I’ve lately had a chance to interview Paul Jeszenszky, OANDA’s Head of Marketing. The interview is even more relevant now that OANDA has relaunched its online marketing efforts.
If you are like me you were always intrigued by this very large broker which doesn’t really advertise much online (until last week) yet is rumored to be one of the largest brokers worldwide. Last week we received a confirmation that OANDA is largest in the US in terms of clients.
In this interview I asked Paul to talk a bit about OANDA’s marketing approach and here’s the result:
To understand OANDA’s historical and current approach to advertising, you need to understand the business philosophy and model that informs everything we do.
OANDA’s business philosophy shares in spirit with the successful internet and technology companies that have come before us—we aim to be market disrupters. To avoid a lengthy monologue on this topic, I’ll summarize by saying that if you build a great product—offered at a far lower cost and made more accessible than anything else on the market—people will try it out and tell their friends about it. As one of the top three non-bank forex dealers globally, OANDA has proven that financial services need not be immune to innovation—to actually transforming the business, not just throwing technology at a problem as a temporary fix. We’ve adapted the approach that worked for Google or Amazon and made it work for forex. We’re the only company that allows any size of trade, from $1 to $10 million, on one platform for all accounts, with the same low spreads and the same quality of execution for everyone on the platform. Like those other innovative companies I mentioned, we are the great leveler—everyone has the same access to the same product with no discrimination. Also, like those companies, more than 50% of OANDA’s staff are engineers, not sales or marketing people. This makes us an anomaly in the forex industry.
A core component of the OANDA fxTrade business model is to make money solely from our spreads. Thanks to the diversity of our traders and their strategies, about 70% of our client trades net out naturally. The remaining 30% are hedged out with our many banking partners. It helps tremendously that our business model has helped us build up a huge pool of our own liquidity and that we have great relationships with our major banking partners.
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The reason why our business model is important to our advertising strategy—and our historic lack of advertising—is that we operate at lower margins than our competitors do. By offering better rates and execution, we increase client satisfaction, and increase our trading volume. So in many ways, our traditional marketing cost has been the money we left on the table by passing on better rates to our clients and giving them a reason to stay with us. And we must be doing something right, because we’re the best-capitalized RFED according to the monthly CFTC audit. If you look at the IPO filings of some of our competitors, you can see they are incurring massive marketing and IB costs that we would consider unsustainable. The money to pay for Formula 1 sponsorships, account balance matching, big cash prizes and the like comes (at least partially) from their spreads, as well as other sources. No matter how their business models work, they must make traders pay for all that expensive advertising somehow.
All this being said, OANDA has reached an inflection point, both in the company’s growth and in its place in a mature retail forex marketplace. It now makes sense for OANDA to start promoting our offerings more aggressively. The industry is crowded but consolidating. There is a huge amount of ‘noise’ that can be hard to cut through. We want to make sure people don’t get overwhelmed by the hype and have the opportunity to see what makes OANDA truly different. A huge benefit for OANDA, based on our research to date, is that we believe clients stay actively trading with us longer than clients do with our competitors. So once we gain a new client, we tend to retain that client. We do not need to acquire and churn through new clients to secure volume.
It is important to note that increased advertising will in no way change our business model. We’re large enough, and our technology is efficient enough, that we can include the cost of advertising as part of our operating expenses while retaining what we believe are market-leading spreads. And like everything at OANDA, our overall marketing strategy and approach will stay different from everyone else’s.
We have already started advertising using paid search (i.e. Google Adwords) and you’ll see us selectively advertising on various leading sites in the forex community. Our ads will ensure the many new products in our technology pipeline are receiving maximum exposure. They will also reveal the fundamental differences in our business approach from everyone else’s. What you will never see from us is splashy, expensive sports sponsorships and similar types of promotions. We’re lucky because the press already sees that we’re a very different kind of company with a very different approach to business, especially in the financial space. Being different always makes for good stories.
One of our main advertising challenges is that we face a crowded market. And our competitors seem to be more than willing to spend unlimited amounts of money on advertising. Despite this large amount of spend, it is also interesting to see how quickly forex dealers copy one another. There is almost no differentiation in messages or advertising tactics. I won’t reveal our larger plans, but I will say we’re going to make it harder for everyone else to copy us than we did in the past. We often see our own messaging being imitated in our competitors’ advertising. A great example would be the book we published in 2005 – The Forex Trader’s Bill of Rights. Competitors have launched entire campaigns promoting “trader’s rights” but have done little to put a line in the sand like we’ve done. In their business actions, they tend to say one thing and do another. We’ve always maintained that 50:1 leverage is sufficient—we won’t benefit from our clients blowing up their accounts by taking extreme risk. Yet with the new CFTC rulings, competitors have suddenly changed their tune. They’re now saying they support 50:1 leverage; meanwhile up until these rulings they were actively moving their U.S. clients to the U.K. to keep offering 200:1. While I’m on the subject, one more beef I have is that our competitors use a surprisingly high amount of legal jargon and asterisks in their advertising. What the heck does “as low as” mean in terms of spreads? How often does anyone actually see these “as low as” spreads? Is it any guarantee that when you place your order it will execute at that rate?
Finally, the topic of Introducing Brokers (IBs) is always interesting. I won’t dive into this too much, but in our history at OANDA, we have seen very few IBs adding real value to clients. Sure, a small minority might add value, but most IBs just cost clients money for no good reason. Forex dealers pass on the cost of paying IBs by marking up spreads for the clients recruited by the IBs. That is a lot easier to do when you don’t offer the same rates to everyone on your platform and you don’t publish the spreads publicly on your website. So this is not an area of business I see OANDA entering into. Adding weight to this argument, regulators are starting to agree there are some dubious practices around the use of IBs as they are clamping down.