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e-Broking industry and how Macquarie bank can capitalize on it. It has 3 sources.
Online banking have been a phenomenon a few years back but today, the new trend is the inclusion of e-broking a concept that is being accepted by most of the online customers as ideal and convenient. Macquarie is one such firm that endeavors to exploit the opportunities that exist in this industry and aims to recruit and secure a market share that rivals its competitors.
Opportunities and threats
Most of these broking firms specialize in financial services that are similar to the offline brokerage companies. These include product lines like "ancillary services such as equity research, real-time quotes, news and market data, analytical tools, and alert systems which send a message to the customer's PC, pager or mobile phone when a particular share price has reached a trigger level." [Evans, 2000]. Macquarie is no different from these firms in that they offer information on stocks that they transact in, the companies' activities, history of the performance of these stocks including trend chart and monthly share price updates; forecasts for dividend data and consensus forecasts are also included; information on the capital changes, stocks split, bonuses as well as legal issues of the placement shares; and profiles of these companies. For its Inner Circle clients Macquarie offers stock broking premium services like in-depth research, financial adviser and monthly portfolio updates and statements.
Like all financial service companies, Macquarie and its counterparts are subjected to the external. This range from the political, legal, economical and especially the technological environment. These offer them opportunities or may pose as threats and could even wipe out the company. According to the report on Online broking issued by the ASX it has been observed that the numbers of online brokerage firms are increasing. The growth rate increased from 20 to 30% for the year 2000 and it is expected that industry will increase even more in the coming years. The opportunities lie in the fact that as banks, insurance and international competitions are moving online the scope and breadth of the market has also increased. Many of the famous European and American brokerage companies are also moving online or at least form an online subsidiary to serve its online customers. Why this medium has become a favorite and appeal to these organizations is because of the reduction of cost factor which allows the companies to trade at half the cost. Any entrant can easily participate in it without having to fear for the high cost involved in transactions. A report [Goldberg 2000] on online brokerage for example indicate that e-broking cost half the price for transacting offline with some of the market rate range from $5 by Brown & Co. To Merrill Lynch at $45. The variation in the price along with the flexibility to choose the kind of products one want is a critical for business strategic development.
That is not all, it has been estimated that [Evans 2000] the number of online customers are increasing day by day. The report by www.Consultfor example noted that that the online vicinity offers flexibility to the kinds of customers that can participate in broking transactions and of all age groups. The female population consists of 25% while those of male consist of 35%. This shows that there is a lot of scope in targeting both male and female customers. The demographics however have to be further segmented according to the age group that is likely to most frequent online broking portals.
Linked with this is the fact that inherent in the flexibility factor is the threat. Since online companies face constant threats to their existence from outsiders like hackers, juvenile pranks as well as industrial espionage, online brokerage which is sensitive to privacy issues might face these attacks.
But perhaps the most important aspect that Macquarie Bank and other online brokers should worry about is the degree and speed with which it response to the economical and political environment. As soon as there is a market lowdown companies like Brown, American Express, DLDirect, MSDW Online and E*Trade all fall short in their performance when the market is set back by the economy. Unable to answer and poor training of customer representatives and consultants place these companies at an awkward position so that they are forced to adopt the unaware attitude so they are not responsible if they do not response.
Competitor Analysis [Porter's five forces]
What makes online broking one of the most lucrative industries in modern day financial business is the fact that it offers ample of opportunities of expansion using the same dynamics, products and services that they offer offline with half the cost. But most importantly there is a lot of competition which challenge companies to better their product lines and enhanced services. In the end there the customer benefit from it. An analysis of Porter's five forces will indicate that online brokerage is highly competitive but is also the most profitable as well.
Existing Rivalry survey of the ranks of the successful online brokerage firms shows that they are mostly subsidiaries of major brick and mortar organizations. For example KM% of ANZ, ComSec of the Commonwealth Securities and E*Trade of the E*Trade group. These are but some of the top most online brokers which has secured the majority of the market shares with ComSec 54%; E*Trade 19% and Quiken 8% etc. while Macquarie holds a 7% market share. The similarity of their product lines makes it hard for the existing firms to increase products. Instead they concentrate on peripheral services like messaging, instant alerts, speedy customer service as well as accurate and reliable financial advice from experts in their firms.
As such there are no new entrants but nevertheless there are constant increases in the number of online companies that are formed from the brick and mortar divisions. These companies do not require extensive investment in structurizing and establishment. Instead they are competitive and can meet the challenge of the existing firms which makes them formidable to compete with.
At the moment most of the competitors are offering brokerage services ranging from financial consultancy to stock trading as well as maintaining investment portfolios. Macquarie's Equities division is supposed to be reflected on its website services including historic prices, updates, transaction and customer service for retail stock broking. Trading becomes easier as apparently the representatives are equipped with information online and with a phone call stocks can be sold or bought. However, as the industry modernize online companies like E*Trade and Schwab are specializing in their services by including products that are aside from brokerage like mortgage, insurance, bill payments and banking services. These are then enhanced by cross border brokerage transactions for currencies as well as multiple information feedbacks so that the portfolios can be personalized as much as possible [Evans 2000].
The speed with which the companies offer their services to their customers thus has become a leverage factor as the broking companies can not only offer the same kind of information and service as its rival is offering but also at a phenomenal speed. In a survey of the online broking "service" Evans  have noted that although most of the companies online have improved in their services from 1999 nevertheless they still lack in their customer service which is critical in the financial service organizations. Evan's survey report indicate that the majority of the companies are ranked according to their service not only in providing accurate information but also on their speed, reliability, prompt, trust, and the ability to work at the speed the client want by becoming sensitive to the demands of these clients. In this regard in a Lafferty Internet Survey E*Trade ranks the top among 50 companies while Comsec ranked top among the Asian countries and in Europe, Self Trade of France ranked third. Upon a closer look at the customer service side of their business it has been observed that although overall these companied ranked the top but it has been Wingspan a small company which is ranked for its accuracy and promptness and perhaps the most favored among the clients.
One of the reasons why these companies are not considered to be at the top of the list is that they still consider online business like those of brick and mortar. Whereas customers demand seconds' reply some companies take days to reply to their e-mail queries. This not only makes it highly improbable as the company of choice but also the fact that they eventually lose their customer base by losing their trusts. In a business where stocks change prices within seconds and brokers have to work by the minute prompt action is required at all times to serve to the clients in order to transact as quickly and as much as possible. Once a company becomes online it has committed to such a service and hence must meet up with it. Those…[continue]
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