Several big announcements this week on the retail side of the equity business. Bank of America and a new market entrant, Zecco.com, announced free online equity trading. I learned about Zecco from a Techcrunch post.
I’ve been loosely monitoring the account growth at Zecco which you can do by looking at the “Forum” section of the site. It shows the number of members on the top of the page and how many are online. I saw 2 of 6,810 members currently online and 16 guests. I think the 16 guests were me and other lurkers from the online brokers who want to monitor the action at Zecco…
I’ve calculated that it will take 275 years for Zecco to reach the account mass of Bank of America (50 million accounts across all product lines)…but that is a really irrevelant number. The interesting question is the business model and assumptions these two firms are making.
Bank of America has extended free trading to account holders with $25,000 in total assets. They are self clearing and will surely internalize the great majority of trades.
BofA’s costs are much lower than Zecco’s. Zecco will correspondent clear through Penson and probably doesn’t currently have the order flow to internalize orders. So they will have to route orders out to an exchange or ECN.
Bank of America has never been a major player in online brokerage so I’m sure they are not giving up a large revenue stream by offering $ 0 trades. But they gain an enormous bit of publicity. And this gives BofA another nice online offering to go with their free BillPay system.
Here is how Zecco says they hope to make money….”We make our money the old-fashioned way. We earn interest off your money. Hopefully we provide enough value to you as a investor that it’s worth your placing your account with us.
This business model has worked for financial institutions for about 400 years, it will work for us. It works for most other online brokerages, too. If you take a spin through Etrade latest 10-K filing, you’ll notice that they make 49% of their revenues from interest.
We absorb the minimal clearing fees on a trade as the cost of doing business with you. We also make money on higher margin services like options trades and from advertising on the portal. When we don’t spend $5 of every trade on advertising to get the trade in the first place, we can offer this service at a much more attractive price: FREE. Come check us out on Oct. 9 for the full run down on what does and doesn’t cost and how to open an account.”
Since Zecco is a private company we won’t see quarterly numbers from them. I think Zecco has underestimated the complexity of this market…and the high level of functionality and service expected by the active traders who make up the bulk of revenue for online brokers…
I think BofA has already won this round…and other online brokers will be taking a wait and see approach. And I think Zecco has a lot of hard work ahead of itself if it wants to be taken as a serious entrant in the online race. They are playing with the big equity boys now and that is a rough game…
9 Comments
Hi ShopYield. I am part of the Zecco team and just wanted to take a second to address your comments. Your projection that it will take Zecco 275 years to grow as large as BofA is if linear projection. But business growth usually follows an S-curve of varying gradients — so we might get there a lot sooner. Your assumption on cost is wrong. While BofA are selfclearing you need to consider the complete picture … cost of running on legacy systems, cost of employees, cost of sales etc. You can rest assured that our amalgamated cost pr. ticket is lots lower than BofA. In regards to whether Zecco is being taken serious in the online race. Two facts: Try searching Zecco on google news. Plus at the moment we are opening more accounts pr. day than any other broker in the US. Remember, the numbers you quote are after our doors have been open for business less than 72 hours.
Cheers
Soren Kenner
“Winning market share “is about more than the price,” Becker says. “It’s things like the tools, the trade execution, and the service.”
http://www.ecommercetimes.com/rsstory/53647.html
Free stock trades: Like momma said, you better shop around - USA Today
http://www.usatoday.com/money/perfi/columnist/krantz/2006-10-17-free-trades_x.htm?csp=34
“When people say free trading is going to radically change the market, it’s like, why doesn’t everybody buy at Ikea and shop at Wal-Mart?” David Carroll, head of Wachovia’s capital management unit, which operates Wachovia Securities, said in a Friday interview. “There are other values at play than just price.”
http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20061029:MTFH81570_2006-10-29_20-31-59_N29317242&type=comktNews&rpc=44
Scivantage builds account opening functionality for Zecco
http://www.scivantage.com/pdf/ScivantageZecco103006.pdf
Vanguard Ranks Highest in Customer Satisfaction With Online Investment Firms
http://biz.yahoo.com/prnews/061120/lam061.html?.v=70
Interactive Data Corporation (NYSE: IDC) today announced that its Managed Solutions group, a leading provider and operator of customized financial market information systems, is providing the financial content for Zecco.com, a premiere online brokerage that offers free equity trading.
http://www.finextra.com/fullpr.asp?id=12608
Banks, Brokers Pitch Free, Cheap Trades to Rich
http://www.smartmoney.com/beyond/index.cfm?story=20061215&afl=yahoo
Statistics compiled by Jupiter Research estimate that U.S. households have $2.1 trillion in online brokerage accounts, a number that’s projected to grow to $3 trillion in five years. By 2011, the consulting group projects 22.6 million households will have an online brokerage account in some form, a figure that represents about one-third of all stock-owning households
Zecco Holdings, the parent of Zecco.com, the Free Trading Community and the home of zero commission stock trading today announced significant new appointments to its leadership team.
http://www.finextra.com/fullpr.asp?id=13087
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