Heather McLean
Heather McLean

More tailored and personalised - FX White Labelling completes a startling metamorphosis

White labelled electronic foreign exchange products used to be all about speed to market. One simply had to pick a box, plug it in, and start trading. Now however, there has been something of a revolution in the white labelling market and as Heather McLean reports, it is no longer focused on a one size fits all approach, but on personalisation, customisation, and flexibility.

Luis Sanchez, CEO at BMFN, states that FX can be considered a niche product, and that in today’s financial economic landscape, companies are increasingly seeking new niches and subsequently, new income-driving products. 

“FX is penetrating new markets, especially those considered ‘exotic’,” claims Sanchez.. “The overall size of this growing market and the enormous demand that it currently embodies is allowing new players to enter the market and do well. Today is a good time to make a footprint in the foreign exchange market. At BMFN the number of new white labels coming to us has increased significantly over recent years, proof of the growth in this area.”

Yet this means that for all the new market entrants, a decision must be made on how they are going to approach the area technologically, Sanchez reckons. He says there are two choices: to create and develop a complete trading solution from scratch, with a huge investment and several years to master it needed; or to enter into a white label solution partnership. 

Sanchez comments: “The significant evolution from a few years ago is that a white label and trading solution must adapt to the broker and not vice-versa, like in the past. This must also have a cost efficient formula, and allow the broker to focus on running its business so it can concentrate on what it does best.”

“New brokers prefer to partner with an all-in-one solution provider that gives them liquidity linked to technology, the back office, CRM, front office support, private cabinet for operations, and multiple trading platforms,” notes Sanchez. “BMFN offers a tailor made, customised solution ready to use with flexibility on risk and liquidity management, integrated along with front, middle, and back office. Today it is also a must to offer brokers social trading environments and marketing tools, such as web pages and banners.” 

Meanwhile, James Colinders, head of eFX distribution solutions, at Currenex, comments: “The world of FX white labels has experienced a paradigm shift in the past few years as consumer’s eFX needs have become increasingly sophisticated. The ability to leverage a highly configurable platform, such as Currenex, to create a transparent ecosystem with robust analytics is of paramount importance to any organisation considering white labels options. Today’s white labels platforms need to empower very precise relationships between liquidity providers, the financial intermediary and end customers to ensure a symbiotic ecosystem for all participants.”

Luis Sanchez

Luis Sanchez

“The significant evolution from a few years ago is that a white label and trading solution must adapt to the broker and not vice-versa, like in the past.”

Complicated  times

Anton Gysbers, head of business development and client support at itexsys, comments that traditionally, white label providers were the larger brokers within the industry. This meant that white label partners were restricted to taking the liquidity from their white label provider, while the white label partner was on boarding its client base onto a direct competitor’s server. This caused problems, notes Gysbers: “If the provider ever came into difficulties, financially or regulatory, and ceased operating, the partner would lose all clients historic and personal details.”

Gysbers states: “It’s becoming increasingly popular for brokers to take their white labels from technology providers, and away from larger brokers. One of itexsys’s main USPs is that we are purely a technology provider and not affiliated to any broker. This allows our clients to source multiple liquidity feeds and change liquidity provider at any given time. Also as a technology provider we have no interest in the end trading client’s data.”

“Nowadays we are seeing that larger brokers are uninterested in offering white label services and are focusing their attention on their liquidity partnerships,” adds Gysbers. “For them, the hassles of supporting the day to day running of their white labels far outweigh the financial benefits. It’s much easier for them to pass the client over to a tech provider and simply plug their liquidity in. Taking a white label is a quick, easy and a painless way to bring your brokerage to market. It’s a great way to prove your business concept works without having the initial capital outlay of obtaining your own licence. This is why it’s becoming popular amongst banks and brokers as the savings generated via the white label route can be utilised elsewhere within your brokerage on areas such as marketing and regulation.”

On the ways in which the traditional white label model has evolved over recent years, Paul Blank, vice president of marketing at eFX technology provider TradAir, says that new web technologies have helped drive the evolution and demand for white label solutions. He comments: “Leveraging HTML5 for web trading solutions has reduced development time and support costs of platforms, increased their quality, functionality and performance for web trading. Embracing the cloud for deployment has also greatly improved the distribution capabilities needed to service a geographically dispersed client franchise.”

