INSIGHT OCTOBER 2015 CUSTOMER ENGAGEMENT IN THE DUTCH ONLINE BROKERAGE MARKET

INSIGHT OCTOBER 2015 CUSTOMER ENGAGEMENT IN THE DUTCH ONLINE BROKERAGE MARKET

More than a decade ago the traditional stock brokerage market was disrupted by new entrants who provided online-only services; the current situation in this highly competitive market is fairly similar. After years of market consolidation, currently the online brokerages are facing fierce challenges. New technology-driven entrants, or fintechs, are challenging the more traditional online-only brokerage firms, while consumers needs change rapidly. Sustaining customer engagement has never been more difficult than now. Dutch Market The Dutch brokerage market is characterized by a small amount of brokerage-only players and the retail banks offering investing opportunities. The traditional brokerage market was disrupted by the entrance of BinckBank and Alex in the early 00s, who offered their services mainly online and developed advanced brokerage platforms. Since then multiple other players, such as Knab, Lynx or Saxobank, entered the market with the objective to profit from the growing brokerage market. Fierce competition between the online-oriented service providers and the more traditional retail banks caused heavy drops in consumer prices. The market consolidated, however, until recently. Disruptors Financial technology startups (fintechs) are entering the retail brokerage market in the Netherlands. Existing business models in this industry are focused on providing customers with a streamlined, realtime platform accessible via desktop or mobile devices, but fintechs show the path to whole new models. With a strong focus on (mobile) technology, these entrants try to attract a wider range of consumers, making investing a more accessible activity. Especially younger consumers, familiar with mobile devices and the latest technological developments, are attracted to new brokerage products. Although not familiar with financial markets and retail investing, these targeted consumers are tempted with, for instance, singlepurpose investment platforms. A perfect example is Bux. a Dutch mobile application which focuses on CFD trading (Contract for Difference trading speculating on prices going up or down). New users are allowed to open an account for free, and even trade with virtual, non-valuable money. Not only is it free at first (after a while users can decide to use real money), it is also incredibly easy to use since users are only entitled to speculate on prices going up or down. This makes investing easy to understand and accessible for a wider group of consumers. Disruptive entrants like these introduce more customer-oriented and more accessible products to the market. Contrarily, platforms of traditional online brokerage firms are still focused on an extensive portfolio of product offerings. The selfdirected consumer who is not yet familiar with financial markets is therefore more eager to try these single-purpose applications than to open an account at one of the traditional brokerages. Not only the self-directed investors are reached by new entrants; other new players on the market try to tempt the investors who want more professional guidance, but are not interested in costly asset management services. These advisorled investors need more extensive suggestions and guidance when investing, which used to be a costly service since professional advisors were involved. However, nowadays these advisors seem to be replaceable to some extent: new platforms offer the user more automated guidance and advice based on their investment objectives, their risk profile, analysis of their investment history and market information. These so called robo-advisory services, offered by for instance Pritle, are provided without human interference, reducing costs and easing the investment process for clients. Other entrants, such as DeGiro, do not introduce a new or disruptive business model at the front; they disrupt the market by introducing incredibly low consumer prices. Their platform and organizational structure is mainly focused on cost efficiency, reducing transaction costs for end clients. Thus, while offering access to the same financial markets and products, their overhead costs are significantly lower than those of the traditional online brokerage firms and they are able to set the lowest prices on the market. In short, the more flexible approach of these technology-driven entrants make it easier for them to adhere to changing customer needs, innovate the customer experience and target new consumers. They are also capable of offering clients more convenient, easy-to-use services. Additionally, their innovative but lean platforms are Sia Partners INSIGHT CUSTOMER ENGAGEMENT IN THE DUTCH ONLINE BROKERAGE MARKET October 2015 2

