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By Jerry Knight
Washington Post Staff Writer
Sunday, August 23, 1998; Page H4

Oscar De Leon of Manassas was thinking about making his first online stock purchase Wednesday when he walked from his office at the American Red Cross up 17th Street to the branch of Charles Schwab & Co.

Already a customer of the firm, De Leon said he had been keeping track of his investment and retirement accounts via Schwab.com but had some questions about using Schwab's computerized system to actually buy stocks.

"I like the way you can go and invest and then the confirmation is right on the screen, but I have the feeling there are a lot of hackers out there," he said.

After Schwab account executive Jay Anthony offered assurances about the security of the system and walked De Leon through a demonstration of the online trading features, De Leon sounded satisfied.

"I think I'm ready," he said, smiling. Ready to become one of the more than 100,000 new online customers who are being signed up every month by Schwab, the number one company in personal-computer-based stock trading.

Schwab.com grew from 1.2 million accounts to 1.9 million in the first six months of this year, said spokesman Tom Taggart. Online accounts now represent more than one-third of the San Francisco-based brokerage firm's 5.4 million clients.

But the online customers already are producing more than half of Schwab's daily trading volume, executing 66,000 orders a day to buy stocks and mutual funds.

Schwab doesn't say how much money it is making from online trading, but Taggart said the system is the firm's "lowest-cost channel" for handling an order. "It creates tremendous efficiencies for us."

When a Schwab customer calls a broker to buy stocks, the order is typed into the company computer system anyway. The online system makes the customer do the typing rather than the broker and saves even more money by automating much of the hand-holding that is a big part of the broker's job – the clients who call to check prices on stocks or to ask what's going on at a company.

"It's much more efficient for us to deliver real-time news to you electronically than for you to call us and have us read the story about your company to you over the phone," Taggart said.

Schwab customers can still call a broker or walk into an office when they want to, and Taggart said the firm does not expect its business to evolve into an all-online, all-the-time operation.

But Schwab gives its clients a big incentive to bypass the broker and punch up their own orders. The basic commission for a Schwab online stock trade is $29.95, vs. a $39 minimum for orders handled conventionally. For mutual funds, there's a 20 percent discount from the standard fees for online trades.

Though Schwab is best known as a discount broker, Schwab's online trading commissions are not rock bottom. Deep discounters such as Datek Securities advertise prices as low as $9.95 a trade.

"We deliberately don't compete in the price wars," Taggart said. Schwab's strategy is to make online trading part of a "total experience" that includes letting customers talk to brokers by phone, send questions by e-mail, use a walk-up terminal in a branch or actually sit down at a desk and talk face to face.

As competition in the online business grows, Schwab will be under pressure to bring down its prices, but the firm insists its strategy is to target customers who'd otherwise go to a full-service broker, rather than go after the people who trade stocks every day and insist on the cheapest possible execution of trades.

Schwab's pricing strategy reflects the firm's evolution from a no-frills discount broker to a hybrid that charges lower commissions than conventional firms but still provides some customer service.

Schwab.com offers the usual stock quotes, price charts, research reports and news summaries that are available from America Online and many other services.

Among the Web site's innovations is Schwab's One Source mutual fund market, which lets customers buy 1,800 mutual funds. Using the site, clients can specify the criteria they're looking for in a fund, then compare funds that meet the criteria.

Similar screening systems can be used to compare stocks. When De Leon mentioned an interest in buying Pepsi stock, broker Anthony punched up a chart tracking PepsiCo Inc. against Coca-Cola Co. and the Standard & Poor's 500-stock index.

De Leon liked what he saw, but instead of just telling the broker to buy the stock, he said he would go home and put in his order. "It's convenient. It's easy to use. It's the thing to do," he said. And he saved himself 10 bucks.