2 by liwenting



                         Online Financial Service
                         in Europe and in France

A vision of the future: the US online brokerage market

According to the Boston Consulting Group, the business to consumer financial service
market totalled to $3,4bn in the USA in 1998 growing of 80% compared to 1997. The
Web is becoming a mainstream channel for broker. Indeed, 40% of the deals brokered
in the US in 1998 took place via the Web. They represented 25% of the total transaction
in 1998.
Online brokers have processed 7.4 MMF of transactions in 1998. This market will
increase to 29 MMF in 2002. Online trading has boomed in 1998 as 4.4 million people
has invested online in 1998.
Online brokers saw their business skyrocket in the fourth quarter of 1998, amassing
record amounts of accounts, assets, and trades. The online brokerage industry as a
whole accumulated 3.6 million accounts in 1998 to conclude the year with 7.3 million
accounts, according to a report by Piper Jaffray Inc. These accounts represent $420
billion in assets, the report said.
Online brokers logged 336,700 average daily trades in the fourth quarter of 1998,
up 32 percent over the third quarter and 125 % over the previous year. An
estimated 27 % of individual investor trades were conducted online.
"Without a doubt, in 1998 individual investors discovered and realised the power of
trading online," said Stephen Franco, senior research analyst of electronic commerce at
Piper Jaffray. "Looking ahead, the successful online brokerages will attract laggard
accounts and assets by empowering investing online, as we look forward to new
advances in online asset management beyond the resurgent equity trade."

Emmanuel F. Walter                        Page 1                    01/07/2011        1

Top 10 Online Brokers

Broker     Trades/Day Market Share
Schwab          93,000      27.60%
Waterhouse      42,003      12.50%
E*Trade         39,990      11.90%
Fidelity        33,100        9.80%
Datek           33,695      10.00%
Ameritrade      25,725        7.60%
DLJ Direct      13,366        4.00%
Discover        11,531        3.40%
Suretrade        9,600        2.90%
NDB              4,420        1.30%
Others          30,306        9.00%
Total          336,736
Source: Piper Jaffray

It is very high compared to France. Indeed, Cortal offers online brokerage service which
processed 420,000 orders in 1997 – a 100% increase over 1996, which represent only
one day of transactions in the USA in 1998.
To come back to the USA, excluding mutual funds, online trading generated an
estimated 37 percent of all individual investor equity trades during 1998, and 40
percent during the second half of the year, the report found.
Due to multiple accounts by some investors, the Piper Jaffray report estimates that the
7.3 million accounts represent approximately 4.4 million individual investors.
As for the brokerages, the report found online upstarts Datek and E*Trade both made
sizeable gains in market share in the fourth quarter of 1998 at the expense of Schwab
and Fidelity, which both lost ground. Waterhouse Securities climbed to the No. 2 spot in
market share in the latest report.

Emmanuel F. Walter                        Page 2                     01/07/2011        2

The number of online trades executed in the first quarter of 1999 is expected to show an
increase of 25 percent on the fourth quarter of 1998, according to CS First Boston.
The total number of online trades is expected to reach a record average of 425,000 per
day, up from an average of 340,000 per day in the fourth quarter of 1998, according to
Bill Burnham of CS First Boston, widely recognised as the leading expert in the field of
online trading measurement. However, while the 25 percent increase expected this
quarter is more than healthy, this compares to an increase of 34 percent between the
third and fourth quarters of 1998.
Trading in Internet stocks is growing at an exponential rate, with a 62 percent increase
in online trades so far this year from first two quarters of 1998. This is due to the spate
of mega-mergers that took place in the last number of months.
However, the increasing popularity of online trading has caused technical difficulties at
online brokerages sites, unable to cope with the volume of traffic. A number of law suits
have been initiated as a result with the New York State Attorney General Eliot Spitzer
leading an inquiry into the online trading industry.

Emmanuel F. Walter                        Page 3                       01/07/2011         3

European online financial services' market

Internet users (in million)

             1997 1998 1999 2000 2001 2002
UK              4,8      7,2     9,4    12,4       15,5    19
France          1,4      1,9     2,9     4,7        6,4    8,3
Germany              5   7,5      11     4,7       22,4   27,4
Source: Jupiter communications survey - June 1998

The Internet market clearly is underdeveloped in France and lags behind UK especially.