Customer expectations are conditioned by their use of mobile devices in their personal lives
Customer expectations are conditioned by their use of mobile devices in their personal lives

“The market has also seen changes in the traditional model as a consequence of increased regulation,” continued Blank. “This has had two effects; on the one hand it’s driven increased demand from brokers to enter the institutional space, where regulatory burden is less. Secondly, as the larger prime brokers pull back from servicing smaller firms, there has been an increase in the number of brokers offering prime of prime FX solutions for the smaller brokers. This has tended to drive the choice and availability of liquidity for smaller downstream brokers.”

Blank states that meanwhile, “customers expect more, just as in their personal lives, they take for granted having instant access and rich user interfaces, which means trading platforms need to provide the same level of immediacy and usability, and social interaction such as chat and broadcast messaging [are now] being included in many platforms.”

Technology has enabled ubiquitous electronic access in modern day society as well as in FX markets, notes Colinders. He says that platforms need to be able to meet customers at their preferred access point, whether that be a desktop graphical user interface (GUI), web browser or even a mobile app. 

He notes: “Distribution channels need to provide access to a comprehensive order suite, such as complex orders and a variety of execution algorithms. In addition, customers may need to access different liquidity pools within the same trading interface, work with customised workflows, trading modalities and other types of customisation. Platforms such as Currenex offer multiple GUI options ranging from desktop to mobile as well the recently released X2 trading platform.”

This general interest in digitisation has extended to a demand for electronic FX trading, notes Blank. “Single screen solutions no longer address the needs of various client segments. Personalisation has become a key factor for white label solutions, as banks and brokers are servicing a broad range of clients with diverse needs. Customisation and choice become important factors in terms of not only actual trading functionality and risk management, but also which devices are supported, and where i.e, PC, mobile, iPad, at home, on the move, etc.”

For the bank or broker, there are also IT support and security policy challenges to consider, as well as on-boarding and risk management requirements, warns Blank. He points to how to manage user permissions, spreads, margins and position risks. “In terms of pricing, having the ability to offer customised pricing streams with tailored A/B book hedging and complete STP is important,” he says. “We are seeing strong interest in analytics, particularly for actionable analytics, such as our suite of intelligent data analytics that provide deep and actionable insight into client trading behaviour, and liquidity provider pricing characteristics. Such analytics, enable banks and brokers to monitor their trading performance, and more competitively optimize client pricing, and more profitably manage resulting flows, by selecting and optimizing liquidity providers, based on metrics including fill ratios, last look latency, spread and market impact of hedging flows.”

Blank adds: “There are still clients where voice trading will be required, and so many firms require sales trader functionality for their white label offerings. TradAir’s Sales-Manager provides the ability for sales teams to be more efficient, [enabling them to see] the same pricing that client’s would see, defining RFQ and dealer intervention rules, and trading on behalf of clients. Also, providing clients with voice trading based on electronically generated pricing, which is fully auditable and verifiable against market rates, ensures fair pricing for clients.”

James Colinders

James Colinders

“The world of FX white labels has experienced a paradigm shift in the past few years as consumer’s eFX needs have become increasingly sophisticated.”

What is important?

On the typical range of trading platforms that are now offered, Sanchez says that multiple trading platforms and social interaction are now important for clients.  He comments: “Multiple trading platforms are key. Some cultures require a high end mobile platform. In past years, mobile platforms were used to watch and follow the market, whereas today, a mobile platform must be able to trade and have access to with good execution, charts, and nearly all the features that the desktop provides.” Yet he adds that the most important aspect of mobile trading is that, “the user has the feeling that trading on a mobile is secure, reliable and efficient, combining transparency, comfort and fun”. 

On social interaction, Sanchez comments that, “today, ‘social’ needs are becoming very strong and are a must in human life; the need to interact is important, and even more so in some specific cultures such as Asia and Latin America. 

