Online banks that provide a wider variety of services have a unique advantage over larger institutions which rely on a physical presence in the high street to serve its clients , according to Alessandro Capuano, FinecoBank’s (Fineco) global head of brokerage.
Speaking to Fundeye, Mr Capuano explained that Fineco had not needed to send out communication materials to all of its clients during the current pandemic-driven period of economic uncertainity and market volatility. It has not needed to assure clients that it was ‘business as usual’ like established British banks had done, because its clients had not noticed any changes to its usual processes.
Noting that its investment platform was continuing to run without any issues, he said: “We are seeing a massive flow of orders because of Coronavirus and volatility. You can image, we are executing orders way more than our historical levels, way more than our average.”
Mr Capuano contrasted this to difficulties that older brokerages were facing, which had larger divisions but focused too much on discount services.
He said: “Without mentioning any names, since Coronavirus, several discount brokers have had big issues during the high volatility because discount does not pay for investment in technology. So, when you have a lot of volatility, they have not been able to serve clients properly.”
In his view, the problem was the banks were focusing too much on growing trends, such as zero commission for CFD services. Fineco was also offering zero commission on CFD in the UK, but Mr Capuano argued they marketed themselves as premium service which emphasised quality. However, he did not really elaborate on any specifics about its service, and how it was able to straddle the contrasting pitches of affordability and premium service.
Meanwhile, the bank’s one-stop shop approach to building its presence in the UK was much more comparable to the big banks he tried to contrast the company with, rather than small pure play brokerages such as Numis.
Instead, it seemed more as if Fineco was offering expected services, with the main differentiator being its online-only model.
He said: “One thing we are noticing these days is we are opening an account for brokerage, but we are opening an account for brokerage because people see we also have other services like the bank and the payments.”
Mr Capuano also offered his thoughts on the restrictions imposed by ESMA on leverages. He outlined that Fineco’s approach was not to comment on rules, but to adapt to them.
The global brokerage head accepted that there had been an impact on the CFD business but reiterated that while it was a popular product in the UK, and that Fineco was continuing to expand its presence in the country, that it also offered a lot of other products. This mitigated the effects of the new regulations.
He explained: “We offer futures, we offer options, we offer access to 27 different exchanges, we offer bonds. So, the reality has been that there has been an impact in that particular segment, but I think people have adapted now to trading and are coping with the new rules. It is not like they are going away. Some people have simply changed the way they trade, and others have moved to other products.”
Despite being a full service banker and broker, he argued that Fineco had managed to face fewer difficulties as a consequence of the clampdown on leveraged CFD services than its competitors.
Acknowledging its initial effects on the market, he added: “Obviously, there are some brokers that are super specialised. You can see the balance sheet in the stock exchange. They have suffered, there is no question. But the fact that we offer more products has helped us compensate way more quickly this reduction of business.”
Even though the UK continued to face uncertainty as it negotiated the terms of its trade deal with EU, and due to the economic fallout from the outbreak of the Covid-19 pandemic, Mr Capuano expected the bank to remain committed to enhancing its presence in the country, allowing it to challenge major brokerage services like IG and CMC.
He believed that its approach to brokerage remained distinctive enough to appeal to investors, and that if it was successful, it could change perceptions about brokerage as a business.
Mr Capuano said: “In the UK, brokerage is seen like leveraged trading. For us, it is a wider business. Yes, it includes leveraged products, but a leveraged product is also about futures and options, which are regulated products on a proper stock exchange. We have a lot of people that do short-term speculation on equity, while sometimes in the UK equity is seen more like an investment product only. I think it just a question of different approaches, where in the UK it is seen as one product, rather than as part of many other products.”
He concluded: “This is something we are trying to bring to the UK. We are trying to explain to the people that there are many other products they can use to speculate on the market and invest in the market.”
Despite Mr Capuano’s rhetoric, it has to be noted that Fineco started life in 1999 as the first online retail trading platform. While it has added bells and whistles such as equities, bond and futures trading, at its heart it comes from a similar position as UK listed IG and CMC. The ban on binary options by ESMA in 2018 left a whiff of scam on firms offering these ‘investment’ products (in fact they were supervised by the gambling commission which says it all). Also, in 2016, the FCA did a survey and discovered that 82 percent of ‘punters’ lost money trading CFDs. While the large incumbent FTSE 100 banks may offer these products as well, given the limitations of being physical entities they aren’t a large part of big bank business.
When it comes to UK shares, bonds and ETFs, Fineco charges a flat rate of £6.95 per transaction. However, to get this very reasonable rate, the trader has to be pretty active. In fact, the more active, the lower trading fee. Fancy a free spin anyone?