% of Online buyer

             1997 1998 1999 2000 2001 2002
UK            14%        17%   21%      26%        32%    35%
France          9%       12%   16%      21%        27%    35%
Germany       11%        14%   19%      24%        31%    40%
USA           21%        25%   30%      38%        46%    52%
Source: Jupiter communications survey - June 1998

The % of online buyer represents the proportion of the Internet users buying online.
Here, we can see that French online buyers almost are as numerous as in the UK or in
Germany in %, even so it still lags behind in term of volume (230,000 online buyer in
France compared to 1.22m in the UK.

Emmanuel F. Walter                        Page 4                      01/07/2011       4

10 millions European will use online financial service in 2002 (Switzerland, Germany,
France and the UK)
At last Europeans are taking finances Online. 35% of European banks offers online
advice. The introduction of the Euro is one reason that close to 10 million Europeans
will seek financial advice online by the year 2002, according to a report by Forrester
Switzerland and Germany are expected to take the lead in online financial advice
because of their speedy adoption of the Internet. On the contrary, the UK and France
will be followers as opposed to leaders because UK citizens have high expectations for
interactive TV and the French will be slow to abandon the comfort they have developed
with Minitel.
Forrester says it will take time for European financial institutions to fully develop the
service to match customer demands both technologically and culturally. The report also
says companies that move beyond the basic transaction service will develop the most
successful online business.
A survey of 62 financial institutions across Europe by Forrester found that presently 65
percent offer basic transaction service online, 35 percent offer personal finance advice,
and 15 percent plan to provide product recommendations access to financial experts
Small European banks with a focus on added-value service provide the most
advanced Internet banking service, according to a study by Bluesky International
The study, "Internet Banking in Europe" rated banks in the US and Europe according to
how well they use Internet technology to improve customer service relationships, build
an international market, increase domestic productivity and enhance marketing

Emmanuel F. Walter                        Page 5                      01/07/2011        5

Bluesky surveyed 863 Internet retail bank sites across the UK, Ireland, Holland,
Belgium, France, Germany, Italy, and Spain and 1676 sites in the US. Bank ratings
ranged from "brochure-ware" sites to "advanced cyber-banks," and the study awarded
points for the availability of calculators, e-mail, account statements, and the ability to
carry out online transactions including bill payment.
The study categorised 476 European bank sites (55 percent) as intermediate and
advanced cyber-banks compared to 249 US banks. Germany had the highest number
of online bank sites, 533 of the 863 surveyed in Europe.
Bluesky found that France and Spain had six times as many advanced
cyber-banks as the UK, even though those countries have half the number of
Internet users. Nearly all of the Internet bank sites in Holland are classified as
advanced, 40 percent are available in English as well as Dutch as they use the Internet
to expand beyond their domestic borders.

According to a survey of Ipsos-NFO ordered by Cortal, Europeans are very interested
by investment products commercialised online. France, Germany and UK offer the
biggest potential. In the long run, Internet will become the main channel to get
information about the sock exchange and the investment products. The phone will
become secondary! It will be only be used as a help line!!!

Surveyed people see many advantages of using Internet:
          Real-time quotation of any stock exchange in the world, information about
           finance and investment products (40% of the answers)
          Direct access 24 H /day (33% of the answers)
          Real-time transactions (31% of the answers)

However, they are worried of 2 points:
          No human contact (37%)
          Transaction security risk (34%)

Emmanuel F. Walter                        Page 6                       01/07/2011        6

Online Financial services in France

Internet users
1.9 millions people or 3.2% of the total population use Internet. An Internet user is a
person, which uses Internet at least once a week (Source: Jupiter Communications

Alternatives surveys

Date     Number of Internet users( in millions)   Source
Feb-99   2,79                                     Computer Industry Almanac
Feb-99   3,7*                                     Médiamétrie
Jan-99   2,4                                      Publimétrie
* (includes 1,5m users using Internet once a month or less)


Date     Number of Internet users( in millions) Source
2000     4,7                                    Jupiter Communications (06/98)

Emmanuel F. Walter                          Page 7                               01/07/2011   7

Internet user profile

Male / female split-up:
69% are male according to the Motivaction's survey (12/98).