“If as a broker I am able to provide social features, social tools and opportunities, including social trading, I will have an advantage and an appeal that many other competitors don’t have because they don’t prioritise it,” notes Sanchez. “People need to interact; it’s in the blood of every human being and creating venues and vehicles for social interaction, combining trading experiences, was a plus, but today is a need and tomorrow will be a must.”

It’s important to know where the provider’s live and backup servers are located
It’s important to know where the provider’s live and backup servers are located

Blank notes: “Web technologies such as HTML5 and the cloud have helped drive the evolution of, demand for, and availability on devices for white label solutions. The HTML5 ‘build once, deploy everywhere’ model helps the ubiquitous deployment of such platforms.
Customer expectations are conditioned by their use of mobile devices in their personal lives, and they definitely expect more and they want it now, taking instant access, and rich user interfaces for granted. That means trading platforms need to provide the same level of immediacy and usability, and social interaction in their platforms as clients are used to in their personal lives.”

“As a result,” continues Blank, “deployment options now include web, desktop, tablet and mobile, although different user segments tend to gravitate towards different devices and locations, depending on their business needs and their internal compliance policies, rather than any regulatory restrictions. Indeed, from a regulatory perspective, the main requirement is that trading is auditable, and that’s just as easy from a mobile or tablet as it is from a desktop.”

So for instance, says Blank, private traders will happily use iPhones and iPads for trading, while buy-side firms and those with a fiduciary role typically have more internal compliance restrictions placed on them in terms of trading outside the office. He notes: “A number of banks already provide full trading functionality on any device, although others may only allow users to view and amend existing orders and positions from portable devices, but not open new trades. And some allow new trades, but only from known IP addresses and devices.

“Clients are also more sophisticated in terms of electronic FX trading, and more demanding,” continues Blank. “One size no longer fits the needs of various client segments. Personalisation has become a key factor for white label solutions, as banks and brokers service an increasingly broad range of clients, with diverse needs. Technology firms like TradAir solve this dilemma by providing a core platform with a library or ‘carousel of permissioned widgets’, providing the ability to create segment solutions for client groups, and beyond that, offering great level of personalisation and choice to the actual end users.”

While Gysbers comments: “White label, web-based, desktop or mobile? MT4, MT5, Integral, cTrader? There’s plenty of choice in terms of platform but MT4 is currently the most popular FX trading platform worldwide. Over recent years the popularity of trading on phone’s and tablets has increased significantly, allowing clients to check positions wherever they happen to be. In terms of customisation these usually can be branded up with logos of the white label client.”

Gysbers adds: “Your technology provider will be able to guide you on the most appropriate platform for your target market and budget. There is no point offering a start up brokerage every option and crippling them from the start with huge set up costs. We advise our clients to build up slowly, making sure the demand is in place for what they are offering. The majority of our start up clients take an MT4 white label platform along with a mobile application. As they grow their brokerage, they can add extra components such as web trader, CRM systems, VPS servers and additional plug-ins.”

Greater value

Clients are increasingly looking to their banks and brokers to provide greater value at every stage of the trade and investment lifecycle, says Blank. He comments that the demand for these added value services depends on the client segment, the complexity of products being traded, as well as on the regulatory and/or fiduciary obligations of the clients and their trading preferences in terms of devices.

Blank says: “At pre-trade, we tend to see interest in decision support services such as news, research and charting, which are quite commonplace now. Moving to execution, larger, more sophisticated clients look for greater transparency in price discovery and more granular views of available liquidity, and greater control of their execution. This means that providing a richer suite of order capabilities, such as complex order strategies with trailing stops and more sophisticated display and execution panels, with a range of execution types, is key.”  

“Post execution has seen an increased interest in understanding, and in many cases being able to demonstrate, the quality of execution achieved, which is especially important for firms that themselves are subject to some form of ‘BestEx’ requirement,” Blank notes. “This has driven the demand for all forms of transaction cost analysis (TCA), enabling clients to gain greater understanding of their execution performance. Increasingly, banks and brokers will need to enhance their white label solutions to better support evolving regulatory requirements of their clients whether around reporting or proving execution quality.”

