Internet Brokers Make Bold Service Promises - TheStreet

Online brokers fared worse than stocks on Oct. 27, with systems crashing across the industry, leaving customers fuming. Six months later, some online brokers are promising that it will never happen again.

E*Trade Group

(EGRP)

, one of the worst offenders in October, and

Discover Brokerage Direct

are putting in place new systems designed to bypass technological glitches to keep access open all the time. "I feel we will have zero systems failure in the future," says Debra Chrapaty, E*Trade's chief information officer. Others have made changes as well, reworking and accelerating pre-October upgrade plans.

Yet despite six months of improvements, downtime, delays and poor customer service still frustrate online traders.

Fidelity's

online trading system went just after the

Dow

crossed 9000 on April 3, and

Charles Schwab's

(SCH)

went down last week. Customers of

Ameritrade Holding

(AMTD) - Get Report

,

Waterhouse

, E*Trade and others say site access and transaction speed are still hit and miss.

Improving reliability is critical for online brokers to continue their stellar growth rate. Early adopters and hyperactive day traders may have been willing to suffer for the novelty of the cheap and dirty online trade, but those days are waning. Would

McDonald's

be serving billions worldwide if instead of giving fast and accessible service it held up your order and sometimes closed at lunchtime?

E*Trade and Discover think they've found the model for hassle-free trading.

On Monday, No. 2 online broker E*Trade launched a new trading system for 200 customers and plans to have all customers on it by the end of May. The new architecture is dynamic and fault-tolerant, meaning if server A fails, the transactions it is processing automatically move to a new server without disruption. If a bottleneck occurs in one part of this "stateless" system, it is bypassed. If volume suddenly skyrockets, servers can be added without reconfiguration.

"You can't just throw hardware at the problem," says Chrapaty, E*Trade's CIO. "The question is how to engineer your system to address technical problems."

Since October, E*Trade has installed parts of the new system, increased speed of certain public transactions by modifying the security system and added capacity on its traditional system. New software makes transactions quicker and more reliable. E*Trade will also be opening a new tech center in Atlanta to spread risk geographically.

Discover Brokerage Direct, a unit of

Morgan Stanley Dean Witter Discover

(MWD)

and a top-10 online broker, will also convert to a new stateless system this quarter. Already partly phased in -- it converted its database system last week without a glitch -- the new architecture boasts two sites in different locations that are running all the time. That means if one entire site fell off the map, the other could handle all the business.

Eric Roach, Discover Brokerage's president, says that once the system is in place, it will not go down. "I never like to say never, but the design is to never go down." In addition, since October, Discover has increased capacity by more than 10 times and redesigned the site.

The hope of a stateless system is that it is scalable -- or easily configured for more traffic -- and that technical problems within the system can be bypassed. In that way, E*Trade and Discover are going beyond brokers that aim to improve their traditional systems by making them faster and more reliable for higher volume. Analysts say brokers that are tweaking their legacy systems will still have problems now and then.

"The ones who are still operating off of big batch-based mainframes, until they replace them it will be very difficult to perform real-time account operations," says analyst Bill Burnham at

Piper Jaffray

. So other leading online brokers have been working toward 100% uptime, without guaranteeing it will happen.

Ameritrade, which did pretty well during the October volume crunch, has been battling its system to keep up with its extraordinary account growth. It opened 73,000 new accounts last quarter, a 50% increase over the previous quarter. It has launched a new site, added new software, increased capacity and upgraded order processing and routing within the system.

Michael Anderson, who heads the company's brokerage unit, says confirmation delays are due to a legacy processor system, one that it is working to eliminate with two systems in testing. It is also working on fixing its fill information delays. Software changes should alleviate congestion problems in two to three months, says analyst Michael Chung at

Williams Capital

.

Schwab, a serious offender in October that recently relapsed badly, has also boosted its existing system. It has increased capacity to five times its current account base of 1.6 million active online accounts, from about two times an account base of 1 million in October, says spokesman Tom Taggart. It has added more servers with larger capacity, added another large mainframe computer and has enhanced its software to speed up transactions and make them more reliable. Still, there's no official word on what shut the site down for two hours last week.

Waterhouse's

Webbroker

is also suffering under strong account growth. "We don't want to put a priority on the bells and whistles before we have core functionality," says spokeswoman Melissa Gitter. Waterhouse has quadruped capacity and, in mid-March, overhauled its Web site. The redesign is still causing problems, but when they are smoothed out Gitter expects downtime to be erased. However, capacity is still being helped along by logging users off after 10 minutes of inactivity.

Since October, Fidelity has expanded capacity by at least six times, in part by adding six redundant sites across which it can balance volume, increased response times and has redesigned its site. "We're up 99 point something percent of the time," says senior VP Stephen Killeen. But faults, either human or technical, can still bring down the system, he says. In response, Fidelity has retrained and increased its phone staff 25% to 30%.

Among other big online brokers,

DLJdirect

and

Datek

did not make officials available to comment.

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