Charles Schwab explores online banking

From...

By Brian Sullivan

(IDG) -- San Francisco-based Charles Schwab & Co. confirmed Monday that it's preparing an application for a national bank charter to serve online customers.

Schwab spokesman Morrison Shafroth said the company will offer banking options to its online customers as part of an overall investment/money-managing strategy. "If people want to sign up for just banking services, they can do that, too," he said.

Shafroth tried to downplay the entire effort. "It's not really a bank," Shafroth said. "It's one piece of a broader offering."

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Some analysts said Schwab's move makes sense because it offers customers a service they want.

Trends continually show that customers with an online orientation want to be able to conduct banking and brokerage business at a single site, according to Shaw Lively, an analyst at IDC in Framingham, Massachusetts.

"You can say that banking and brokerage don't mix," Lively said. "But online, they do, and to the online-oriented customer, they sure do."

Lively referred to a bulletin he published last year that showed 67 percent of online brokerage customers accessed at least one other financial product online. In addition, the same study predicted that one-third of all U.S. households would be using online financial services by 2004.

Larry Tabb, an analyst at Needham, Massachusetts-based TowerGroup, also said he wasn't surprised by Schwab's move. Banking has been more stable and profitable than the securities business since the economic downturn, he said.

"Firms are looking to branch out in different ways," Tabb said. "The whole industry trend is toward consolidation."

Insurance, banking, investments and financial planning services are all being offered by banks and brokerages as they vie for business and try to remain profitable, he said. Schwab is following that trend.

Lively added that consolidation is also easier in the online world, which provides further incentive to mix the two. While one shouldn't underestimate the technical complexities of consolidating banking and brokerage services online, Lively said, it would be easier to do online than in the brick-and-mortar world.

Tabb agreed. "When you start portraying yourself as a bank, there are different connotations with that," he said. "You can walk into a Schwab branch and talk about investing a significant amount of money. But you can't walk into the Citibank branch on 57th Street and say, 'I want to invest $100,000.'"

Lively said people must be taught with signs and other methods that their bank is also a brokerage firm. It's much easier online to get people to consolidate those ideas, he added.

If approved by federal regulators, the bank will be Federal Deposit Insurance Corp.-insured and will have all the services offered by most banks, including automated teller machine (ATM) cards, checking accounts and overdraft protection.

Schwab has no timeline set for when the bank will launch. Shafroth said the company is still preparing the application and it could be some time before it receives approval. "It is a lengthy process," he said.

Lively said that while Schwab might be downplaying the effort publicly, he is sure there is "a lot of activity under the covers."

Schwab takes the customer experience seriously and spends a lot of time talking to its customers, Lively said. He added he doubts that the company will simply treat its banking function as just another link on its Web site.

All in all, the move was a good idea, Lively said. "I am not surprised they are doing it. I am just surprised they are not doing it more aggressively," he said.