On the demand from white label clients for more complex applications with richer features and functionality, Sanchez says: “Front office, CRM and back office are key. The back office developed must be in a line with the culture and usage of the end user, eg, on the Chinese stock market, a red button is used to buy and a green button to sell, but in the FX system it is opposite. So the homework for the white label provider is to understand what each market needs and what alternative products are needed.”

“On reporting, people think that the more detailed it is, the better, but not necessarily,” adds Sanchez. “Some cultures just want an easy and simple photo of a report where they can see it all in one shot. When IT builds reports they must understand why it is needed, and who will be reading it. And on book and liquidity management, depending on the license the FX broker has, the white label provider must be capable of offering all possible solutions to handle risk in the way they are used to, and the way they want to, do it.”

Gysbers adds: “Setting up a white label brokerage requires a range of add-ons and plug-ins to enhance the functionality of the platform, and to provide you with fully integrated business and management tools to help you to operate effectively and profitably. When it comes to selecting a white label provider, a key area to consider would be the range of additional bolt-on products available. These products usually come at reduced rate if the white label is taken directly from the same technology provider. Some products included are MAM, risk management tools, reporting tools, and CRM, but this all depends on the way you’re running your brokerage. Again your white label provider will be able to advise on what products would help your business. Usually, free trial periods are available to test these products before purchase.”

Anton Gysbers

Anton Gysbers

“There is no point offering a start up brokerage every option and crippling them from the start with huge set up costs.”

Research and analytics

There is an increasing popularity of research and analytical toolsets as part of more comprehensive white label offerings, Gysbers says. “Analytical tools are increasingly in demand. The more sophisticated brokers not only want the best tools to run their brokerage but also want business intelligence tools in order to have a greater understanding of the key metrics that drive their trading operations. These tools can make a significant difference in terms of maximising profits and minimising risk.”

While Blank says: “In terms of the end users, they are increasingly looking for their bank or brokers to provide a greater range of pre-trade decision support and analytical tools, to enable them to make better trading decisions within the trading platform environment. This would cover research and news, as well as technical charting and more analytical type tools such as volatility and correlation analysis.

“In the post trade arena, these clients are demanding greater portfolio analysis and valuation tools to enable them to better understand the quality of their execution and portfolio performance, ideally with easy to understand reporting with graphical displays, and the ability to run ‘what-if’ analysis,” says Blank. He adds: “In terms of the banks and brokers, the type of analytics tools they really need are those that offer a deeper insight into the trading behaviour of their clients, such as analysis of data showing trends in hit ratios, client volumes, pricing sensitivity and client profitability, and measure of client flow toxicity. Leveraging those analytics enables more tailored and optimised pricing and liquidity for clients.”

The quality of operational support provided cannot be underestimated
The quality of operational support provided cannot be underestimated

While Colinders says risk, credit and admin should not be forgotten: “FX intermediaries require a range of risk, credit and administration management tools for managing market risk and optimising profitability in one system. FX intermediaries should seek systems with a highly granular level of risk management for each individual client or currency-pair basis, including visual and automated alerts that can be sent to directly to risk managers or clients. Administration tools should also provide the ability to empower an intermediary to manage on-boarding, trade management, liquidity management, spread management, overnight financing costs and full books records reporting.”

Competitive advantage

On the key integration, on-boarding, IT, security and hosting issues to be considered, Gysbers comments: “Within the trading industry, speed is everything, and having servers hosted in LD4, NY4 or TY3 will undoubtedly give you a competitive advantage, maximising the number of trades processed per second. These Equinix datacentres are where the majority of forex liquidity providers’ servers are based and therefore clients benefit from faster connectivity and enhanced execution. Having servers outside these datacentres may save money, but will add latency to your execution and can cause reliability issues.”

“When choosing a white label provider, it is imperative to clarify where the provider’s live and backup servers are located, as things inevitably go wrong and it’s important to have a reliable back up solution in place to minimise downtime whenever it occurs,” warns Gysbers. “In terms of security the recent spate of DDOS attacks on brokers has only heightened the importance of choosing a white label provider that understands the significance of cyber security and has a layer of DDOS prevention and mitigation in place.”