very cost efficient and make it possible to reduce transaction costs and compete on consumer prices. Contrarily, traditional online brokerages are still bound to robust legacy systems which make it difficult to anticipate changing customer preferences and innovate continuously. Changing customer needs Consumers are far more technology-oriented than years ago. While access to internet-based platforms used to be sufficient for serving the retail investor market, nowadays the retail investor prefers more mobile access, more efficient and streamlined transactions, more personalized and tailored products and they are usually not bound to just one broker. Thus, customers are increasingly taking control of the relationship between them and the service provider. Since interest rates are low, investing became more and more interesting for a larger group of consumers. Even the non-knowledgeable consumers are willing to take risks on the financial markets, but they surely require other products and services than the self-directed, well-informed customer. Therefore an increasing group of customers is seeking for hybrid services: do-ityourself services with complementary professional guidance and advice. The group of self-directed investors remain transaction-focused: they require efficient, streamlined transactions and access to many trading products, but increasingly require professional tools that support them in analyzing markets and making financial decisions. Since most financial information and historical data is to be found on the internet, online brokerages have to offer these clients a wider range of tools and indepth information than solely real time stock quotes, for example portfolio risk assessments or backtesting tools. Moreover self-directed investors tend to prefer mobile trading platforms, instead of the traditional platforms that are only compatible with computer browsers. Although a majority of the brokerage firms already developed mobile versions of their trading platforms, often they lack the same features or experience non-desirable downtime. Contrary to earlier mentioned technology-driven entrants who focus on mobile applications, the Dutch online brokerage firms are falling behind and need to accelerate the development of new channels. Customer engagement New entrants, disruptive business models, innovative technology and changing customer needs thus will impact customer engagement. Dutch online brokerages will face serious challenges in the near future to sustain customer engagement. The question still remains what they can do about that and how they will be able to remain competitive. In general we can distinguish four areas in which brokerage firms should make improvements; 1. Big data 2. Social media 3. Mobilization 4. Personalization Big data One of the major advantages brokerage firms have, is the amount of data they have access to. With a huge client base and enormous amounts of data records, the traditional brokers are able to offer clients services that are not deliverable by new, smaller entrants. Big data can be on the basis of advanced analysis tools; self-directed investors require such tools in order to build their portfolios and maintain a clear overview of historical performance and current risks. Moreover, based on (historical) data of the client, other investors and the market, the system can provide the client with suggestions and help the investor to build a portfolio that meets the clients objectives. The use of big data is in particular interesting for investors seeking more professional guidance while investing. For such clients automated advisory services, which can support them in decision making without costly and time consuming interference of employees, may be an effective solution. Robo-advisory services are objective, effective and cost-efficient, which ensures the service is even accessible for the less active, and inexperienced, investor. Based on investment objectives, risk profiles, time horizons and market information, robo-advisors automate the process of composing an investment portfolio. By offering the client an easy-to-use, affordable solution for investing money, firms could bridge the gap between retail brokerage and more costly asset management, creating a hybrid service environment. Sia Partners INSIGHT CUSTOMER ENGAGEMENT IN THE DUTCH ONLINE BROKERAGE MARKET October 2015 3

