The lack of value proposition and creeping obsolescence among some smaller retail firms would be completely revolutionized if the retail FX industry emulated Uber, Netflix and Aibnb. We take a very good look into how this can happen
Multi-product wealth management, democratized prime brokerage and high tech execution are three tenets which have been priorities for many retail FX firms during recent months, and indeed these are very avantgarde ideologies which should punctuate the entire retail sector.
One of the most important evolutionary considerations that has to be accepted is that in no way, shape or form is the retail FX sector similar in structure or operational dynamics to the commercial and institutional sector.
The non-bank retail FX brokerages that provide their services, often via off the shelf trading systems such as MetaTrader 4 and MetaTrader 5, are sales, conversion and marketing led, and are often based in regions in which that methodology has formed the entire corporate landscape, such as Cyprus, or particular regions in the Middle East.
The talent base and commercial strategy of this sector focus on acquiring leads via marketing channels and converting them, and expensive and these days somewhat ineffective business.
Whilst the three aforementioned tenets are most certainly on the minds of some of the larger retail FX firms, implementation has been notable by its absence in many cases, which denotes a vast dichotomy between the commercial background of both sectors.
The electronic trading business, especially on the non-bank side, is one of the most leading edge development grounds for the future structure of the financial services industry, led by large OTC prime of prime brokerages and their respective technology providers, along with some of the large British, American and Australian retail firms that have their own proprietary trading environment.
In many cases, the status quo of being reliant on a very ubiquitous third party platform that is in use by almost 1240 almost identical online brokerages whilst continually trawling the same lead generation sources in order to make sales calls to convert them is very much a continual modus operandi, however, in order for the smaller brokerages to progress and keep pace with what will likely make their businesses more efficient, they will need to take a very different line, and in doing so, embrace the realization that the retail sector is very different to the institutional businesses from where it derives its liquidity and technology.
Where interbank dealers and non-bank institutions are bastions of long-standing and polished commercial conservatism as well as being leaders in the development of infrastructure and technology, a polished, suit-wearing City-based global powerhouse of knowledge and professionalism, the smaller retail sector should now make the most of what the institutional world can offer it on an outsourced basis, whether that be liquidity or technology, and then take their businesses in the direction of the new age app-based consumer world.
After all, the institutional sector is a giant business to business establishment, whereas the smaller retail brokerages are very much part of the consumer world, hence their evolution should be in the direction of the consumer services in other parts of cyberspace, whether that be online marketplaces, on-demand television, taxi services or apartment rental services.
Those four services particularly, have elevated their market reach from being very small and limited regional advertisements and small catchment areas, to become the largest and most valuable internet-based entities in the world.
Amazon, Netflix, Uber and Airbnb now dominate the way of lives of many millions of people globally. There is no reason why retail FX cannot do the same, and then behind its customer experience-led backdrop, connect itself to the prime of primes and technology vendors as normal, so that on one end you have the market connectivity that the industry professionals understand, and on the customer facing end, you have trendiness, modernity, and over all, a familiar appeal that takes it away from a sales and deposit model, to an integral part of the every day lives of everyone, everywhere.
All services, from payment processing, through to receiving video news from FX brokerage market analysts, to charting and analytics can be integrated into a similar model to that used by Uber, Netflix et al, and can aggregate services from all providers, that would work with all brokerages from a single marketplace.
Companies providing services to the intellectual property-neutral giants are already citing the FX business as a future growth area for them, including payment processor Adyen, whose Senior Vice President of Strategy Luke Salinas is a very well known FinTech advocate, joining the company from Uber in 2013 where he held a senior position in the company’s payments and fraud division.
Based in Amsterdam, Adyen is one of Europe’s largest unicorns, valued at about $2.3 billion. It was awarded a pan-European banking charter by Dutch Central Bank on behalf of the European Central Bank back in April. The company made an official announcement about the license in June.
“We aren’t looking to become a bank; our focus here too remains on payments and empowering merchants. The banking license lets us do that through getting around reconciliation, settlements, and other processes. It allows us to initiate cross-border transactions instantly,” explained Mr Salinas.
Adyen provides payment solutions to NetFlix and Uber, and is now very much involved in compliance, settlements and installments, and very much has FX in its list of priorities.
This goes congruent to a recent discussion between FinanceFeeds and Jennifer Hansen, Saxo Bank’s Global Head of Institutional Business at a private venue in Hong Kong at which a series of Chinese portfolio managers and hedge fund investors were present.
“As we are very active participants in FinTech, where are we going? If you think about it, FinTech as a concept centered on how to approach the market is really only around 5 years old. The electronification of markets has been going on for a longtime but the idea of FinTech as a way to build financial institutions is quite new.” – Jennifer Hansen, Global Head of Institutional Business, Saxo Bank
“User experience is the product that is being sold these days” said Ms. Hansen, “and therefore financial services products must be sold in a way that suits our digital habits. Google, Apple, Facebook, Amazon, Alibaba all took this lead in the consumer market place, and therefore we can tell that experience in one industry seems to affect experience in other industries and this was a wake up call for the financial industry which took everyone by surprise. We have seen evidence of this type of movement in the robo advisory and payments sectors, and new entrants into those two areas took traditional banks by surprise with regard to how quickly they could garner clients” she said.
“Banks handled the arrival of new, more advanced and adaptable participants badly, and lots of ‘us vs them’ provocative headlines adorned the newspapers, asking whether traditional banking had become obsolete and whether modern, FinTech-led companies would take over.” she said.
“Nowadays, our sales team works alongside the execution team to form part of a solution that has been visualized and take it to fruition” she said.
“This is vital when providing entire solutions to partners that are comfortable with a multi-year iteration”, Ms. Hansen pointing toward the necessity to be able to future-proof the entire trading system ‘on the fly’ by being adaptable and providing multi-product environments with adaptable integration solutions to keep the commercial customer involved regardless of changes.
That is a very good example of a firm that genuinely understands the direction that needs to be taken on the retail side of its business.
As automation begins to become far more adaptable and is more conducive to use in the financial sector, less dependence on regional sales teams is needed, and the human element can take place from the consumer side.
Last year, CBOE LIVEVOL, the data and market information division of Chicago Board Options Exchange (CBOE) launched an Amazon-style market data portal which has brought the use of institutional market data from Chicago’s largest venue and technology providers and derivatives marketplaces into the hands of the retail trader.
The clever thing here is that not only is the trader able to be empowered by using CBOE data, a method which previously would have been out of reach as Bloomberg Terminal, Thomson Reuters Eikon and other institutional services have very high subscription fees, but importantly, big data can be collected that can help CBOE fine tune its service and engage users for longer periods of time. Despite this, however, the retail sector did not follow suit.
When looking at the reach, it is important to consider that 51 percent of iPhone owners upgrade to a new model as soon as their provider allows it (usually every two years) compared to 47 percent who would wait until their existing iPhone becomes obsolete.
40 percent of Android users would exchange their old handset for a new one every two years while 58 percent would wait until their existing model stops working.
Bearing in mind the length of development time to create new platforms in which the settings can be saved on a server, and the resultant cost of maintaining pace with this rate of turnover in handheld devices, it is not only more cost effective, but retains a wider audience to go down the device-neutral route.
As in apps such as Uber, Netflix and Airbnb, firms with gigantic, dominating reach and user bases, retail FX could aggregate all services from all brokerages and empower the user, which ultimately is where the future revenues for the retail sector lie.