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Would you be willing to pay more for online trading if you were getting better service? Yes No View Results

March 19, 1999
Web posted at: 8:02 p.m. EST (0102 GMT)

by Kathleen Ohlson

(IDG) -- The day of deep-discount Internet stock trading seems to be ending.

Several firms, including Suretrade Inc., have begun to increase their price for portions of their trading services in the past few months. Analysts say deep-discount brokerages are realizing that cheap prices aren't the lone attraction for customers anymore.

Between 1996 and 1998, there was a "tremendous decrease in pricing" for trades, said Frank Lallos, a senior analyst at Gomez Advisors Inc. in Concord, Mass. But with these lower trading prices, human intervention -- handholding -- was eliminated, Lallos said. These online brokerages now "have to compete on service, resources and value-added service," he added.

Suretrade, a unit of Fleet Financial Group, discovered customer service was as important as reasonable prices last year. With the advent of online trading, Suretrade's customer base became more diversified, said Jude Stewart, a spokeswoman for the Lincoln, R.I.-based brokerage. Compared with November 1997, the newer investors held more long-term views and wanted more services at a reasonable price, Stewart said.

Suretrade added new services, including a toll-free number, and as a result of the "stepped up service, we adjusted our pricing," Stewart said. Pricing for limit orders increased from $7.95 to $9.95, for example. Yet despite the price increase, "there hasn't been a slowdown at all" with new accounts, Stewart said. Suretrade has 250,000 customer accounts, she added.

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One of Suretrade's midpriced competitors, ETrade Group Inc., has been offering these services for some time. ETrade provides value-added services and "[we] give more than an informational tool," said Lisa Nash, vice president of customer management at the Palo Alto, Calif.-based firm. These other brokerage firms offer "nothing more than a transaction engine at a cheaper price," Nash said.

ETrade offers stock trades starting at $14.95 and charges $19.95 for limit orders and Nasdaq securities.

Deep-discount brokerage firms will have to keep a wary eye on a market correction, Nash said. "There's over 100 online brokerages now," Nash said. "When the market corrects itself, the top 10 will consolidate, and the bottom 90 will have some real issues," Nash added.

One analyst agreed that the current online brokerage market is "overcrowded" with approximately 97 firms established. "The market doesn't support that many players [who can] survive at that low-price strategy," said Patricia McGinnis, managing director of financial services at Mainspring Communications Inc. in Cambridge, Mass. "In the broader scope, these 90 firms are doomed because there's no economical model for this niche."