, yet this will generate no new customers. The market will therefore start to place a higher emphasis on revenue growth. As a result, online brokers must look for the opportunities within, examining current customer relationships, the potential for delivery of value-added services and improved revenue by accounts ratios.
One important field of scrutiny will be the inactive brokerage accounts. At an average acquisition cost of approximately $250 per account, inactive or virtually inactive accounts represent $1.9 billion of industry acquisition spend, yet their potential remains untapped. Given the industry climate factor, this situation should not prevail much longer.
