Charles Schwab & Co., the granddaddy of discount brokers, has all but suddenly changed roles from being the hunter to the hunted.
The company announced yesterday that it will acquire online brokerage CyBerCorp for $488 million (US$), and will also slash its trading rates to as low as $14.95 for higher volume customers.
Apparently, the former low-end shark that once tormented full service brokerages is being undercut at both the high and low end of the market. On the low end, such online brokerages as Ameritrade, Inc. and E*Trade Group, Inc. are nibbling away with charges of $8 to $12 per trade, while full service firms at the high end, such as Merrill Lynch & Co., are matching Schwab’s online trading rate of $29.95.
Losing Market Share Rapidly
Even though Schwab still tops the list of online brokerage firms by reporting nearly 117,800 trades per day — or 23 percent of the market — U.S. Bancorp Piper Jaffray’s Electronic Commerce (EC) Investor Web site shows that its market share has dropped nearly five percent in the last six months.
E*TRADE was number two with 76,333 trades per day.
Nowhere To Turn
Having been hemmed in on both sides, Schwab had almost no choice but to make some moves. Therefore, it was not surprising to many that it went after CyBerCorp, which caters to active full-time day traders by allowing them to use its computer technology to find the best price among electronic communication networks (ECNs) that conduct electronic trading.
While it only has 2,500 account holders, CyBerCorp still reported more than 9,200 trades per day. Additionally, according to EC Investor, CyBerCorp’s overall online trading volume increased by 67 percent during the same six-month tracking period.
Cutting Fees in Half
Schwab’s new pricing plan will cut commissions for customers who have $50,000 in accounts from $29.95 to $14.95 per trade after a customer makes his or her 60th trade in a quarter. These same customers will be charged $19.95 per trade from their 30th trade on.
“The competitive realities of the market require us to pay close attention to our pricing and adjust it appropriately as we continue to enhance the technology and services we offer,” Linnet Deily, vice chairman and president of Schwab’s retail group, told the Associated Press.
Surrendering the Low End While Protecting the Big Guys
It appears that by declining to lower its $29.95 rates for low and mid-volume investors, Schwab — the one-time discount king of do-it-yourself investors — is signaling that it will compete for these customers by inertia.
At the same time, Schwab’s acquisition of CyBerCorp shows that it is going to make a serious play for the most active investors in the market.
Regardless, however, of whether Schwab ultimately succeeds or fails at its new direction, the company must come to terms with one inescapable fact: E-commerce can turn a company’s world topsy-turvy in a matter of months.
What do you think? Let’s talk about it.