Techcrunch profiled the upcoming launch of a startup called Zecco that aims to bring free stock trading to the online brokerage world, along with throwing more community features into the mix in true 2.0 fashion.
The Techcrunch article is a bit negative on Zecco because of three reasons:
1. Most people don’t trade that often, so free trades don’t matter.
This is true, that a large percentage of investors don’t trade that often. However, I’d say a strong reason people don’t trade more is commissions! I know personally I trade less than I would if I had free trades, and I’m not alone.
2. Discount brokerages already expect commissions to go to $0.
So? A couple of reviews I read all are pitting Zecco up against Schwab, Merrill Lynch, eTrade, and others and thinks that it needs to dominate those companies to be a success. It doesn’t. If Zecco keeps their costs low, they can have a great business by winning customers from other discount brokerages.
PlentyOfFish.com is a great example of this concept as it’s a dating site that came along when all the dating sites had paid memberships and offered a free membership, and they also kept their overhead very small. Did it kill Date.com? No, but the guy running PlentyOfFish.com is making a ton of cash and it’s a great business for him.
3. Just because it’s cheap, it doesn’t mean people want it. Relationships matter.
Relationships do matter, to some people. The thought here is that because their trades are free, they can’t offer the great service of Schwab and others. Guess what, I’ve been trading and paying commissions for years and never talked once to a single human at three different brokerages. Where’s the relationship? Sure, I’m probably way too small of a customer to warrant the personal attention, but that’s exactly why I think this reason won’t hold Zecco back.
Zecco also is building in many community features that may make it have a different kind of relationship with it’s customers, they’ll actually feel like part of a community instead of feeling like they’re just another one of a big company’s customers.
Good luck to Zecco, I’ll be watching to see if they can shake up the brokerage industry a little, and if they don’t, they can still make a nice business out of it.