Entering and optimizing Asia – Live from iFXEXPO Asia in Hong Kong

For retail FX brokers across the globe, the last few years have been all about Asia, and in particular, mainland China.

Today, here at the iFXEXPO Asia 2016 hosted by ConversionPros and Finance Magnates, with Asia having been on the agenda of technology vendors and platform providers as well as retail brokers for as long as it has been, the entire cause has advanced and it is evident more than ever that the astute companies in the industry clearly understand China to the point where their businesses are fully integrated with their partners in the mainland.

There are, however, a number of companies which are still very determined to enter the Clhinese market successfully and sustain business in the region, whether they are start ups or established firms whose customer base has been centered around other geographic locations.

Live from Hong Kong today, Itai Damti, co-founder and CEO APAC at Leverate addressed some of the industry’s most prominent leaders to discuss how to penetrate Asia and optimize business in the world’s most lucrative center for retail FX.

Mr. Damti began by explaining the 8 key points that he considers are important when approaching the Asian market as a retail brokerage.

“When we talk about Asia, we talk about two different territories” said Mr. Damti.

“There is the Subcontinent, which we are not going to talk about today, and then there are two the important regions, one of which is South East Asia, by that I refer to the region which includes Indonesia and Malaysia, and the other is Greater China, which consists of China, Hong Kong, and Taiwan.”

“Asia has more than 17 territories, and those include places like India which prohibits FX trading altogether, and China which is a totally separate matter, and Hong Kong in which bullion can be traded freely due to high quality regulation from the Bullion Association.”

Seven key considerations in Asia

1: Introducing Brokers

“The situation in the West is that many brokers that we know are engaging with IBs but on a very small scale. A lot of marketing dollars in the West go into online digital campaigns. This is not the case in Asia, where IBs are king” said Mr. Damti.

“You need to choose the right provider and structure your operations in the right way in order to make the IBs happy. If you give the IB more marketing tools such as social trading, or a flexible commission structure, you are giving them more tools to attract business from their side.”

“Some IBs have large offices of over 150 employees, and are a media company which refers vast traffic to brokers, whereas some are smaller companies in second tier cities whose clients have a long standing relationships.”

“Many are going to cities such as Guangzhou, which is the largest city in the Guangdong province, and all of the master IBs in the region are going to that particular company, forming sub-IB arrangements.”

FinanceFeeds concurs with this following a very large scale investigation that Andrew Saks-McLeod conducted in second tier development towns in China throughout 2015.

A question was then posed with regard to how much commission such brokers want.

Mr. Damti explained that it is usually between 0.6 and 0.9 pips and it depends ont he instruments that are being offered.

“This way the sub IB can then engage with many people and own the entire structure of their own business as a separate entity” he explained.

“Saxo Bank, for example, has a very good brand name, and enjoys good distribution therefore did not need to give such keen commission to succeed massively in China, whereas if you are a new broker in the market, you need to have a keen structure of commission to be able to get into the market and be established.”

“In South East Asia, it is a flat structure. We find that brokers find one master IB in the entire country in Malaysia or Thailand, and let that broker refer all business, whereas in China it is different and is very much a regional-based, relationship business.”

2: Social Trading

In the West, social trading is used as an acquisition tool. In China, it is a central tool to doing business. Social media is a way of life in the digital world in Asia. When you talk about Indonesia, Facebook has the third largest user base in the world. People in Asia live by the social world and social status. It is used differently than in the west. IBs like to use social trading to promote their services” said Mr. Damti.

“It is also very different in that it is used as a money management tool. This gives the broker power to choose the control level that they give money managers. If someone messes up, a broker can detach themselves immediately from that particular money manager. Applying the right products in this respect is essential to penetrate the market.”

3: Payments

“Nobody likes to talk about payments because it is not part of the FX industry’s competitive edge, but it is a very important and relationship driven business” explained Mr. Damti.

“In the West, many brokers rely on Mastercard or Visa as merchant service providers with absolutely no problem whatsoever but then you go into Asia and things are completely different.”

“When operating a business in Asia, you are then running into 7 different territories with different methods” Mr. Damti said.