Colinders agrees that the core value proposition of any technology solution, in addition to its breadth of services, is, “the ability to deliver consistently high performance in the most extreme situation without fail”.  

He states: “During market events like SNB or BREXIT, Currenex reminds us of the importance of scalability and resilience to handle multiples of volumes while maintaining a smooth and orderly market for trading firms to participate. In addition to having a well-engineered, robust and highly resilient solution, white label offerings must have fully integrated straight through processing to all major systems as well as an open API architecture for further integrations. A platform’s ability to meet germane regulatory requirements as well as clear segregation of duties and complete audit trail for system activities must be taken into consideration. Redundancy is of paramount importance for the white label offering to ensure market access during extreme market conditions; customers need to know that they can operate through the most significant of events!”

Integration issues can arise when connecting to a client’s back office, so care needs to be taken in setting up mapping templates for post trade, also ensuring all prime brokers mapping via third party post-trade services are managed, states Blank. He adds: “Many firms will not have their own real time credit/margin engine, and therefore will rely on the white label platform to provide an integrated and robust real time one. Ideally, the engine comes with out-of-the box support for a number of credit calculation models, and can easily be extended to support additional methods.”

“The margin engine needs to have a rich set of API’s to enable easy integration with in-house systems and synchronisation for real time updates of positions, and deposits plus withdrawals for collateral maintenance,” continues Blank. “A good solution should provide granular leverage at the per-instrument level, with tick-by-tick revaluation, and robust control in the event of credit breach, all trading access will be immediately revoked, with the option for auto or manual close out of positions. For client on-boarding, issues can easily arise if the admin platform does not support the creation of predefined client templates, for quick on-boarding. These templates manage the permissioning of display features, trading functionality and pricing spreads on a client segment basis,” concludes Blank.

As to what use of new software architectures and more open API’s for delivering white label propositions there are, and the opportunities these present to widen the market, Colinders states: “The ability to interact with a myriad of systems is the cornerstone for the success of an eFX distribution system. An open API architecture allows an FX intermediary the opportunity to stream liquidity a wide universe of clients that may have proprietary technology or be using third party software. In addition to having multiple API and connectivity options, some solutions allow for price distribution in far more sophisticated engagement than the standard white label solution.”

Choose a white label provider that understands the significance of cyber security
Choose a white label provider that understands the significance of cyber security

Building relationships

As to how the most successful players in the white label space are building relationships that establish a better balance of shared interests with their clients, Sanchez says: “White label providers must adapt to the brokers needs and not vice-versa. An important factor to consider is not just the global market needs; it is each individual market’s needs, for example, the Chinese market and the Latin American market are completely opposite to elsewhere, so white label technology providers must make a custom solution for each market.”

Sanchez notes that white label providers such as BMFN must be able to send senior management to the client’s different markets so they can understand and see from first hand experience how the markets operate, and what the required factors to drive success in that market are. “At BMFN for example, in 2015 I spent five months in Latin America to understand our clients’ needs, how this market is developing, what was required from the brokers’ and clients’ point of view, and more importantly why they need those features and options. Understanding the ‘why’ is the solution to gain a market. I have also spent several months in Asia understanding the same issues; we are talking about two opposite and completely different markets that might have some similarities but there are a lot of differences.”

Paul Blank

Paul Blank

“Personalisation has become a key factor for white label solutions, as banks and brokers are servicing a broad range of clients with diverse needs.”

Sanchez adds: “Take under consideration also that when a broker chooses a white label provider, heads of all departments are involved on the decision making, meaning IT, legal, back office, and sales, and it is the job of the white label provider to make sure each head feels comfortable with the product. It’s not easy, especially when our product is compared with the existing or previous one. In my experience, if we lose a broker after around six months of negotiations, it will be because just one head of department was not satisfied and completely happy.”

Meanwhile, Colinders says that in the current FX climate of volatility and fragmented liquidity, having access to high performance technology and a deep order book are key to many clients’ success. He notes: “Successful players in the white label space are building holistic ecosystems to sustain a business built on varying degrees of liquidity and distribution requirements. The first step in establishing a balanced ecosystem is carefully crafting a liquidity profile that meets individual client needs and simultaneously connects the appropriate sources of liquidity. From there, the ability to leverage robust institutional grade reporting of key performance indicators and a high level of transparency is critical for proactively managing the interests of both clients and liquidity providers.” 

