Investment opportunities in existing providers of digital banking and brokerage services
Digitalization offers new opportunities in the banking sector. The utilization of data mining techniques will dramatically enrich existing models. The benefit of such an approach is more efficient operating; however, there are some issues to bear in mind. While most costs were incurred during the development phase, new concerns constantly arise in the form of data security and intellectual property. Furthermore, unit revenues are well below historic ratios.
Beyond the challenge of facing lower unit revenues, providers of digital banking services also tend to face rapidly declining turnovers and much lower customer loyalty levels. For instance in the case of pure online brokerage services usually only around 20% of the client base is active on a regular basis and the average customer lifetime is lower than 18 months.
To keep the customer’s purchase behavior active, constant stimulation is required. To this purpose, platform providers tend to provide more transparent information than the traditional operators.
| Company | Ticker | Country | Upside Potential | Sharpe (FY01) |
| Charles Schwab | SCHW | USA | 7 % | 4.03 |
| Investment case:Charles Schwab is the reference in providing online brokerage services. It operates in two segments namely, Investor Services and Advisor Services, and the company is known for its high level of digitalization. | ||||
| Company | Ticker | Country | Upside Potential | Sharpe (FY01) |
| TD Ameritrade | AMTD | USA | 10 % | 4.58 |
| Investment case: TD Ameritrade is a leading discount broker with about 5 million accounts and about USD 500 billion in client assets. The company provides a full range of services such as brokerage, money market management, and advisory services. Its business model is centered on wealth management services and it’s serving an ever growing number of wealthy individuals. | ||||
| Company | Ticker | Country | Upside Potential | Sharpe (FY01) |
| Swissquote | SQN | Switzerland | 33 % | 4.71 |
| Investment case: Swissquote Group Holding Ltd is a provider of online financial services in Switzerland. It operates as an online bank and therefore the level of digitalization is already high. Its operating margins are relatively high compared with the peer group. | ||||
| Company | Ticker | Country | Upside Potential | Sharpe (FY01) |
| Leonteq | LEON | Switzerland | 47 % | 3.6 |
| Investment case: Leonteq Securities AG is an engineering and infrastructure partner for investment solutions. It mainly operates in the Swiss market. Its operations are already highly digitalized. | ||||