Emerging Industry Overview: E-Commerce: Online Brokerages

Industry Snapshot

During the first decade of the new century, online brokerages began hobbling back toward the aggressive competition that characterized the industry in the late 1990s, when the stock market was soaring and online brokerages were all the rage. The earlier (2000) collapse of the stock market and subsequent shakeout dramatically transformed this once hotshot industry. Forcing about 100 online brokerages out of business and producing several years of losses, layoffs, severe cost cutting, and boosted fees, the shakeout left behind a handful of well entrenched industry leaders with solid foundations, although no firm clearly dominated. Following the 2008 Wall Street shakeup and global economic meltdown, only 16 viable online brokerages existed in the United States in 2009, but they were rapidly gaining new clients and defectors from full-service brokers.

The U.S. brokerages offering online services were roughly divided into two camps. The first was comprised of online-oriented firms that focused primarily, even exclusively, on electronic accounts. These included the likes of E*TRADE Group, Inc. and TD Ameritrade Holding Corp. The second group consisted of traditional brokerage houses and investment firms that expanded into the online arena. Some, like Charles Schwab, had done so on a monumental scale, amassing a million or more online accounts in just a few years. Big high-end houses such as Merrill Lynch lumbered into the online business belatedly.