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Following on the heels of an announcement last week from Interactive Brokers (IBKR 48.91, -4.87, -9.0%) that it will offer zero commissions on U.S. exchange-listed stocks and ETFs with no account minimums, Charles Schwab (SCHW 37.55, -4.28, -10.2%) announced today that it is eliminating commissions for stocks, ETFs, and options on U.S. and Canadian exchanges, across all mobile and web trading channels.

The change at Schwab is effective October 7, and, really, shouldn't be thought of as a complete surprise -- even though the stock is reacting like it is. The writing has been on the wall for some time (and Schwab has even done some of the writing) as Schwab and other industry competitors like TD Ameritrade (AMTD 35.49, -11.21, -24.0%) and E*Trade (ETFC 35.84, -7.85, -18.0%) have been cutting their commission rates continually over the years.

The important difference for Schwab is that it relies less on trading revenue than its competitors do. In 2018, trading revenue at Schwab accounted for just 8% of total net revenue, whereas it was 17% for E*Trade and an estimated 25% for TD Ameritrade.

That's not to say the move to zero commissions won't have any impact. Schwab's CFO noted the price cut is equivalent to approximately $90-100 million in quarterly revenue or 3-4% of total net revenue; however, since the commission per revenue trade has been falling for some time, the potential revenue impact, it was said, could be smaller, holding all else equal.

Ideally, the commission-free trade offering will succeed in attracting more client assets. That is the aim for all of these companies, which derive more revenue from net interest revenue and asset management and administration fees than they do from trading revenue. In that regard, falling interest rates and capital flight pose a more meaningful earnings risk than zero trade commissions do.

One clear winner from this announcement is the trader/investor, as a commission-free trade experience is better for their bottom line than a fee-based trade experience. 

Schwab's decision wasn't something it had to do, but it was something it felt was the right thing to do given its cultural roots of making investing easier and affordable to everyone and knowing the competitive writing was on the wall with new entrants to the market, like Robinhood, using commission-free trading as an inducement to attract assets.

Schwab's stock has been hit hard on today's news -- too hard in our estimation given that the news affects less than 10% of its total net revenue.

(Disclosure: Briefing.com has a business relationship with Charles Schwab, Interactive Brokers, TD Ameritrade, and E*Trade)