E*Trade (ticker: ET) launched E*Trade Complete, a financial product
that includes online trading, index mutual funds, checking and savings
bank accounts, online bill pay, credit cards and borrowing. Four comments:
- Note the two key features: First, the E*Trade account can be linked
to a customer's external bank, brokerage and debt accounts, with easy
transfer betweeen them. Second, E*Trade enables customers to maximize
the amount they earn on uninvested funds by using a "Cash Optimizer". "E*TRADE Complete puts money back into the pockets of our customers and we are confident that consumers will respond to this offering" says ET President Jarrett Lilien in the press release. Other online brokerages generate significant profits from the spread between their interest income and the tiny amounts they pay customers on uninvested cash, so this is an important competitive weapon.
- E*Trade Complete is the online equivalent of Total Merrill.
Account aggregation is attractive to customers because it
allows them to earn higher interest rates, pay lower commissions
and deal with online one firm. And account aggregation is attractive to financial firms because it allows them to reduce
proportionate service costs and take a larger share of customers'
- The key competitive issue is whether E*Trade can take market share in the affluent investor segment, particularly from Schwab (ticker: SCH) and perhaps even Merrill Lynch (ticker: MER). I've argued that low-cost online platforms offer value even to the wealthiest investors; but this could be a hard sell in that market since image counts for a lot and E*Trade is perceived as catering to the low-end of the market. (Full disclosure: at the time of writing I'm short SCH.)
- Security plays an interesting role here. E*Trade's promotion
of the service highlights enhanced account security features, including
secure log-in using a physical device from RSA. As phishing and other
scams become more of a concern to consumers, financial firms will use security as a competitive differentiator. One important implication: consumers won't like multiple passwords and secure log-in devices, so security will be another driver towards account aggregation.