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Supermarket sweep or an online extravaganza?

The concept of the one-stop shop is the Mecca for 21st Century retailers. The largest retail chains have been moving towards the Holy Grail of providing a “complete service” with increasing speed in recent years.

It is already possible to do your banking at the supermarket but would you be happy to trade shares via your utility company? Or your record shop? Can the necessary level of consumer trust be attained in order to make these expansions of service credible or will customer inertia prevail? Using evidence from our recent survey of potential new entrants to the broking market, we have taken a good, long look at the future of share trading in the UK.

Despite the increasing variety of new trading channels and companies offering to buy and sell shares on your behalf – and the 12 million people in the UK currently involved in trading equities – share trading in the UK is still perceived as something of a minority activity. But the internet is changing this situation.

An estimated 20 per cent of active private investors have revealed that they are, or have been, using the internet in their share-trading activities. This boom has been fuelled by the explosion in demand for technology shares among private investors.

New entrants are launching on an almost daily basis and competition for customer retention and acquisition in the sector is fierce. With this in mind, we recently surveyed companies across a variety of industries to assess their likelihood of entering this market and the route they would be taking to achieve success.

Ostensibly, the strongest challengers in this sector are already established as household names. Major supermarkets are now offering a range of financial services – savings accounts, mortgages, credit cards and insurance.

Our research suggests that share trading may soon be about to take its place between frozen food and the deli counter. But will this latest product range prove to be merely own-brand goods hidden at the back of the cupboard or luxury items to show off at dinner-parties?

The core strength of the major retailers lies in brand recognition and customer trust – attributes which they need to expand rather than create from scratch. The respondent at one of the UK&#39s largest supermarket chains told our researcher that their planned share trading service was merely one element in the drive to maximise customer service.

By repackaging an unfamiliar service into the familiar environment of the supermarket, the organisations hope to demystify share dealing and make it far more accessible to the public.

Cambridge-based E-Trade, which went live in July 1999, is one of the first pure internet brokers in the UK.

Initially, the service exp-erienced teething problems, with online trades failing to register users&#39 accounts and complaints of poor customer service.

The question of branding becomes crucial, with the fledgling brands of these new entrants left exposed and vulnerable as a result of the freedom with which consumers can compare notes and shop around.

Of course, the great advantage of using the internet is its speed. You no longer have to wait for foreign predators to take over the London Stock Exchange in order to settle a trade in less than five days. Stocktrade and Egg, both of which offer online share dealing, already offer a service where your trade will be settled the same day that you have bought or sold.

While other online share-dealing services such as E-Trade will register shares to your account and allow you to buy and sell, actual settlement will not take place on the same day. At the moment, some investors have to wait for up to five days before they receive their shares or profits from a share trade when using some well known brokers.

But the real future of e-broking may already be present in your own living room, with the advent of interactive digital TV. Only a quarter of UK homes currently have a PC. The number of homes with digital TV is expected to overtake this figure later this year.

Digital TV is more of a mass market medium, possessing the virtue of superior security compared with the internet. Again, though, there have been teething problems. E-Trade attempted the launch of a digital TV share-trading service but was forced to delay the endeavour due to software problems.

Of the non-finance organisations we surveyed, a telecommunications operator and a utility firm both asserted that share dealing would become part of their financial services portfolio in the future.

The main worries among the non-finance firms were inertia – 15 per cent of those interviewed expressed concern that their customers would not perceive them as a supplier of financial services. And 23 per cent were worried about their lack of experience and infrastructure in this competitive arena.

Naturally, new entrants may suffer from a lack of expertise when offering specific financial products. Many of the respondents (43 per cent) asserted the expertise and cost involved in constructing a platform would almost certainly
require a third party, either fully outsourcing the service or operating as a partnership.

This method should make it easier for companies lacking experience in the sector to expand their range of customer services while still adding value to their brand.

While having a share-dealing service available from your sofa WAP phone or PC, is likely to democratise this formerly niche market, how many of these new entrants can the market realistically endure?

If the market follows the usual trend of e-commerce, the cream of the trading bunch – those who can provide the greatest level of technical support and customer service – will naturally rise to the top.

Our research suggests that outsourcing to a competent player who can provide the essential standards of robust technology and experience which an effective online trading service requires may be the best route.

The audience for the new entrants is growing daily, with the internet adding to market liquidity. In order to ensure survival, the organisations who are looking to become financial services providers will have to work harder at product propositions that appeal to certain sectors rather than trying to adopt a “one size fits all” approach.

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