Online brokers hit hard
Shares of online brokerage companies were hit hard this morning after CNBC reported that JPMorgan Chase (JPM) is planning to launch a new free digital investment app next week, which has been deemed “You Invest.” Shares of E-Trade Financial (ETFC), Charles Schwab (SCHW), and TD Ameritrade Holding (AMTD) have fallen ~4%, ~3.5%, and ~5.7%, respectively. On the other hand, shares of JPMorgan have risen 1.2%.
JPMorgan has outperformed the Financial Select Sector SPDR ETF (XLF) year-to-date. In the period, JPMorgan has risen 8.5% while XLF has risen ~2%.
As per the news agency, users accessing this service by downloading the app or using the website will get 100 free stock or ETF trades in the first year and will be charged $2.95 per trade if they carry on with further trades. The company’s private clients who have holdings of $100,000 will be allowed unlimited free trades.
The company has been working on this kind of service since 2016 and is said to have been inspired by Amazon’s (AMZN) Prime membership model. By providing a number of services under its Prime program, such as cloud storage, video streaming, music, and two-day delivery, Amazon has boosted its customer base and increased its online sales.
JPMorgan believes that the move will enhance its customer base and help it encourage members to use its other services. Market experts believe that with the service, JPMorgan is targeting Millennials and new investor groups.
May trigger a price war
By launching the service, JPMorgan may trigger a price war in the online brokerage industry. Although, the company is a latecomer to the space, its free trade service is likely to grab investors’ attention quickly due to its lower fees following the free trades.
E-Trade Financial, Charles Schwab, and TD Ameritrade Holding charge $6.95, $4.95, and $6.95, respectively, per trade after their free offers expire—far higher than JPMorgan’s projected fee of $2.95 per trade, which may compel other players to lower their charges to remain competitive and retain their customer bases.
Furthermore, JPMorgan has a massive banking customer base of ~60 million, which translates to ~50% of US households. Nonetheless, the majority of this customer base invests outside the company. With You Invest’s lucrative services, these customers may choose not go elsewhere for trading, which should drive the company’s trading revenue in the long term.