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FX companies looking to expand have often either purchased rival firms, or organically increased their standing, however, highly experienced venture capital funds are now beginning to look closely at the FX industry and all of its sub-sectors, with a particular interest in the leading edge technology that online trading business not only rely on, but innovate.
Today, in Tel Aviv, Israel, the world’s second most populous technology start-up hub after Silicon Valley, California, the IVC Research Center, an organization which works in conjunction with high technology firms and venture capital partners, held a seminar in which venture capital investors, commercial lawyers specializing in the establishment and growth of FX firms, met with some of Israel’s most senior industry figures to discuss the current commercial aspects of the industry.
The seminar, which focused on challenges, opportunities, innovations and trends in the online financial trading industry began this morning with an opening speech by LeapRate senior executive Andrew Saks-McLeod, who highlighted the shift from last year’s merger & acquisition activity which dominated the boardrooms of the world’s largest FX firms, toward this year’s counter position in which firms began to view independence as a virtue.
Particularly, Mr. Saks-McLeod highlighted that just a few months ago it was quite apparent to many industry figures that the merger and acquisition activity of last year would perhaps accelerate post January 15, as firms exposed to negative client balances as a result of the Swiss National Bank’s removal of the 1.20 peg on the EURCHF pair, however this did not happen. Indeed the opposite was the case, with the large companies either selling non-core assets in order to remain independent, or strengthening capital by issuing shares.
Mr. Saks-McLeod continued by explaining that whilst last year was a year of substantial consolidation among firms, especially in North America, this year is a period of technological advancement, which ranges from the eschewing of legacy website designs to new designs which contain critical information only, and are more focused on high resolution dynamic images, in a rather similar form to the websites of management consultancy firms, software companies and venture capital companies.
The website of an FX firm is effectively its reception desk, therefore critical for client acquisition, a critical part of the business which is becoming increasingly expensive. Mr. Saks-McLeod looked closely at new technologies which are being launched to engage clients through new media, such as Saxo Bank’s new SaxoStrats system which streams live videos through Twitter to mobile devices.
In conclusion, Mr. Saks-McLeod mentioned that all companies are becoming increasingly aware that they must use interactive methods of engaging clients, and that only one company, Israel’s most profitable internet company Plus500 Ltd (LON:PLUS), has been able to operate a pure digital marketing model with no sales team and produce $82 million in revenues in the first three months of this year, onboard 33,000 new clients, and actually reduce acquisition costs. For all other firms, it’s a case of innovation via interactive means.
The IVC Research Center asked at the initial stages of the seminar: Is there more to it than meets the eye? The answer is clearly yes.
Mid-morning, specialist commercial law firm Barnea & Co, looked at regulatory issues, and introduced the first panel with an initial address regarding the regulatory position for companies in Israel, highlighting the need for firms to obtain the newly approved regulatory licensing, and the potential end of the road for unlicensed firms in the Jewish State.
This address by Barnea & Co set the form for the first panel discussion of the day, which expanded on the subject of regulation, Brian McDonnell, an Oxford University educated lawyer and Partner at British law firm Addleshaw Goddard looked at the regulatory changes that are likely to affect firms offering binary options in the UK. Mr. McDonnell stated that currently, whilst the Financial Conduct Authority (FCA) is a well renowned regulator for the FX industry and other non-bank financial services businesses, binary options in Britain are currently overseen by the gambling regulator.
Mr. McDonnell stated that the FCA is about to take on the regulation and oversight of the binary options firms, stating that “the regulation of binary options by the FCA in the future is a done deal.”
Technology was the next matter for discussion, and a highly edifying and detailed presentation by the eloquent and knowledgeable Meidad Sharon, VP Sales at SafeCharge International Group Ltd (LON:SCH), one of the world’s most technologically advanced payment solutions providers, an Israeli company which raised $126 million when it became publicly listed on the London Stock Exchange Alternative Investment Market in March last year.
Mr. Sharon pointed out the need for FX firms to take into account region specific purchasing cultures, including the caution required not to place too much emphasis on credit card deposits when working with an international potential client base. Quite accurately indeed, Mr. Sharon stated that in Israel or the United States, Visa and Mastercard are dominant, whereas in certain areas of mainland Europe such as Germany, other payment methods account for much more of the market share, and credit cards issued by the two large merchant services firms only account for 40% of potential methods of deposit.
For this reason, SafeCharge provides a multi-faceted means of allowing clients to deposit, a particularly interesting aspect of which was demonstrated by Mr. Sharon, relating to a client acquisition method that could save brokerages a substantial amount of money.
Mr. Sharon said “If a client is already on the deposit page, and the payment is declined by the issuer because of lack of funds, do you send an error that there was not enough funds and then wait for that client to come back to the site when he has funds? No!”
“Instead, it is better to offer other methods of payment, for example, to bring up an option box showing that a lower amount could be deposited, or a different method used.”
With client acquisition costs at approximately $1,000 per new acquisition, this is a very effective feature, as the client is already at the electronic point of sale, is going to deposit, therefore the most must be made of these opportunities.
Mr. Sharon explained, with a highly detailed presentation, how worldwide criteria for acceptances and declines of payments is calculated, and how to maximize acquisitions.
The discussion moved on to technological innovations, where four founders of some of Israel’s most world renowned firms looked at the need, the value proposition and the future, as well as what type of investors are the active players, and what types of companies are they looking at for potential investment.
Steven Stern, Business Development Executive at SpotOption was joined by Illit Geller, CEO of TradAir, Doron Cohen, Chairman of Leverate, and Yoni Assia, CEO and Founder of eToro.
The four senior executives debated the difference between the industry three years ago to the requirements of today, and how to attract high quality investment.
Mr. Assia stated that venture capital companies are not keen to invest in FX firms, as the risk is high, whilst Ms. Geller stated that, whilst her firm operates in the institutional sector, the entire FX industry has been subject to reluctance by licensing authorities and banks to accept business, hindering investment from large firms.
When approached by the moderator regarding the recent $12 million in additional funding which was provided to eToro by CommerzVentures, added to the $27 million raised late last year from Sberbank and Ping An as well as existing eToro investors Spark Capital and BRM, Mr. Assia stated that the only reason that eToro has been so attractive to venture capital firms of this level is that it is doing something totally different to other companies in this sector.
The social network which is provided generates vast revenues whilst ensuring that there is no conflict of interest between client and salesmen, as traders join together in order to trade together, aligning interests, thus proving a highly successful model for eToro.
The event drew to a close with a networking lunch, attended by some of Israel’s largest firms being able to engage with the investors at the seminar, before concluding in the early afternoon.
Photographs – Large picture: Dr Omar Zerafa LL.D, Zerafa Associates; Brian McDonnell, Partner, Addleshaw Goddard; Micky Barnea, Barnea & Co.; Simon Jaffa, Barnea & Co,; Meidad Sharon, VP Sales, SafeCharge. Top Right, LeapRate’s Andrew Saks-McLeod; Center Left: SafeCharge VP of Sales Meidad Sharon; Lower Right: Discussion panel featuring Steven Stern of SpotOption, Illit Geller of TradAir, Doron Cohen of Leverate and Yoni Assia of eToro.