In the mid-1990s, data-center managers at Fidelity Investments in Boston were receiving alerts of system errors on their personal pagers. That application made them think, What if we could alert retail stock-trading customers via pager when a stock fell or rose to a certain level?
"It was a great idea, but there wasn't enough technology to support it back then," said Joseph Ferra, senior vice president at Fidelity's online brokerage division.
But wireless technology, encryption and network coverage evolved, and Fidelity rolled out wireless services for retail customers in October 1998. Two years later, Fidelity boasts 100,000 retail customers - 2.5% of its online total - using all sorts of handheld devices to monitor stock and 401(k) portfolios, receive alerts and respond with actual orders to buy or sell, according to Ferra.
 | | | Those Darned Tiny Screens Security isn't a hardship in building wireless trading applications; what brokerages developing wireless applications find most taxing is creating an acceptable user interface for all types of devices, said brokerage officials. "Most phones have a limited number of lines of display and very limited input/output with numeric keypads," said Glenn Tongue, president of DLJdirect. DLJdirect is looking forward to more voice activated phones as well wider use of touch screens, something available today with the Palm VII and some other handhelds, for example. Charles Schwab & Co. in San Francisco relies heavily on finding everyday people to test applications in its laboratory, including people who have never traded or used wireless devices, Schwab officials said. "If vendors can solve the interface problem with the numerical keypad of the phone, that's going to help," said Jim Ditmore, CIO at Ameritrade. "Voice recognition for phone will overcome the keypad concerns and Third Generation wireless color will help users see graphs and other graphics," he added. |
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Today, analysts say they consider Fidelity a leader among approximately 50 online brokerages that provide wireless retail services.
Wireless retail-trading options have grown wildly in the past two years, and brokerages will soon extend the services in many ways, such as to institutional investors managing large portfolios. They're also likely to add other types of content to their portals, brokers and analysts said.
But not everyone sees all of this investment as wise. None of the brokerages offering wireless services described here would discuss whether they have seen a return on their investment. And Meridien Research Inc. in Newton, Mass., projects that brokerages might get no more than 5% of online trading over wireless.
"The rich, the young and the reckless are the feeder system for expanded mobile financial services," wrote Meridien analyst Randi Purchia in a recent report.
"Once you get outside Wall Street and Silicon Valley, it's hard to find people excited about trading stocks while riding the bus," said Carl Zetie, an analyst at Giga Information Group in Cambridge, Mass.
Zetie said some brokerages are hesitant about offering wireless because they are worried that the return on investment won't be there.
But other analysts said they agree with the brokerages already in the mix that adding the service will bring in new customers or provide more trades.
"Even if an established customer makes two more trades a month because of wireless, that's valuable," said Jack Gold, analyst at Meta Group Inc. in Westboro, Mass.
Charles Schwab & Co. said it expects half of its trading to be conducted over wireless devices in three to five years, though it won't disclose how many wireless users it has now or expects then. Yet this early Internet leader lost the initial wireless round to Fidelity.
"Back in 1998, Fidelity was considered so stodgy after Charles Schwab & Co. had run rings around them on the [wired] Internet, but Fidelity saw the potential of wireless and started off with Research in Motion pagers and now has even partnered with a number of carriers to expand services," said Ed Kountz, an analyst at TowerGroup in Needham, Mass. "Fidelity is definitely the most successful in not only identifying with this cutting edge technology, but for doing a lot to get content out there on all kinds of handheld devices."
But San Francisco-based Schwab is back in the running as part of an aggressive pack of companies offering wireless trading, Kountz said. Its wireless access is part of an integrated system that includes telephone brokers and online services that allow customers to see entire spreadsheets of portfolio data on a desktop screen, said Jonathan Craig, vice president of marketing for global wireless at Schwab.
The attitude at Schwab is very much toward using wireless to supplement other services, said Craig.
Unlike Fidelity, which built its wireless applications in-house because integrators didn't have the needed expertise at the time, Schwab built only some pieces - including the user interface - in-house. It hired Aether Systems Inc. in Owings Mills, Md., to bring the service to handhelds from Santa Clara, Calif.-based Palm Inc. and pagers from Waterloo, Ontario-based Research In Motion Ltd., said Nasos Topakas, vice president of global wireless technology at Schwab.
Three Major Challenges
The three biggest challenges in wireless facing brokerages today are the interface, how to work with the various carriers in the U.S. and how to build adequate security. And none of these has proved to be as difficult as it first seemed.
The carrier problem seems to be solving itself, with recent mergers resulting in nationwide service helping to expand coverage quickly. The hodgepodge U.S. market has benefits, too: Having a number of carriers has "turned out to be an advantage for us because it gives us a broader customer base," said Glenn Tongue, president of DLJdirect Inc. in Jersey City, N.J.
Ameritrade Holding Corp. became the first brokerage to operate over a nationwide wireless phone network in November of last year, using the expertise of Sprint Corp., said Jim Ditmore, CIO at Omaha-based Ameritrade. It's able to administer all of its carrier relationships with only three in-house technology staffers by keeping all the business logic for how to make a trade the same and changing just the presentation layer for the various wireless handheld devices, said Ditmore.
Maintaining an entire silo of wireless business-logic components would mushroom the staff to 30 people, Ditmore added. Ameritrade has 10,000 wireless users, representing less than 1% of its 1.2 million online users.
Security hasn't been a problem either. The lapse in Wireless Application Protocol 1.1, in which data was momentarily decrypted at the gateway before being encrypted again, theoretically exposing it to hackers, apparently hasn't slowed adoption and is being fixed in Version 1.3.
Analysts and users said retail stock traders usually access an account with a password and then authorize trading within that account, so they aren't sending credit-card information over each connection anyway.
No Great Risk
The brokerages use a variety of measures to secure their transactions. Fidelity, for example, relies on elliptical-curve cryptography. DLJdirect relies on security built by its own 500-person in-house technology company, iNautix Technologies Inc.
"You would think security over wireless trading would be a major concern, but security hasn't been an impediment'' to rollouts of applications, said Dennis Gaughan, an analyst at AMR Research Inc. in Boston. "No security is bulletproof, and every [brokerage] has to determine whether the return from the application is worth the acceptable risk. And brokerages have defined the risk as not being that high."
"Security is better on the wireless Web than the wired Web because wireless devices such as cell phones are inherently more secure than PCs," said Ditmore. "Whereas your PC has no serial number that's accessible outside, your cell phone can't be overtaken and has a serial number and you know its location and it authenticates itself to the network. So it is far more secure than a PC."
Schwab's Topakas said that even the device itself isn't particularly vulnerable. "If something happens and I lose it, then I just disconnect the service," he said.
And as some brokerages consider adding new wireless services that are more information-based, the need for security may diminish.
"Trading is just a very small component" of what users want, said Ferra. The rest of them use wireless technology for alerts about market conditions and to get quotes and read-only access to portfolios.
Fidelity envisions going well beyond those services.
For example, it may allow consumers to make 401(k) fund transfers and to arrange hotel, rental car and insurance services with its subsidiaries.
"Our mission statement is to enable wireless access to Fidelity enterprise data, anytime, anywhere, on any device," Ferra said.