China has rapidly become one of the “must go to” markets for many brokers in our industry. From being a great blue ocean market for the first moving brokers 8-10 years ago, it’s become a fiercely competitive space with foreign and domestic actors fighting for market share, yet despite this we still see new players entering the market every day.
So is the Chinese market still attractive to enter? What does it take to succeed there, and what should be expected? There is obviously no clear answer to these questions, but I’ll share some of my experiences and opinions on the market over the next few weeks in this blog.
At the core of everything is trust – or lack thereof. The Chinese market is overall still an immature market, where the bulk share of end-clients trade with little previous experience, and as a result you hear many examples of brokers, foreign and domestic, who take advantage of this fact with aggressive tactics and the clients ending up as the loser. This has emphasized an already strong mistrust towards foreign financial institutions, and the misdealings of certain actors has unfortunately hurt the entire industry’s credibility.
The issue of trust is clearly seen in the prominence of IBs, Introducing Brokers, Affiliates, Referral agents, or whatever label is put on them, but basically individuals or companies that refer clients to brokers in exchange for a fixed fee or revenue split. Where the Chinese traders have a profound skepticism towards brokers, they have a closer connection to IBs, be that a local financial education provider, an asset manager, or similar, where the IB’s broker recommendation is usually followed. Brokers have been able to generate success in China without working with IBs, but typically at a significantly higher marketing expense.
The Bare Minimum
For a market as large and diverse as the Chinese, it is obviously naive to generalize, but there are certain factors that I believe are absolutely crucial before ever considering entering the market.
That said, I’m sure there are exceptions, but typically, the weaker the Chinese offering the stronger the brand and marketing need to be to make up for it.
China UnionPay is the most widespread payment method in China, and being able to process payments through UnionPay is critical for success there. Granted, certain brokers have been able to make do with Credit Cards and bank wires in the past, but at this point nearly every broker operating in China has UnionPay solutions, so this is becoming one of the most important boxes to tick.
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As more and more brokers have started offering UnionPay, the solutions have also improved accordingly, and the clients are now demanding instant deposits (automatically credited to the account post transaction) and also same-day processing of withdrawals.
I’ve heard brokers argue that they first needed to build up the Chinese client base before building up their Chinese language support. I think that’s a big mistake. The modern Chinese consumer increasingly expects high levels of service from every producer/provider with whom they engage. When you can order everything from sushi to washing machines on Taobao (China’s e-bay) and have it delivered on the same day, there is no way you can accept a 24-hour processing time on queries to the broker, or even worse, replies in English.
Some clients and IBs will test out the broker’s customer service before signing up, and those precious referrals will only come on the back of solid service experiences. So even though the client base may be small; prioritize the service.
Marketing, or lead generation, in FX is becoming increasingly challenging, and China is no different. There is a very small concentration of the popular media sites that have retail traffic, and here the bargaining power lies completely with them. Lead prices have risen considerably over the past years, and now rival the traditional established media markets. It is virtually impossible to get the media sites to agree to anything but a fixed fee for a banner placement, rather than CPL or CPA deals – so the risk of non-performing marketing lies squarely with the broker.
Offline marketing approaches also pose challenges. Where seminars used to be a popular way of attracting new IBs and traders, we now see less quality attendees, in some cases attendees are lured in by lucky draws or other gifts and have no real interest in the content of the seminar. A similar trend is seen in the expos that are creeping up everywhere – very few, if any, hold any real value and the quality of the attendees is usually very low.
So in my experience, having a local and experienced marketing executive to run the marketing strategy is an important investment, otherwise there are many ways to mismanage a marketing budget of any size.
I’ll go a little deeper into the topic of the Introducing Broker – who they are and how you work with them.