WeChat owner injects massive power into new region for FX!
The exact method that worked for so many brokers in China may now be the route to South America, which until now has been an FX desert.
Over the past ten years, retail FX brokerages have been metaphorically clambering over each other in order to establish successful business in what had been considered for at least a decade as the ‘golden goose’ of the retail sector, the vast and well organized introducing broker and partner networks in mainland China.
A number of efficiently run FX brokerages from Britain, Cyprus, the United States and Australia have managed to do far more than carve out a living in the People’s Republic, streamlining their operations tremendously toward the powerful method of operating which involves long term strategy with portfolio managers that are larger than the brokers themselves, which process orders on behalf of their clients via MAM accounts and automated trading systems to the tune of over 90,000 lots per month.
These networks are vast and span the length and breadth of the nation, and for the leading firms that had managed to become the preferred supplier of such entities, revenues in some cases totaled half a billion dollars per month.
Such staggering figures combined with the unitary, integrated way that business so seamlessly operates in China has led to a reliance on these networks, which, unfortunately and inevitably, has come to an end recently, partly due to the Communist party’s clampdown, bringing the electronic trading business in line with all other industry sectors in China, in that crossing borders into the free market is not allowed, and also at the hands of Western regulators such as ASIC, which has now decimated that particular revenue channel by ordering its licensees to keep within the borders of the land down under.
So, what is next?
Well, it is very hard indeed for anyone of any capacity to imagine the ability to replicate the Chinese wave of ingenuity and size of business, however if we can consider how this was made possible, it may be transferable in some respects to other regions, especially those previously untapped by FX traders or brokerages.
In China, networks and relationships between client and introducing broker, and portfolio manager and dealer, and dealer and broker to which business was being referred is conducted via fully integrated messaging systems, namely Tencent’s WeChat system.
WeChat is the default method of communication all across China in every walk of life, from arranging school playdates to conducting multi billion dollar M&A deals.
Email is pretty much non existent, and the government stake in Tencent, and control over its distribution and content (all media companies are subject to government intervention in China) means that it is seamlessly connected to every business, individual and every platform of every kind in the whole of China, making it very easy to operate groups and maintain business relationships on a real time basis.
No other system in the world has been this effective in generating business in such a modular manner.
With China now off the table, brokerages need to look toward other streams of revenue, and there is no way that the Chinese powerhouse with its massive, automatically executed trading volumes and super efficient IB partnerships can be replicated in old fashioned and financially burdened Europe, or in the sparsely populated and non-digital Middle East, or in analog Africa.
The very tenuous light at the end of the tunnel is, believe it or not, beginning to emerge in South America.
Yes, South America is an entire continent fraught with anti-business vitriol, government corruption, brutal dictatorships, industrial barrenness and a siesta-orientated non-productive lifestyle, which puts it at complete odds with super efficient, ultra modern and highly educated China, however China is a communist country, and a strict one at that, and yet business managed to thrive.
Thus, if approached properly, and with the right non-South American tools, it may well be a good ground.
What if those non-South American tools were Chinese?
TenCent is now conducting its very first international investment mobile banking technology, which is exactly what led its WeChat system to being integrated into payments, transfers, and an integral part of our industry in China, linking the very easily reached groups of traders and introducers to fully integrated payment systems that are super reliable, and a fully manageable set of tools to contact and manage networks.
The nation in which this is taking place is Argentina, a country which, along with many of its neighbors, is distrusted by its own population, has a dreadful history of inflationary currency and failing markets, a corrupt government ever since the days of Juan Peron, and absolutely no local financial infrastructure at all.
It also has an educated and willing population who would likely welcome a properly run international solution for investment and trading, especially if it is operated by a Chinese giant and backed by well known business figures.
After all, Argentina’s population did not take kindly to former president Cristina Kerschner’s capital control rulings which insisted that US dollars were brought back into the country by people holding overseas bank accounts and then outlawed, or replaced with an absurd credit note, issued by the central bank, which was worthless.
Tencent has joined George Soros and Point72 Ventures as investors in the new venture which is called Uala, and provides users with a prepaid card and app that can be used to transfer money, top up mobile phone credit, and get insights into spending.
The firm has issued more than 500,000 cards in little over a year and tells Bloomberg that it plans to start lending through the app in 2019. In October, Tencent invested $180 million in Brazilian neobank Nubank, demonstrating its continental expansion aspirations.
FinanceFeeds has been to South America a few times in order to investigate its potential, and has until now found absolutely no potential at all for our industry, however what was clear during such research is that IBs and educated investors have nowhere to go, hence this is a welcome tool for brokers in the West to be able to onboard and manage massive networks.
The obstacles that exist currently are capital control laws, making deposit and withdrawal to and from Western brokers very difficult, a corrupt government and unreliable banks which can (and regularly do) steal foreign money from banks, many of which are owned and controlled by the government, and a long history of Bolivarian socialism which places the influential families in untouchable positions and continually plunders the working people.
Dissent is not welcome, which means that nobody says anything against the current system, and nobody is willing to attempt to circumvent it from within as the consequences are usually very severe indeed.
It is unlikely, however, that any South American government or banking entity will attempt to prevent Tencent, as it is better organized, better funded and stronger than most of the local governments themselves.
It also has better infrastructure and will implement its own channels for everything from payment services to CRM management, plus of course Tencent owns its own internet infrastructure which is integral to the Chinese government’s huge system which is the most sophisticated in the world.
In terms of IBs, there are some good quality examples and FinanceFeeds met with one particular firm in 2015 in Lima, Peru.
Its owner, Luis Urquiza is an eloquent, multi-lingual professional whose professional background extends to the investment banking industry, having spent two years at BBVA Banco Continental in Lima, through academia, as he was an Associate Professor Faculty of Economics until July 2013 following a litany of formal qualifications, and a passion for classical music.
Mr Urquiza agreed that diversification applies these days in retail electronic trading, as many firms are increasing their asset class range across many instruments, not just spot For example, at that time Bullion Capital’s MetalDesk platform was beginning to be offered to retail clients via Financial FX, which was slated to be a boon to investors in nations such as Argentina or Venezuela, where local assets and currency are inflationary and less reliable than fixed commodities that can be either traded online or delivered physically.
This is one example of an introducer that western brokers would work with seamlessly via such a mobile platform.
In Tencent’s homeland, FinanceFeeds spoke in Guangzhou at a panel alongside a senior executive from WeChat, who detailed the importance of it as a central pillar of our industry.
WeChat has become a vital tool in use among all introducing brokers. FinanceFeeds has met with introducing brokers across the country which have portfolios of over $250 million onder management, all of whom use WeChat as the main source of media as well as connection with their customers.
That particular discussion highlighted that introducing brokers are reliant on developing massive WeChat networks, regardless of size or amount of assets under management.
This, in itself is another indicator that having presence in China in terms of full operational capacity was the only way ahead. No longer are there any more dialogues about Western firms buying institutional providers in China as had been the case last year. Instead, Western brokerages were focusing on increasingly basing their operations in Mainland China, which was absolutely evident in the retail companies here at that particular conference.
So, who is for an entry into Latin America, an untouched area, backed by a proven successful platform for conducting the entire business, and a set of willing IBs with no alternative until now? Let’s go!
Featured image: Iguasu Falls, Argentina/Chile border, where my father spent his childhood.