e-brokerage industry

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Executive Summary

The financial brokerage industry has undergone dramatic changes worldwide in the last decade, due to the rise of the Internet. E-brokerage brought huge opportunity to the industry as it introduces enormous amount of on-line traders but at the same time posted serious threat as it open up the market to new competitors. In this thesis, we investigate past and current challenges the brokerage industry faced.

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From our literature review, we studied the impact of online trading to the brokerage industry and the online traders, and proposed solutions pinpointed to the facts we found. We studied the challenge the brokerage industry faced from the perspectives of strategy, marketing and technology and carried out strategic analysis using value chain and framework of five forces by Michael E. Porter. A small scale survey was conducted to collect local people attitude towards online/mobile trading and we used the data collected to justify the information we found during our literature review. Finally, we proposed a basket of suggestions for the brokerage industry in various aspects including product enhancement, customer education, partnership, differentiation, customer segmentation and more. An in-depth interview with a local broker firm was organized to value our suggestions, their feedback are positive.

Introduction

The tough challenge among e-brokerage industry is still going on and in fact, it is getting even more furious. The situation was more rigorous during bearish market after the burst of IT foams, SAR outbreak and the recent financial tsunami. The strategy the brokerage firms adopted to handle the challenges they faced determine who will survive the competition and stay in the market. Losers will soon be squeezed out of the market. This is especially true for small to median size local brokerage firms who are now facing new competitors like direct banks and oversea online trade provider like E-Trade. Confronted with growing competition, old-guard brokers are being forced to restructure and re-focus their market offerings. Various strategies were adopted, some brokerage firms seek to maintain their lead in value-added services through a focus on knowledge/advise – more financial planning and investment advice – rather than transactions -processing trades. Other firms attempted to comprehend how to offer on-line services without alienating their brokers, to minimize channel conflict.

The purpose of this article is to analysis the current e-brokerage practices and device new service directions and enhancement to existing products to increase competence of our local brokerage industry. We will first present the evolution of security trading in Hong Kong and characteristic of different types of brokerage firms and customers. From our literature review, we found that online trading exerted great impact on both brokerage industry and online traders. For brokerage firms, they faced vigorous competition due to new competitors, reduced customer loyalty and market fragmentation due to low entry barrier.

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