Doing business in the EU has become a true red ocean for Forex brokerages. Competition is fierce, banks and PSPs are choking the industry, regulation is getting much stricter and disposable incomes of potential investors are stagnating. With this increasingly difficult market in the West, many brokerages are looking East as a way to expand their growth opportunities. Large brokerages have already made large capital investments to geographically expand in China and APAC and other smaller players are following suit.
If you still haven’t thought of expanding to the Far East, it should definitely be on the list of things to consider in 2020. Countries across South-East Asia are experiencing a fast-growing Fintech adoption, which paired with their increasing wealth, make the region an outstanding market to evolve into.
WHAT DOES EXPANDING TO ASIA REALLY MEAN?
Depending on the definition, the APAC region consists of 17 entities worth exploring when thinking of geo-expansion, each one with different characteristics to address. South Korea for example, has one of the highest mobile usage rates in the region, and a $1.4 billion retail FX volume. Japan, although heavily regulated, has one of the highest retail FX volumes in the region, at US$144 billion. China has an unprecedented growth in GDP, which allows the average household to have disposable income to invest. Indonesia, Malaysia, Taiwan and the Philippines also have a growing GDP and seem promising as great FX hubs. As bright as the future seems in Asia however, growing in the region goes well beyond translating your marketing materials and duplicating your western business model. To expand in Asia, you need to think different. Asia is a whole new ball game when it comes to culture, language, technology and the general way of doing business. In the Far East, you need to be localized in order to succeed. So what are the specific challenges brokers typically face when expanding into APAC?
“Understanding the importance of personal relationships while conducting business in Asia is crucial” says Yonglong Wu, APAC Sales Manager at Leverate, a leading technology and brokerage services provider. “Trust is a determining factor in deciding which company someone does business with, and personal recommendations have a big impact on decision making. For this very reason, IBs rule when it comes to customer acquisition in the FX industry”. According to Mr. Wu, the success and failure of your brokerage can be solely determined by how well your company treats IBs. “IBs in Asia work as money managers of the wealth in their sphere of influence, generating organic traffic for Forex brokerages. In China alone, there are over 80,000 IBs of different sizes, and engaging with them correctly while providing tools to help them manage their clients is of utmost importance. When establishing your brokerage, we recommend having a competitive rebate scale – typically between 0.6 and 0.9 pips, establishing a dedicated IB desk, and providing systems to help them track their clients’ transactions”.
PSPS AND LIQUIDITY PROVIDERS
You may have been using the same payment processor and LPs for years with no issue. But no matter how reliable they are, if you’re entering the East Asian market you’re going to need someone else. In Asia, payments are processed by local providers in 17 different territories, and your trusted PSP will almost definitely have issues getting your money in and out of the country. Our best advice is to pair up with a services provider that specializes in the region and understands the local regulations. “A complete solution provider can connect you to the best local PSPs, and the relevant liquidity providers”, says Mr. Wu.
HOSTING AND EXECUTION
This is where a lack of understanding of local technology can cost you a fortune. First of all, East Asia is far from Europe, where most data centers are located. This geographical distance causes the transfer of data to be much slower. In China, there is an additional barrier: “The Great Firewall of China” causes an inconsistent connection quality and high latency, which compromises performance. Having a local host with specialized data servers for execution is a must, as well as dedicated lines in order to accelerate the transfer of liquidity and price feed from European data centers. In order to address these issues, partnering with a technology provider that understands and has an experience in Asia, can make the difference between success and failure for your brokerage.
Mobile penetration rate in China is somewhere around 62%, and mobile trading accounts for 80% of retail FX trading as a whole. If you don’t have a killer app when entering this market, you are not ready. iOS is more prominent in China, while Android dominates the rest of APAC, so having a native app that is compatible with both operating systems is certainly a worthwhile investment. Compatibility with China’s “Super App” WeChat is undoubtedly a bonus. China is a complicated issue when it comes to distributing your app for Android. As part of the blockage of internet material in the country, anything Google-related is blocked, which means downloading an app from the Google Play Store is not an option. Brokers can offer their apps through local stores, like Baidu, or place the apk file on their website. Another challenge is SMS notifications – while it might be a big hit in the West, getting them distributed in China is not as simple. Distribution through GCM is not possible, so notifications need to be sent via local ISPs or intermediary messengers.
All across Asia, it is recommended that you host your site locally to improve loading times. Given the prominence of mobile use across APAC, designing a mobile friendly website is a must. Here again, China needs to be taken into consideration when building your website. If you are planning to enter the Chinese market, make sure your website is stripped of any Google references and widgets, including analytics. When it comes to ranking your website, you may be accustomed to Google’s ranking algorithm, which ranks websites organically based on the relevance of the content first and foremost. In China, however, Baidu considers ad expenditure first, followed by the site’s loading time, and only then considers the quality of the content when ranking a site.
IN CONCLUSION: DON’T TRY DOING IT ALONE
The growth opportunities in the Far East are immense, but expanding your business to the region using a trial and error method can be an expensive endeavor. Make sure you partner up with a tech provider that has already learned the ropes and can advise you on how to approach the different territories, taking into account the differences and challenges of each. “Leverate’s global experience makes it the perfect partner to help brokers tap into APAC”, says Mr. Wu. “As part of our Go East localization suite we accompany the client in every step of the way – from providing localized trading platforms, IB systems and local hosting, to finding PSPs and LPs, assisting with marketing and HR services, and all the way to on-the-ground services – like finding an office and even getting the right coffee machine”.