Tailored options

White labelling is no longer a simple, plug and play, out-of-the-box solution to the problem of getting to market quickly. It has evolved and is now about tailored options. When banks and brokers are considering selecting an FX white label technology partner, they therefore need to consider many factors in that decision. 

Blank comments that in particular, they need a technology partner that can provide product leadership as well as a competitive suite of solutions required to win new, and retain existing, clients. Blank states: “Personalising the platform for end customers is increasingly important, and so banks and brokers are increasingly looking for white label technology partners that offer a core platform, with a suite or carousel of feature rich permissioned trading and display widgets, that enable high degree of customisation, and can be permissioned on a granular level.”

Continuing, Blank adds: “The quality of operational support provided cannot be underestimated. Having a white label technology partner with a strong ops and support team, with access to the latest monitoring and diagnostic tools, able to continually monitor the quality and performance of the platform, and diagnose and resolve issues fast makes all the difference.”

Colinders says: “Selecting the appropriate FX white label partner has never been more important for launching a new business. It is critically important to select a provider that offers high performing, front end execution services as well as strong back end reporting and analytics systems, financial risk management tools and post-processing instruments, all of which are completely scalable to increase bottom line profitability. Equally important is the ability to have access to round the clock support alongside a proven track record and impressive pedigree of clients.”

Data analytics is also vitally important for the end user to analyse their trading performance
Data analytics is also vitally important for the end user to analyse their trading performance

Ultimately, you need to find a partner who understands your business objectives and is motivated by helping you to succeed, claims Gysbers. 
He says it is easy for a start up to take the cheapest option when establishing their business, but sometimes mistakes made by selecting a poor provider can cost more money to rectify. “These mistakes can impact your reputation, too, making it harder to succeed in the early stages of business,” he warns. 

Gysbers continues: “A major factor in your choice of white label provider should be the support they offer. We’re in an industry that never sleeps, so 24x7 support is key. You need the reassurance that any issue will be dealt with as soon as it occurs and that downtime will be kept to an absolute minimum. Ask potential providers about downtime on their platform and their ability to resolve issues around the clock.”

Prospects and opportunities

Looking ahead at the prospects and opportunities for FX white labelling, Gysbers states: “We feel that the future of white labels will predominantly be offered out via technology providers and no longer exclusively by brokers. The Swiss National Bank decision in January 2015 [when the bank abandoned the Euro cap, enabling the Swiss Franc to soar] rocked the brokerage world and highlighted the risks and dangers of having a single broker white label relationship. White label partners are becoming increasingly aware of theses dangers and are understanding the benefits and the greater flexibility and freedom from sourcing their white labels from tech providers.”

As for the future of this industry, Colinders reckons that, “FX white labelling has become much more than branded GUI and trial and error liquidity configurations”. He says: “The future lies in the ability to leverage leading edge technology to provide bespoke solutions to meet customers’ evolving FX needs. Business intelligence, coupled with highly transparent reporting to create dynamic and robust liquidity solutions are the baseline for a successfully FX white label business.  As the FX market continues to evolve and clients continue to accelerate their demands, the future of FX white labelling will drive clients to the most reliable and innovative venues.”

Meanwhile Sanchez says the future is all about growth. “In the future more and more brokers will be adopting the white label business model. Why? Well let’s analyse the market. How many white label providers and platforms exist today? Ten to 15? How many FX brokers exist? Over 100? But more importantly, how many new FX brokers are created each year? Plenty! And how many new white label providers? Zero or one. So as you can see the number of new FX brokers increase, but the number of providers does not. But why not? Because it is expensive and demands too many years (three to five) to master the market.” 

“So what are the options for a new broker that wants to enter into the FX world? Definitely a white label partnership is the real deal to reality. When you are shopping for a new white label provider, take the time needed to find the right one, because a real partner is like a marriage where divorce is not an option. Good luck,” Sanchez concludes.