Welcome to The C-Suite, a monthly interview with leading executives in the retail trading industry.
This month we’re speaking to Michael Kamerman. Michael is the CEO of Skilling, a position he’s held for the past three years. Prior to taking the CEO job, Michael was at FXCM for over 15 years. We talk about why he made the move, what it’s been like and what Skilling’s plans are for the near future.
CFDs Weekly: You started out at FXCM – can you talk about what that was like? How did you get into the industry, what was it like at the time, all that sort of stuff?
MK: In 2005, it was almost like the crypto fervour of 2016 or 2017. Everything was new, it was all uncharted territory. I got into the industry because I was always interested in stock trading. As a kid, I was offered either a very old used car or a small amount of money to put into an investment account that my dad would trade. And I chose the brokerage account. This was some time ago when stock quotes were in newspapers and the minimum tick was 1/8th. So I learnt my decimals and fractions – 1/8th is 12.5%.
I got involved because forex was more exciting, it was 24 hours, it was more international than just US stocks. And it was also the only thing available at the time. I was living in Dallas, Texas back then and, at the time, there weren’t many financial services companies around apart from FXCM.
CFDs Weekly: And how come you made the jump over to Skilling in 2020?
MK: I was at FXCM for 15 years. FXCM was amazing, it’s like the FX/CFD university. You look around the industry, there are so many people that came out of that company who now lead big firms, whether that’s brokerages or tech firms or affiliate companies. So it was awesome to work there, really unbeatable.
The push to leave was because Brendan [Callan, FXCM’s CEO] does an amazing job and so there was just no way for me to move up to the next level. I was ambitious and I wanted to be the CEO and lead a company. So I got contacted by a recruiter and joined Skilling.
But I think the thing that really made me make the jump, the pull factor if you like, was that there was a clear long-term vision behind the company. It was not just a short-term land grab, so you know, offer MT4, set up in Cyprus and move on. The owners spent their resources on brand building and creating a new generation trading platform. It took years to build that platform, mobile app, back office and other proprietary tech. It wasn’t the usual start-your-own-forex-broker story.
CFDs Weeky: Who are the owners?
MK: Scandinavian tech superstars. I like to say they’re like the Mark Zuckerburgs of Scandinavia, in the best possible way. I think that can be misconstrued sometimes.
CFDs Weekly: So they aren’t alien lizard people?
MK: Haha. No, not at all.
CFDs Weekly: You mentioned you were at FXCM for a long time. I think of FXCM as being a bit like the American IG Group. First mover, big established player, lots of people started there and have gone on to do other stuff. But what has it been like to go from that large set up to being at a smaller, scrappier company? Has that been difficult at all?
MK: It’s been very challenging to be honest. And I would say the most challenging thing is that you just have no one you can call. So you can’t go, “ah, ok I’ll just call my Head of Southeast Asia Payments to deal with that” or “this is my guy that does PPC for Italy only”. When you are at a big company, you have the luxury of having lots of people in specialist roles. Here you have lots of people who have to be experts at lots of different things. It’s a challenge but it’s also a fun one.
CFDs Weekly: Are there any particular areas that’s been a problem in?
MK: Honestly I would say one of the hardest things is just hiring people. Skilling has had good growth since I started, which has been wonderful. And amidst that we’re always hiring. So, and I have the battle wounds arriving at this answer, it’s been really hard to find the type of people that can build a company that can take it from being small to something great, versus the types of people that can do an amazing job but at a larger firm, helping deliver small, incremental growth to an already large machine. There’s a lot of people in the second camp but very few in the first one, who can put things together from scratch and build them. That’s something I struggle to find routinely, so I am constantly having to find that diamond in the rough.
CFDs Weekly: There are so many brokers that are set up like you said. Go to Cyprus and get an MT4 white label. So if you are a smaller player in this industry that is trying to grow, how do you succeed, given there’s just so much competition, either from those smaller guys or the bigger, established companies?
MK: First of all I don’t think there’s going to be. I think that won’t be the case moving forward. The moat is getting deeper and wider. The barriers to entry are getting higher to start a broker and it’s getting worse.
Skilling had an advantage you could say because it had founders that had both a vision and the resources to match it. We spent three years building a website, building a brand, building our own technology, partnering with Fulham FC and Aston Villa, and also Magnus Carlsen, the most successful chess player in the world.
Many of these things were happening pre-revenue, not entirely but pretty much.. We made sure all the brand recognition and tech was there before really launching properly, so we could be ready for growth. And so we’ve managed to shake off the ‘smaller’ player associations, you know just being an MT4 broker for example, pretty quickly.
