FX brokers have the expertise to emulate the London Fintechs and take their clients
FX brokerages can get out of the doldrums and blow the $5 million fintechs into the weeds. In doing so they can lower their risk and up their client caliber. Here is how
In western countries, we live in a post-lockdown world. Especially in England, where ‘lockdown’ was a subservience to global pressure and was really only a lockdown in name, as the pragmatic and business-orientated British carried on with what they are good at – working hard and developing the next generation of innovations which will shape life ahead.
From the Victorian era until today, Britain has been the brains of the world, never faltering even under adversities such as wars, depressions or illnesses – working to design pretty much every modern appliance used in every walk of life today.
The British workforce, therefore, has adapted to using working from home as a de facto method now, but most of the nation has forged ahead where others have capitulated and bound their populations in a gag and locked them up at home, losing their liberties and livelihoods.
For this reason, it should be down to the British fintech sector to come up with quick solutions which can be rolled out to the world to move the all of a sudden obsolete old world toward the new way of getting through draconian government rules and having to adapt to a new life.
Today, London-based Currensea has gone head to head with some of the challenger banks – themselves in many cases having demonstrated that they do not have the capitalization to woo people away from the traditional banks – by launching a debit card enables small businesses to make international transactions through their existing bank account without any bank charges and with low fees competitive with leading challenger banks.
What has this got to do with FX trading, I hear you ask?
The answer is, a huge amount.
Brokers for many years have been stuck with a very inflexible off the shelf platform which allows them to only go after the small ticket leads that have been recirculated around so many brokerages to the point at which they no longer answer the phone, and most of which are either novices or have been acquired by the old method of lead marketing which is very much an ineffective method and full of pitfalls.
This is not a lead marketing business – its an empowerment business via electronic platforms giving retail traders access to global markets. It is a business which strives to better the institutional world by offering multi asset trading to the global masses, for a fraction of the cost and instant execution.
The day many smaller to medium sized brokers begin to realize this distinction will be the day they begin to thrive, and will no longer be struggling to find differentiation between themselves and 1200 identical rivals, looking for the same inexperienced clients in third tier countries which cost more to acquire than they pay in trading commissions.
One way is to rival companies such as Currensea. This particular Currensea is not the old ill-fated social trading firm Currensee, it is a different, new entity that has had no problem at all in raising venture capital to the tune of several million pounds. When did a broker manage to get anyone to invest in its zero-sum, intellectual property-free business?
The new Mastercard, which costs just £5 a month, offers 16 interbank currencies, including the South African Rand and Thai Baht, which no other UK provider currently offers fee-free.
Founded in 2018 by former JP Morgan and Barclays employees, Currensea’s consumer card has been used in over 120 countries since its launch in January. It offers the same benefits as the frictionless, cheap transactions as the SME service launching today.
Co-founder James Lynn recognises the competition from the likes of Monzo and Starling Bank among millennials, but the over-34s, who make 73 per cent of trips abroad, are the least served in the space.
The card looks to remedy issues felt by struggling small to medium businesses that now feel the pinch with bank charges when doing business internationally.
Deliverable FX is something that many firms have steered clear of – however it should not be taken lightly. A few years ago, Pepperstone founder Owen Kerr highlighted to the entire industry that an Australian deliverable FX firm had sold for over $400 million, and he was then sneered at by FX industry pundits for looking at a deliverable FX firm as though we can value FX brokerages at high levels. He was written off as an IPO attention seeker, a criticism which was totally unjustifed.
Now, Pepperstone is one of the largest and most profitable FX firms with a very good reputation. Such insight should not be ridiculed.
Some four years ago, FinanceFeeds spoke to Sucden Financial in London, a long established institutional liquidity provider to FX brokerages about deliverable FX, which the company does offer.
At the time, Sucden Financial told FinanceFeeds “Sucden Financial is well established in FX and has supplied deliverable/physical foreign exchange for over 30 years. Our clients include money service businesses (MSBs)/commercial FX providers, who in turn deal with companies and individuals wishing to exchange foreign currency.”
“The market has historically been dominated by a small number of large banks. We identified a gap and over the last few years have increased our efforts to capture a greater market share. Sucden Financial is not a bank and does not compete with retail providers. The technological advances of fintech payment providers mean we are a strong fit to assist with these firms, especially in their initial growth stages.”
Quite right. Now the fintech payment providers are the ones with the solutions, and I do not mean the donkey jacket-wearing, gum chewing, thick-accented Israelis who purport to offer payment services to brokers. They are not real payment providers, but money launderers with no technology who get dodgy brokers around proper merchant services regulations, and carry huge risk for client and broker funds due to using third rate bank accounts in unregulated regions of the world with no recourse if something goes wrong.
Brokers should be emulating companies such as Currensea and getting in on the swap business in commercial FX settlements.
CannyFX, run by John Webb, a longstanding FX industry executive, is an example of a company going in exactly that direction. To use CannyFX, a brokerage does not even need to invest in anything as Canny FX provides exactly this facility to use your FX brokerage to access the corporate settlement market, which is a huge, multi billion dollar currency business with no risk.
In April this year, FinanceFeeds was engaged in conversation with many FX industry executives on this matter. At that time, from an institutional perspective, Hormoz Amir Faryar came into the conversation.
Hormoz is Group Global Head of Institutional Sales at FX brokerage Equiti. “This is thought provoking. So we the have cash-rich / profit-rich financial segment (FX/CFD brokers) in an environment where the overall market outlook (in 2-3 years) looks bad. The challenger banks will be touched by the massive bailout money spraying around, by becoming take-over targets of major banks. So we will have inflation in valuations. Essentially one needs to merge a challenger bank with an FX retail broker and sell it off to a bailed-out bank” he said.
Either that or go the straight forward route and use the extensive trading and tech expertise gained in the FX brokerage business to go straight out and rival the new boys who are half our age and use trendy language in their company descriptions, and blow them into the weeds whilst empowering the FX industry by doing what it should be doing best – trade currency, and settle deals internationally.