“If you look at China, UnionPay has 100% brand recognition which is even higher than Coca Cola in the West. Mastercard and Visa do not exist in China and are blocked. In South East Asia there is DragonPay and also GCash which are wallet solutions.”

An existing PSP in the West may not be able to service the requirements for entering Asia. You need to partner with Asian PSPs that specifically relate to those nations.”

“If a PSP says to you that they have been your PSP for 6 years and theyll find the solution, they might be lying!” – Itai Damti, Leverate.

4: Execution Quality

“My clients are B2B clients, who care more about numbers” said Mr. Damti.” If there is any slippage whatsoever, then I would likely get an immediate call from a broker client.”

“In China, they won’t complain if something is not according to their requirements, but they will simply find a different broker after some time.”

“China and South East Asia are different. There are intrinsically two different problems that the industry faces. The first is getting data from data centers in the West all the way to Asia. It is solvable but it is a geographic problem. The other is that it is very difficult to get the data through the Chinese firewall” said Mr. Damti.

“Brokers need to find a solution that gives good coverage of the entire region, both China and South East Asia. We host some servers locally in Hong Kong and Singapore, and also have leased lines which go from the execution data center in London all the way to Asia and we have points of presence in China which make sure that the data goes through tier 1, tier 2, and tier 3 cities in China. This is a very expensive solution but it is the only way to ensure system stability and good execution across the board” he concluded.

5: Instruments

With regard to what products to offer, Mr. Damti clearly highlighted the difference between East and West. “Chinese stocks such as Jingdong or Alibaba are popular, as is Gold which is culturally very popular in South East Asia. Remember that China is more sophisticated than South East Asia, they have an opinion on how they want to trade and sometimes want to trade on their own opinion.”

“You can have some business by offering Euro Dollar, however Bitcoin, Gold, Chinese stocks, CSI, A50 are essential and brokers need to find a very good feed source and good liquidity. Many money managers will want access to that liquidity and want to be able to, for example, trade freely on the CSI.”

6: Mobile web and desktop

“This is a jungle, especially in China” exclaimed Mr. Damti.

“In the West we have a well recognized landscape in terms of operating systems across mobile and desktop platforms and browsers. The situation in China is very very different. In South East Asia, it is usually mobile and it is easy because it is all based around Android and Apple devices, but in China it is very different.”

“When we distribute apps in the West, we do it via Apple Appstore or Google Play, but Google Play is blocked in China. Some have hacked versions of Apple or Google apps available but are fake. Some vendors suddenly find that they have hundreds of users that they didnt know about!” – Itai Damti, Leverate

“In terms of web, there is a browser called 360 which is the second most popular browser in China, after Internet Explorer 6 so the platforms are very old” said Mr. Damti.

“There are some developers that support old operating systems just becase of this. Internet Explorer 6 is popular because the hacked version of XP is very popular in mainland China. They are now upgrading all the XP operating systems, including the hacked ones but currently it is hard to provide web solutions in China without supporting old browsers.”

7: Website

“In the West, a broker’s website is connected to a PSP, however this will not work in Asia for both technical and cultural reasons. Asia is not impressed with websites or social marketing techniques. These are not part of the way of business in China.

“China’s firewall blocks many Western commercial sites, and this is very important to bear in mind.”

“Customization is vital, as is the need to think like the Chinese audience. Take all the videos from YouTube and upload them to Chinese online video sites.”

“You cannot use Google Analytics because in China it is blocked. Therefore, brokers would be unable to track their website statistics, and also the website goes slower because Google servers are not part of the ecosystem” said Mr. Damti.

“It is also important to replace any PSP that is used to transfer funds from clients with UnionPay.”

“Texting is popular so people often interact by SMS and this highlights a very important relationship issue” said Mr. Damti.

“I’ll leave you with this example. eBay does not allow buyers and sellers to communicate directly with each other, instead they have to go through eBay itself.

“This finished eBay in China. The local online market place in China recognized that trust is a huge issue and therefore succeeded by allowing customers to contact each other directly. eBay tried to force customers into the model of not communicating with each other, whereas the Chinese one allowed it and as a result completely dominated to the point that eBay pulled out.”

Photograph: Leverate’s Itai Damti at the iFXEXPO in Hong Kong.