Investing is the last thing that most people think about but it is the first and only thing that Charles Schwab prioritizes each day. It is a firm that was formed in 1971 and has continued to grow, amass assets, and survive through the different financial storms such as 1987, the dot com boom and bust, the great recession, and COVID-19.
The financial services firm has come a long way since then and is now the third largest asset manager in the world. Schwab has more than $4 trillion custodied assets and continues to grow at a rapid pace. It earns by managing assets and providing advice in addition to earning from its interest from its banking business.
It came to be because it saw an opportunity in the financial services sector due to de regulation and improved the customer experience with discount services and innovations like “round-clock order entry and quotation.”
The Digital Revolution and Charles Schwab
The firm would find itself presenting online trading features to clients by 1994 and slash account fees over a decade. Technology integrations would pave the way for lower fees and more focus on the customer. It offers a wide variety of services such as commercial banking, discount brokerage, manages wealth for large and individual investors. Charles Schwab purchased USAA and TD Ameritrade in 2020 and is rolling out features like fractional investing to make investing easier.
Clients appreciate the service because it offers in depth insights, continually improves its services, and focuses on operational scale to make it as a great business. Incumbents like Schwab who have significant assets, who continue to take advantage of technology to improve their services and focus on their customers will continue to thrive while emerging entrants struggle.
The emerging class of fintech players seek to disrupt the space must face giants who have been in the sector for quite some time, who’ve built up brands and offer valuable services that make a difference. This is not to say that fintech startups are bound to fail. Rather, shocks to the financial system can have more impact on these startups that earn from the interest spreads or margins.
Incumbents have the advantage if they pay attention to their customers and continue to offer attractive products while learning more about the market.
New entrants must get past regulatory moats and strive to be specifically unique to consumers to build a base and scale up. That means that they must acquire customers without burning excess capital and retain them through thick and thin situations.
Strategically positioned companies such as Schwab should continue to see value growth over the long-term as they innovate.