Analysis by SRI Consulting shows that the potential of on-line investing is limited, but profitable.

MENLO PARK, Calif.--(BUSINESS WIRE)--Jan. 22, 1997--Although more than a dozen brokerages, investment banks, and mutual fund companies now allow customers to manage their accounts, buy and sell securities, and obtain research and other investment information on-line, the three- to five-year potential for regular use is limited to no more than 8% of all U.S. households, according to recent research conducted by SRI Consulting.

While proponents envision the Internet as a virtual stock exchange bypassing not only traditional brokers but exchanges as well, on-line trading and investing currently account for a small fraction of daily trading. Compared with on-line banking, however, the proportion of existing and potential on-line investors is much greater and offers the potential for rapid growth.

The on-line investing market is currently limited by the number of potential investors that can and are willing to use on-line investment services. SRI Consulting's analysis reveals that home brokerage and investing will penetrate no more than 8% of all U.S. households over the next three to five years.

However, these 9 million households that currently have the capability or motivation to adopt on-line investing represent 15% of all investor households (any stocks, bonds, mutual funds, CDs, annuities, Treasuries, commodities, futures, etc. including IRAs, SEPs, Keoghs and salary reduction plans).

The research, conducted by SRI Consulting as part of its Home- Based Financial Services program, also shows that while the market is relatively small, potential users of on-line investment services are prime customers that financial institutions would want to attract and keep. They are affluent, financially competent and well-informed. Compared to the average U.S. household, they are generally more aggressive and risk-tolerant when investing.

These customers are on the verge of achieving their maximum earning potential and are at a life stage when their need for asset accumulation is strongest. At the same time, their knowledge and need for information are high.

This market, however, is by no means homogeneous. Segmenting the total U.S. household population by investment needs and technology familiarity, SRI Consulting analysts identified three distinct potential user segments with different demographics as well as varying financial needs, attitudes and preferences. Each of these groups need differentiated product features, positioning and a corresponding marketing approach to help financial institutions capture the largest share of this prime and potentially profitable market.

Early adopters (active, serious investors who are comfortable using computers and accessing on-line services) comprise just 2% of the U.S. household population, or about 2.7 million households. These households have the motivation and the capability to use home investment services. An additional 6.4 million households are likely to be followers, the next wave of potential users of on-line trading. These households have either the same high level of investment needs (3.8 million) or the technology familiarity (2.6 million) to adopt on-line investing.

"What is particularly interesting about these potential users, especially the Early Adopters, is that they tend to polarize at two different age groups, the early thirties and the late forties, and to correlate with the presence of young children in the household," explained Larry Cohen, director of SRI Consulting's Consumer Financial Decisions group that produces the Home-Based Financial Services program.

"In addition, there are differences among these three groups in their risk tolerance and need for information versus advice that suggest no single approach would be effective," Cohen added. "Although the potential for wider acceptance may be greater than for home banking because of the congruence in the focus of investors' needs, the demographic and attitudinal differences among potential on-line investing segments will require financial institutions to have a better understanding of these households to reach them effectively."

The Home-Based Financial Services study is based on the MacroMonitor program, a biennial financial survey of more than 3,600 U.S. household financial decision-makers. Analysts used two proprietary methodologies, Values and Lifestyles (VALS 2) and Consumer Acceptance of Technology (CAT), in segmenting and profiling the home investor market.

The research was conducted by SRI Consulting's Consumer Financial Decisions group, which provides executives of major institutions with insights into consumers' financial requirements, behavioral characteristics and decision processes. For more information about this study or other financial services programs, readers should contact Larry Cohen, director of Consumer Financial Decisions, SRI Consulting, at 609/734-2048, e-mail: [e-mail] .

SRI Consulting, a wholly owned subsidiary of SRI International, combines strategic business consulting with technology expertise to help companies compete more effectively in changing global markets. SRI International is one of the world's largest research, technology development and consulting firms.

CONTACT: SRI International

Alice Galloway, 415/859-2711

or

Neale-May & Partners

Ruth Ann Burns, 415/328-5555 ext. 113