Case Study: The Schwab.com story

The arithmetic was easy enough. As late as 1997—two years after Schwab.
Written by ZDNet Staff, Contributor

The arithmetic was easy enough. As late as 1997—two years after Schwab.com launched its Web site—trading through a human broker cost customers an average commission of $65. When they did the same trade online, they paid a flat $29.95. Meanwhile, a new crop of ultradiscount online brokers were making hay of offline houses' steep commissions, dubious advice, curious inconveniences, and slow response.

So Schwab.com reduced all commissions to the lower flat fee. The company's stock lost nearly one-third of its value overnight. Analysts were aghast.

Since then, accounts for the brokerage have surged from 3 million to 6.3 million. Some $51 billion in new assets poured into its accounts last year alone. It has pushed aside the likes of E*Trade and other online upstarts to own 42 percent of the market. Last year, after-hours trading made its debut, to the eager embrace of online traders, many of them Schwab.com customers.

Not only do investors get cheaper commissions, faster trades, and longer playing hours by trading online, says Mark Thompson (pictured), senior vice president of online brokerage. They also get a world of late-breaking financial information virtually unavailable five years ago. Schwab.com's leap to the Net was more than an endorsement of online stock trading. It was a ringing brass bell to individual investors everywhere that they're paying too much for a piece of the action.

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