We’ve also not tried to be all things to all people. And this sounds super cheesy but basically we know our clients better than our competition. Our top markets are where our competition doesn’t do very well. So Scandinavia as one example. There are lots of small nuances there, an obvious one being that people want to have an account that’s in SEK or NOK. They prefer to have people working with them that speak their language. They want to sign up using their own national ID system. They want to have a retirement-like account. They want to have integration with the local tax authority. It’s these minor details that win over customers from competitors – single percentages at a time.
This has been tough but it’s also been a great lesson for us on entering new markets. You can go somewhere and just throw money at advertising and see what works. You know, have loads of money on the top display ads on websites, you bid on the top keywords. It just doesn’t work. So we know our top markets and in those markets all roads lead to Skilling, whether you see us on TV or on a podcast, whatever it is. And those markets are still growing.
CFDs Weekly: So are you mainly active in Scandinavia?
MK: Sweden and Norway are big markets for us but you can’t run a global enterprise just focused on them. You don’t have a population like that of Asia, Africa, or LATAM. But we are now expanding into three other regions, with that same mindset. So we go thoughtfully into each place, not just throwing a bunch of money at ads and seeing what sticks.
CFDs Weekly: Can you talk about where specifically?
MK: Not now but not because I’m trying to hold back a trade secret or something. I think if I told you the countries we’re looking at, everyone in the industry would agree they’re ‘hot’ markets right now. It’s more a case of we’re still going through that process of seeing where our expertise lies internally before we actually start expanding.
So if you compare say somewhere in Southeast Asia with somewhere in LATAM, which country are we actually ready to roll out in? Once we’ve mapped out everything and we can see who is doing what in country X, then we can say, “ok, based on our payments, our onboarding, our marketing and so on, we think we can step into this market pretty quickly and be cash flow positive in X months.” That’s crystallising right now but nothing is set in stone.
CFDs Weekly: On LATAM, so many people seem to be going there but there actually appear to be very few people that really know their stuff in that region, probably because it’s a bit new, at least at the scale people are trying to expand there now. So is it a challenge to grow there, whether that’s hiring or something else?
MK: Yes it is. Gone are the days where it’s this super high growth, really low cost land grab. It’s a maturing market. It’s harder than people realise and I would say there is no broker there that is really ‘killing it’. There are local language nuances, right? You think of LATAM as being broadly Spanish speaking but there end up being small differences between regions, which matter. There’s nuances in payments, a lot of nuances in payments.
That actually points to something else, which is, sitting in this chair as a CEO in 2023, running a broker is basically two things – onboarding and payments. Everyone has got 1,200 products and MT4. It’s about, your potential client is at a dinner party, they hear NVIDIA’s gapped 20%. When they go to search ‘trade NVIDIA’, are you in that result? And if they go to sign up and it says “Your documents are going to be reviewed in 48 hours” or they can’t make a payment, then they’re going to the next broker in that search result.
We’ve seen that over and over again. So one thing I’ve learned the hard way, and it’s boring I’ll be honest, but looking at approval rates, completion rates, first trade rates, looking at it by device, region, acquisition channel. All that stuff is not light reading but it’s super fascinating as well because you can see that you are doing well in one area but not in a comparable one. So why is that? And I think one thing we’ve done well at Skilling is to dig into that sort of data to work it out. And to go back to LATAM, we might have a tester in Columbia and it does great, but the same thing won’t work well in Peru. Your job is to figure out why.
CFDs Weekly: A lot of expansion in emerging markets seems to be driven by IBs. I remember speaking to [FXCM Founder] Drew Niv, who said that, when he ran FXCM, 99% of his problems were because of IBs. Is there a way around this model or is there something you can do to stop these problems?
MK: It’s true and I think that’s because sometimes you are dealing with people who don’t care very much about your brand. They just want their business or whatever it is to make some money short-term. You can’t blame them for that, they’re still working hard to bring in clients but ultimately you share different time horizons and that causes problems.
The short answer is basically this is the most popular go-to market strategy because it requires the lowest upfront cost, even if you are giving away a chunk of your revenue. So if you don’t give away too much, you have something left on the backend. It’s also a way for people to see how to attract clients if you are new to a given market.
The other alternative, and I think this is something we do well, is to basically make sure you have strong digital marketing knowledge, which is what I was talking about before. So we have that internally but it is hard to find people with those strengths.
