The Futu-re is golden
Dissatisfaction with online brokerage services in Hong Kong is leading mainland IT experts to eye the gold mine of outbound investment as they vow to change the game with smooth user experience .
“The Shanghai-Hong Kong Stock Connect is a very good opportunity for us. Suddenly a vast number of mainland investors realize there is a gold mine in the Hong Kong stock market. And once they understand the flexibility of directly trading with a Hong Kong account, many would skip the Stock Connect, especially given the convenient online trading platforms we provide,” Li Hua, founder and chairman of Futu Securities International (Hong Kong) Ltd, told China Daily.
Futu Securities was founded in April 2012 and became a participant in the Stock Exchange of Hong Kong the same year. Then in August 2014, it became the real-time data information vendor of HKEx Information Services Ltd, one among 187 worldwide.
Unlike a traditional brokerage, Futu’s services are entirely Web-based, available on personal computers and various mobile devices such as tablets and smartphones, and across multiple platforms including Windows, MAC, Android and iOS.
Through its app or desktop software, investors can monitor market movements of Hong Kong, the mainland and US-listed stocks. Thanks to its face-to-face certification process, as required by the Securities and Futures Commission (SFC), mainland investors are able to open Hong Kong equity accounts without having to visit the city.
So far Futu has accumulated over 500,000 registered users, of whom more than 50,000 have carried out certification. So far, 500 mainland locations have been qualified to provide such services. Even though it is a Hong Kong broker, the majority of Futu’s user base is still on the mainland.
“Our seed users — mostly our friends and families — are mainland-based, and we believe in word-of-mouth marketing instead of mass-market advertising,” Li said. “That’s a more accurate way to reach out to our target customers — every equity investor has several friends trading stocks. They will recommend us because our tool is always a bit better than the others. In fact 65 percent of our users come via recommendation. This is also an authentic way to conduct online business.”
Li, the 38-year-old founder of Futu Securities, was the 18th member to join Tencent’s startup team and was general manager of the Internet giant’s innovation center until 2008. Stunned by how backward online brokerage services appeared to be in Hong Kong, and being aware of mainland investors’ overwhelming demand for overseas asset allocation, Li decided to build up Futu Securities with his cyber experience and IT know-how.
“The biggest difference between this company and other brokers is the Internet gene we have. Our online tool is our key strength. Most Hong Kong brokers don’t optimize their online platforms because of cost concerns. But we always place user experience before profit,” Li said.
“For example, one time a color-blind client complained that he could not read candlestick charts with both red and green bars in solid format. In response, we changed the bars to solid and hollow formats. The chances of encountering such a case is probably just one in a million. But that’s how much we care,” he said.
This June, Futu Securities raised $60 million in Series B fundraising from Tencent, as well as venture capital firms Matrix Partners China and Sequoia Capital. This followed the $10 million investment in Series A in March 2014 by the same group of investors.
“This business is not burning cash,” Li said. “But the investment helps keep our liquidity flowing, so that both clients and the SFC feel comfortable with us.”
Li revealed that after setting aside enough cash to meet regulatory requirements, the next step is to add capacity and keep expanding.
“We are probably the only broker in Hong Kong whose server didn’t die during the market height and turmoil earlier this year,” he said, adding that in June, the brokerage’s monthly turnover exceeded HK$20 billion. “But as the business grows, we need to strengthen and extend the initial structure to be prepared for an even larger scale of trade flows.”
In May last year, Futu Securities adopted Tencent’s cloud computing service, which allows automatic extension toward extra server capacity in case of sudden spikes in trade volume.
“The financial industry requires a stable and reliable system, something in which we are very experienced. Just imagine how much information Tencent handles every day. It’s way bigger than the daily trading flow of the Hong Kong stock market.”
Meanwhile Futu also aims to provide a “closed-loop” experience to investors, by developing and connecting all the systems themselves — from trading to clearing and customer information management.
“It takes a traditional brokerage at least several days to open an account for a new client, because internally their systems are not connected and backstage information is still passed by hand,” Li said.
“With the ability to develop and maintain our own systems, we can connect all the backstage platforms and have the flexibility to offer treatments like waiving trading fees on the client’s birthday, which a traditional broker wouldn’t be able or care to do. Once that is achieved, the barrier of our business would be pretty high.”
Futu Securities claims an edge over traditional brokerages in that its services are mainly Web-based and for its efforts at bespoke client handling.