Average age:
30 years according to Internet Track 2 (10/98)

Split-up per age according to Motivaction’s survey (12/98):

Less of 18 years          6%
From 18 to 25 years      26%
From 26 to 30 years      16%
From 31 to 35 years      12%
From 36 to 40 years      10%
From 41 to 45 years       9%
From 46 to 50 years       7%
From 51 to 55 years       7%
More than 55 years        7%

Average revenues:
202 KF per households according to Internet Track 2 (10/98)

The profile of the French Internet users is very skewed. He is a man of 30 years old and
having high revenues. However, the profile is getting less and less skewed. More and
more female, young and low-income households are getting online. Several factors
such as price cuts, increase of Internet awareness might explain these changes.

Emmanuel F. Walter                        Page 8                     01/07/2011        8

Internet banking in France

100,000 French Internet users use online banking facilities, according to a study by the
Benchmark Group. This represents a fourfold increase on the number of people banking
online in the country at the start of 1998.
However, overall this represents just 4 percent of the active online population in
France. In comparison an estimated 7.8 million people are currently using Minitel
or the phone for banking service.
The report rated the banks according to their subscriber base. Top of the list was BNP
with 35,000 subscribers, followed by Credit Lyonnais, Credit Mutuel, Banque Directe,
Credit Mutuel de Bretagne, Bred and CCF.
According to BNP (Claire d'Herbrail, March 1999), it now has 45,000 subscribers. The
Web site is accessed by 72,000 visitors per month.
Decentralised banks, including France's largest banking group Credit Agricole, have
been slower to offer online service. This is due to the lack of uniformity in the computer
systems used, according to the report.
According to Cap Gemini (1997) Internet will be the most used direct sales’ channel by
financial service in 2002. Indeed, more than 90% of the distributors plan to use it
compared to 40% in 1997.
On the other hand, telephone channel will decrease slowly from 90% (1997) to
75% (2002). It means that new direct channels such as Internet and the electronic
mail will become the key component of the financial service strategy.
In France, Internet is almost only used for communication purposes. On the contrary,
Internet channel in the USA already represents 20% of the stock exchange transactions
A few French companies are proactive in this field. For example, Maaf Assurances sells
online school insurance contracts related, for one year.
To sum up, the French online financial services’ market is still immature compared to
the USA and lags between 2 to 3 years behind. Even so, it still offer opportunities and it
would be foolish to ignore this channel, which will definitely become a key component of
the distribution of financial services in the future.

Emmanuel F. Walter                        Page 9                       01/07/2011        9


Banking Transaction cost

The transaction cost is high for a branches ($1.07) but is much lower for direct service:
    Mail           $0.73
    Phone          $0.35
    ATM            $0.27
    Internet       $0.1
Source: Gemini Consulting (1998)

Emmanuel F. Walter                       Page 10                       01/07/2011       10

Competitors analysis

Ferri (www.ferri.fr)

Ferri is the biggest broker focusing into the private investors only. It belongs to ING
Group. It sells SICAV / FCP as well as Life Insurance of others companies. It targets
high income customers as the minimal investment to open an account is 100,000 F!
It has 25,000 customers. 8,000 use electronic methods to pass their orders by:
          Minitel     2,000 (25%)
          PC          4,400 (55%)
          Internet    1,600 (20%)
Ferri has spent 20 MF for the development of its Web site in partnership with
Digital. It can handle 1,000 enquiries at the same time and processed between 50 to
100 orders per minutes. In 3 months, its customers will even be able to pass orders to
US stock exchange (partnership with an American online broker).

Source: Le Journal du Net (http://www.journaldunet.com/)

Fimatex (http://www.fimatex.fr/)


Fimatex is a broker solely focusing into the private investors only, which was created in
October 1995. It sells / buys shares, UCITS, warrants, option,… over the phone, Minitel
and Internet.
It has a capital of 46.8 MF and is owned at 100% by Société Générale, and has 2
subsidiary in Frankfurt and in Honk-Kong.

Emmanuel F. Walter                       Page 11                      01/07/2011       11

Commercial activities


Date                   Staff
October 1995           6
January 1999           40


Date           Number of clients
End of 95      400
End of 96      1,500
End of 97      3,000
End of 98      5,700
January 99     6,000

Date           Monthly share transactions
End of 95      200
End of 96      2,200
End of 97      10,000
Sept. 98       20,000
January 99     22,600 (60,000 for all products: options and securities)

Emmanuel F. Walter                       Page 12                          01/07/2011   12

Customer profile

       38 years old
       Urban
       100% use either Minitel or Internet service
       60% own a PC

Fimatex’s clients are very proactive. They pass 5 orders per months in average.


