Online Investing Will Top Online Banking

Online investment services will be a hotter application than online banking, says market research firm Jupiter Communications LLC, and online discount brokers are well placed to become the center of personal finance activities online.

Jupiter draws the conclusions in a new study, the "Online Investing Report: Navigating The Discount Brokerage Revolution." The report says that online trading has already proven to be the long-awaited killer application for the financial services industry online.

Nicole Vanderbilt, director of Jupiter’s digital commerce group said that, while online investing and online banking are currently about even in popularity (penetration is about three percent of the potential market in each case), Jupiter expects online trading to reach 31 percent of the personal investing market by 2002, while online banking will reach only about 19 percent of the banking market by that year. The two are different-sized markets, since more people have bank accounts than have investments.

As online investing grows, Jupiter expects online investment services will have both the opportunity and the need to branch out into advertising, subscription revenue, and new services.

The most active investors tend to be the early adopters of online trading services, Vanderbilt said. As these services reach more people, their new customers will tend to be less active than their earlier ones, so they will want to find other revenue sources, such as advertising.

There are also different kinds of customers, whom Vanderbilt divided roughly into the advice-hungry, information-hungry, and transaction-hungry customers. People will move from group to group, she said, so Jupiter advises online brokerage services to offer tiered services, providing different packages to meet different investor needs. Deep-discount brokerages, meanwhile, should concentrate on the transaction-hungry customer, she said.

Online brokerage firms and financial content aggregators will become interdependent, Jupiter says, sharing customers and related advertising and subscription revenues.

(Contact: Diana Garelik, Jupiter Communications, 212-780-6060 ext. 193, e-mail dgarelik@jup.com; www.jup.com)