The application of deep data analysis can help online brokers serve a wider range of clients, while improving the customer service experience. The right use of data and the development of easy-touse tools are key to success and enhance customer engagement. Social Media The power of social media lies in the speed and ease of sharing, and the enormous amount of people that can be reached. Online brokers should therefore not only integrate social media in their communication strategy, but also in their online customer experience; creating trusted client communities in which market developments, opinions and investment opportunities could be discussed. Fully integrated in the brokerage platform, clients are able to access the community via the web or mobile devices. Building such selfmaintaining social communities will increase customer relationships and in the end will sustain customer engagement. Mobilization For several years now, clients focus has shifted from browser-based computer applications towards mobile applications. This development has a big impact on the client-company relationship, since clients have access to their portfolio 24 hours, seven days a week, wherever they are. Increased connectivity requires brokerage firms to anticipate this changing consumer behavior. Offering insight into the client portfolio and current market conditions is not enough anymore to satisfy customer needs; clients require mobile access to full service environments with options that are also accessible via the browser platform. Applications should provide clients with access to at least portfolio management, market conditions, analysis tools, trusted communities, trade management and learning tools. This means that brokerage firms should develop more advanced and easy to use mobile applications to engage customers. They should feel the urge to invest heavily in mobile technology and innovation, and embrace mobilization of their services. since new entrants offer more focused, lean platforms that service certain customer segments. In order to compete with these innovative players and sustain customer engagement, online brokerage firms should leave the idea that a highly standardized, transaction-oriented platform suits the preferences of every retail investor, whether he is self-directed or advisor-led. In order to do so, brokerages should develop modular-based platforms which are highly customizable. Contrary to legacy systems that are transaction based, modular systems make it possible to serve different kinds of customers. For example, a modular system can support both selfdirected clients and advisor-led clients, creating a hybrid service that attracts a wider group of consumers. Additionally, data gathering and analysis may help the firm to better address the preferences and interests of individual investors, which may be on the basis of customized service and product offerings. Analysis of clients investment behavior, for instance, may help the online broker to offer educational tools or analysis tools on topics which fit the client s interests. In conclusion Traditional brokerage firms in the Netherlands face challenges with the entrance of innovative, technology-based competitors and changing consumer needs. Customer engagement is the key to long-term competitiveness, but it is hard to sustain for online brokerages at the moment. In order to maintain their leading position, traditional online brokerage firms should acknowledge the urge for technological and customer-oriented innovations and should accelerate investments in four distinguished areas: the use of big data, the integration of social media, development of mobile applications and personalizing service offerings. Copyright 2015 Sia Partners. Any use of this material without specific permission of Sia Partners is strictly prohibited. Personalization Technological developments, the use of big data and increased use of mobile applications create opportunities for brokerage firms to offer highly customized services. Which is, actually, a necessity Sia Partners INSIGHT CUSTOMER ENGAGEMENT IN THE DUTCH ONLINE BROKERAGE MARKET October 2015 4

YOUR CONTACTS MAARTEN DEN DUNNEN Consultant Financial Services + 31 6 82756238 maarten.dendunnen@sia-partners.com STEPHAN LINNENBANK Head of Financial Services Benelux + 31 6 23598223 stephan.linnenbank@sia-partners.com ABOUT SIA PARTNERS Founded in 1999, Sia Partners is an independent global management consulting firm with over 600 consultants and an annual turnover of USD 120 million. The Group has 16 offices in 13 countries, including the U.S., its second biggest market. Sia Partners is renowned for its sharp expertise in the Energy, Banking, Insurance, Telecoms and Transportation sectors. For more information visit : www.sia-partners.com. Follow us on Twitter @SiaPartners Asia Hong Kong 701, 77 Wing Lok St, Sheung Wan, HK T.+852 3975 5611 Singapore 3 Pickering street #02-38 048660 Singapore T.+ 65 6635 3433 Tokyo Level 20 Marunouchi Trust Tower-Main 1-8-3 Marunouchi, Chiyoda-ku Tokyo 100-0005 Japan Europe Amsterdam Barbara Strozzilaan 101 1083 HN Amsterdam - Netherlands T. +31 20 240 22 05 Brussels Av Henri Jasparlaan, 128 1060 Brussels - Belgium +32 2 213 82 85 London Princess House, 4th Floor, 27 Bush Lane, London, EC4R 0AA United Kingdom T. +44 20 7933 9333 Lyon Tour Oxygène, 10-12 bd Vivier Merle 69003 Lyon - France Milan Via Medici 15 20123 Milano - Italy T. +39 02 89 09 39 45 Paris 18 bd Montmartre 75009 Paris - France T.+33 1 42 77 76 17 Rome Via Quattro Fontane 116 00184 Roma - Italy T. +39 06 48 28 506 Middle East & Africa Dubai, Riyadh, Abu Dhabi PO Box 502665 Shatha Tower office 2115 Dubai Media City Dubai, U.A.E. T. +971 4 443 1613 Casablanca 14, avenue Mers Sultan 20500 Casablanca - Morocco T. +212 522 49 24 80 North America New York 115 Broadway 12th Floor New York, NY10006 - USA T. +1 646 496 0160 Montréal 600 de Maisonneuve Boulevard West, Suite 2200 Montreal, QC H3A 3J2 - Canada Sia Partners INSIGHT CUSTOMER ENGAGEMENT IN THE DUTCH ONLINE BROKERAGE MARKET October 2015 5