The third way you can do this is to launch some kind of innovative product that’s different, like, and I’m sorry for the plug here, but we are launching a payments e-wallet, which has a number of features that I think will make it be viewed favourably as a means of managing your money and making payments, which you can use totally independently of your trading account. Something like that helps shift people over to you but it takes a long time and investment.
CFDs Weekly: On that point, it seems like you have a divide opening up where some players stick to offering the same FX/CFD product and focusing almost exclusively on emerging markets. Then you have others who are staying in more developed markets and are broadening their product set quite dramatically, so things like payments, options, equities – whatever it may be. Do you see Skilling fitting into one of those categories, would you do something like add stock trading?
MK: Yea, so that’s our plan. Right now we’re launching the Skilling eWallet and card. But the long-term vision is to expand into other things. So I would say stock trading and other investment products are on our radar.
Where I would say you’re wrong is assuming that these other companies are just getting a bunch of IBs in emerging markets and sitting on their earnings. If you are making lots of money, you are still going to be dumping a huge amount of money back into brand building and you can ultimately use that in some way, whether you agree with it or not.
If I look at Skilling, I would say we have invested heavily in this area and it’s something I’m always conscious of. I listen to client calls and read chats. I know what we are saying to them and what they’re saying about us.
But it’s really a long burner to invest in your brand. To give you one example, we have been investing in SEO for years and it’s starting to really pay off. But the reason it’s not popular in this industry is because it takes a long time. You have to constantly feed the machine and you don’t see anything for ages. These things are not popular in this industry because there does tend to be a lot of short-termism.
CFDs Weekly: Another area I hear a lot about is M&A. If I think back to 2018, I remember a lot of people saying there was going to be contraction in the sector and actually I don’t think you really saw that. Has that process just been delayed or do you think you will see more contraction and M&A?
MK: It is definitely going to be happening in Europe. So if you look at Plus500, which is a listed company, I think their most recent average user acquisition cost was $1,400. That is a lot of money. So to beat that or even be on par with that, you have to convert really well, make your payments really smooth, you have to retain clients really well – you have to do so much really well. So I can’t see that being sustainable for a lot of brokers that are focused on Europe. I’m not speculating, I know how hard it is.
The only potential tailwind here is volatility. But even here, we keep hearing about a recession and so on but then maybe we’ll just end up getting the smooth landing the Fed wants. If that happens, you’ll have more tough months. The industry is definitely having a tougher time this year than many people expected. Skilling is having a record year but that is from a smaller base than some of the publicly-listed brokers, so I expect us to grow, but for the larger players in this sector, I would not be surprised if you saw some consolidation.
CFDs Weekly: Do you think it’s possible we’ll see a shift back to a more IB-driven model. So if it’s much harder to get a white label and regulatory approvals, will someone that may have set up a broker in the past decade, for example, now opt to be an IB instead?
MK: In jurisdictions where you can be an IB, it’s possible that will happen. There are a lot of companies that started in 2017 or 2018 who I think are now in that position. Those guys are having a gut check right now. The hype is over. Crypto has cooled off. The GameStop stuff is finished. And I think those guys are thinking, “do I really want to be in this business now? Do I really want to do all the operational stuff, the regulatory licensing and so on?”
So if there is consolidation, it’s not just about the financial side of it. It’s also about the massive amount of work involved that people just don’t want to do on the operational and regulatory side. I don’t think 2023 is going to be a banner year for the industry and you’ll have a lot of people that enjoyed a lot of volatility since they came to market, looking at their profit margins and going “this isn’t as great as I thought it was, it’s not easy like it was in 2020”.
Those people may not leave the industry, but there is a big difference between being a senior sales guy and actually running a company as CEO, and I think that was easy to forget when you had lots of volatility and clients coming to you.
CFDs Weekly: Ok, before I take any more of your time, are there any other trends you see playing out at the moment that you think are worth keeping an eye on?
MK: I would say there is currently a price war going on and, like with all the regulatory problems, I just don’t see how it’s sustainable. You know, I think Skilling has done a good job at minimising our input costs so that we can offer a price that is close to being on par with the major players in the industry.
But I look around and you see people offering zero spreads with a $5 commission, there is just no way that can last. So there is definitely a price war going but I don’t see that lasting for a long time either. I saw it happen after the last major bouts of volatility in 2008-2009 and once that volatility subsided, brokers struggled. Skilling is competitive but we are not a discount brokerage. We offer significantly more than 0.1% difference in price vs. the hundreds of other red-ocean-strategy brokers.