Fimatex even so is still small compared to Ferri is growing fast. However, it lacks the
dimension of Ferri, which is 4 times bigger!

Source: Fimatex and Figaro Economie

New entrant

CPR-E-Trade (www.cpr-etrade.fr)

US brokers are now entering the European market such as E-Trade. E-Trade is
expanding by making partnership with local broker. In France, it has lauched a
joint-venture with CPR in January of this year.
Its customers can buy securities (including UCITS) through several channels:
       Phone
       Minitel
       PC + Modem
       Internet
It offers limited discount on UCITS. Thus, it is cheaper to buy from them UCITS
than from the owner of the UCITS (Axa, Baring, Fidelity,…). Like most of the
brokers, it offers the possibility to buy shares and UCITS through a Life insurance
products (multi-support).

Emmanuel F. Walter                       Page 13                     01/07/2011      13

What can be the advantages of Internet for online financial service?

For the new technologies

Standardisation of Internet technology allowing to tap the international market
Multimedia content (Soon Data/voice integration)
Simplified navigation
Seamless Integration between the operation system and the browser

For the private investors

Improvement of the traditional PC banking service:

      Account consultation, balance
      Bank transfer
      Cheque order
      Check cancellation
      Appointment enquiry

Completely new services allowed by Internet technologies:

      Loan or assets’ return calculation simulation
      Real-time security quotation
      Discounted online purchases / sales of securities
      Traveller cheque ordering
      Foreign currency ordering
      Email communication

Emmanuel F. Walter                       Page 14                     01/07/2011   14

For the banks

Important competitive factor versus direct banks
Target a very interesting population with high-income (see Internet users profile
Cost reduction on transaction costs as the client will do himself the operation
Cost reduction on documentation / mail by the use of email, online bank statement,…

For the financial service providers

Use of an additional direct channel increasing their competitiveness
Online enquiry and quotation (ex: personal loan or mortgage)
Additional stream of revenue
Cost saving for back-office operation
Reduction of processing time (ex: for stock exchange brokers)

Emmanuel F. Walter                       Page 15                       01/07/2011     15

Conclusion for                        Direct           and online           financial

In the short-tern, direct financial service especially through Internet are clearly emerging
but is staying marginal. Indeed, 5 to 7% of the current bank customers says that they
might be interested by using online service compared to 20% for direct service (source:
CFPB / Banque magazine 12-1997)
Beyond Internet, new channels are appearing such as interactive television. For
example, Credit Agricole offers banking service though interactive television for one
year (source: L’Essentiel du Management – April 1998).
Existing channels are performing well such as PC proprietary software which s used by
a large customer based. However, it will be quickly phased out by online service.
The most attractive and / or current segments of the population are:
   Young people (18-35 years old) who are open to new technologies. This segment is
    decreasing in size but represents the clients of the future. Thus, it is a strategic
   Senior people are less interested but will manifest a high desire of contact when they
    will retire. They increase in number and have high-income
   Very active private investors, who have no time, have higher income and are
    attracted by direct financial services
However, in reality, the most susceptible population to use direct service is not always
composed of the youngest, the most urban or high income people
All the experts agree that the females will partially catch up with the males for the use of
direct service at the end of the year 2000.

Source: Banque n587 magazine & Centre de formation de la profession bancaire

Emmanuel F. Walter                       Page 16                        01/07/2011        16

Direct service makes it easier to expand internationally. Thus, it offers new opportunities
but new threats as well by increasing the industry rivalry. The expansion of the US
discount traders (ex: e-trade) in Europe would be a good example.
The objective is not only to offer the same service in direct but as well to offer new
service. A good example would be the very recent development of digital signature,
which allows to sign contract and pay for products or service. A digital signature will as
legally valid as a traditional signature on a “paper contract”.

Direct financial service to be successful should go for a differentiation strategy based on
3 factors:

       Direct service allow to compare easily prices
       For the same service, it has a lower operating cost and selling price. Thus, it can
       offer discounted service such as online brokerage.

       Quality of service
       The quality of service can be improved on some aspects by direct service
       (availability, flexibility,…)

       Direct financial service has a modern image, which can favourably influence the
       prospect’s purchasing process.

Emmanuel F. Walter                       Page 17                       01/07/2011        17

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