LEADING DISCOUNT BROKER OFFERED INTERNET TRADING IN (1996)
When Schwab began offering securities trading over the Internet in April 1996, it was the leading discount brokerage firm in the United States. The firm's brokers were paid salaries rather than commissions, and customers paid fixed fees rather than commissions when they bought and sold stocks and other securities. Schwab's first online trading venture was called e.Schwab and was set up as a separate business unit with its own dedicated personnel. Under the company's two-tier pricing system, customers could make trades for a fixed fee of $29.95, but only if they traded online. In addition, they were limited to one phone call per month to a broker or customer representative. Customers who wanted a higher level of service had to pay a higher fee that was still less than that charged by the full-service brokerages.
Although Schwab pioneered the bare-bones discount brokerage and was for many years little more than an order-taker for independent investors, the company had begun offering some level of service to its customers by 1996. Catering to the wave of baby boomers who were planning for their retirement, Schwab employees were now willing to discuss investment objectives with their clients and suggest investment strategies to reach those goals. An important part of the company's customer service initiative was the expansion of its branch network, which made it convenient for customers to come in and talk with a Schwab broker. Schwab also offered 24-hour staffing at its customer service call centers. As long as Schwab was able to distinguish itself from other discount brokerages on the basis of customer service, it wouldn't compete solely on the basis of price. Its $29.95 online charge was not the lowest in the industry, nor was its minimum regular commission of $39.00
By the end of 1997 online trading accounted for $81 billion in client assets for Schwab, but the company realized its two-tier pricing system was creating a long-term problem. The company's traditional customers were resentful that they weren't getting the lower fees, while the company's online customers didn't like the lack of service. As a result, in January 1998 Schwab took the bold step of offering the $29.95 flat fee to everyone, along with access to whatever help and information the company could provide. Although the decision meant an immediate $150 million loss of earnings, it also resulted in increased trading volume and the addition of more new accounts. For 1998 Schwab's client assets increased by 40 percent, new accounts rose by 20 percent, and net income rose 30 percent to $348.5 million. Total revenue reached $2.16 billion.
Once the pricing issue was settled, Schwab was more committed than ever to improving customer service. By 1999 Schwab's Web site was offering extensive research, including analyst reports, company reports, insider-trading reports, industry research, live CEO interviews, and a stock screening service. Most of the services were offered free to investors, although the stock screening tool was free only to those with $100,000 in assets or who made at least 12 trades per year. In addition to providing research and analytical tools, Schwab began offering e-mail alerts that would tell investors when a stock or mutual fund reached a pre-set high or low. Later in the year, wireless e-mail alerts to pagers and cell phones were offered and the company introduced after-hours trading. In mid-1999 Schwab Chief Information Officer Dawn Lepore told Business Week that the company's Web site was receiving 76 million hits a day. The company's customer service strategy was paying off. Schwab had captured 42 percent of all assets invested in online trading accounts, and it added 1.3 million Internet accounts between January 1998 and June 1999.
As part of its strategy to attract new customers over the Internet, Schwab teamed up with Internet portal Excite Inc. (which eventually became Excite@ home) to create MySchwab, a personalized Web page service that was available to customers and non-customers alike. Using the co-branded MySchwab site, individuals could create their own personalized Web page with their favorite links and receive customized investment information, including lists of stocks to watch, access to breaking news stories, general business and technology news, and access to popular content such as sports, travel, and shopping. Schwab hoped that MySchwab would attract many non-customers and allow them to sample the company's products and services.
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