Welcome back to another issue of The C-Suite, a once a month interview where we speak to senior executives from the retail trading industry.
This time we’re speaking to XTB CEO Omar Arnaout. We recently looked at XTB’s growth and wondered how they did.
So why not ask the CEO himself?
The article on TradeInformer looking at your recent performance as a company was the most read piece I’ve done in the last couple of months. I also had two responses from big competitors. So people are interested in what you are doing. One of the things I didn’t cover in that piece is the fact that Polish regulations allow firms to categorise clients almost like a mid-level pro, which then means they can access higher leverage without having to meet the professional client qualifications of other EU countries. Was that a factor in your growth over the last few years?
No that wasn’t the case. The only difference is that in Poland right between the retail and professional client, you have a category called ‘experienced trader’. But still in terms of our client base, similar to the professional client status, experienced traders are a significant minority. In fact, the recent growth in recent years, I would say, has absolutely nothing to do with that category because the growth, in terms of branches we have, is similar in all regions that we are active in.
So in the countries where we are either number one or one of the top three, so countries like the Czech Republic, Slovakia, Romania, Portugal, they’ve all had immense growth. And also our branch in the UAE, that has been probably the fastest growing branch in the history of the company.
Part of the reason I think people found that piece interesting is because the level of growth you saw in the 2021 – 2022 period was exceptional. It was also this period where a lot of firms were either flat, saw a small increase in sales numbers or even had revenue declines. That definitely continued into 2023. So can you give some indication as to how you did that?
If you look at the number of active clients we had around 2015 or 2016 and then take that up to 2019, so just before Covid, then we expanded in terms of active clients about two-fold. So we went from about 25,000 to close to 50,000.
So before I talk about 2020, you are obviously aware that in 2018, ESMA came up with new regulations governing this industry. To some extent that was already the first stage of our growth because that made it practically impossible for small brokers and very difficult for medium sized brokers, so we were aware that market consolidation could take place. And we had two choices, we could cut back and reduce spending or do the opposite. We did the opposite.
We knew that in 2019 we would have significantly lower revenues numbers than in 2018 but in the short term. So we thought we should not make these regulations a weakness but instead focus on what we have control over, which was how our product evolves and how many clients use our products. So we only focused on client acquisition. And how do you increase that? One way is to increase marketing spend, which we did, and the other way is to expand and improve your product line.
That improvement is easier when you have your own technology. So for brokers only using MetaTrader it has been practically impossible to actually improve their product, whereas for us it was significantly easier. So in 2018 and 2019 we started to invest heavily in technology, and have gone from about 100 people to around 450 people [in our tech team]. And that is because we also came to understand how important the role of time to market is when bringing out a new product.
Then in 2020 you had Covid. And I think that had two impacts. One was increased volatility and the other was that markets and trading became almost like a more commonplace thing that people discussed and were aware of. It’s like discussing football or the weather. Wherever you go, whether that’s in Poland or in Portugal, it’s like every person you meet will have a certain view on a certain market, whether that’s stocks, cryptocurrencies, or commodities. That was not the case previously. So we started introducing stocks and ETFs in 2020 and I think it was like a perfect storm because you had this in-demand product, huge volatility, and then this big rise in interest in trading.
If you look at the years after that, you had periods with lower volatility – so 2021 – where our revenues dropped.
Right, but what was most striking was 2021 – 2022, that huge leap in revenues, and then in 2022 – 2023, not because you grew a lot but because you managed to still increase on an already high base level and in a year when most companies had a tough time
There are probably a few explanations for that. If you look at 2022, again you had a lot of volatility because Russia decided to invade Ukraine. So again there was a surge in interest in markets and that was a tailwind for us.
But the following year I believe it was a mix of two things. One was effective marketing spend, we managed to onboard a lot of clients and had over 400,000 active clients in that period.
The other factor was product. Like I said, we realised that we had to become a product machine several years ago, which is why we invested so much in technology. We could not be in a position where it takes more than a year to launch single products. We need to be as fast as possible bringing a product to market. And I think we are now very close to being a product generating machine.
If you look last year, we added fractional shares, ETFs, interest on uninvested funds, and investment plans. Then comes Q1 of this year and we start marketing those investment plans properly and we see a huge increase in client onboarding. In Q1 alone we onboarded 130,000 clients. Now we are not going to do that every quarter but the point is that if we spend more and offer more investment possibilities, we see more clients.
And we are still doing that, so we- plan to add bonds, and pension plans, we are working to launch a multi-currency e-wallet and card. We’re going to start adding tax-efficient investment accounts, starting with Poland and then the UK.
So to give you the slogan we will be using in a couple of months, we want it to be XTB, where your money works. We don’t want to compete with someone like Revolut. We want to have a super investment app where anyone that wants to actively or passively invest has a product for them. And I think if you look at some competitors they have been slow or failed to add other products. Consequently they have not grown as much as us. Whereas others, like Trading 212 for example, have done a good job at it and have grown a lot.
So changing tack a bit. You are the CEO of a big brokerage company. If there was some way you could pay Roaring Kitty a fee to get him to tweet, and you didn’t breach regulations by doing so, would you do it?
Maybe I would put it a different way. Every person that has a public platform, who talks about investing and increases interest in the financial markets, is helping us grow. But directionally I understand what you mean.
I would actually give a different example. I really admire Trade Republic and the reason for that is they totally changed the conversation in Germany about how investing works, which people thought was impossible. I am not a German specialist but the general perception there is that Germans were not fans of investing, they have that keep your money under the mattress sort of mentality, but also it was seen as something for wealthier people.
Trade Republic did incredible things with their marketing, with the media, with influencers, to change that, to make people realise, ‘ok, if I can afford to buy a coffee every day, I can also afford to invest in the stock market’.
And I would say that reflects a wider change, where this sector opened up, to make the average person understand that this is an area they can get involved in and investing or trading does not have to be for incredibly wealthy people.
Several companies enjoyed that same covid boom in volatility. They then went on to hire a lot of people. The good times ended and then there were big cuts to headcount. So when XTB announced they were hiring so many people, my assumption was that would not last. But somehow you managed to maintain a good ROCE – your investments in people appear to be resulting in higher revenues and profitability. Is that sustainable long-term? Do you worry about a flatlining there or even a potential decline?
They key in winning in this industry today is time to market. If we are not the first company to release a specific product, someone else will and that will result in us losing clients to that company.
If I look at the next two years, there is no way that our technology team is not going to have their hands full, in terms of having to be rolling out new products and features. That extends into 2026 as well.
So there is no way in that time that I can imagine us thinking, ‘why do we have so many people?’ If anything, it’s still the opposite, where I wish we could be building more things, more quickly, and to a very high standard.
You have suggested before that these people are essentially in silo-like teams. So is it almost like one team works on one product?
Something like that. So we have one team working on the digital wallet and multi-currency card at the moment. There is a team working on PSPs and payments. So we have to make sure payments are as efficient as possible and ensure the best PSP is the one we’re using in a given region but that we also have reserve PSPs if one stops working.
If I look at our app, it still has that ‘trader’ feel to it. One thing I think some fintechs have done incredibly well is to make an app that is extremely simple to use, even if the product is complicated. And so if we have someone who is used to an app like that, which more and more people are, then you want them to not feel lost – you want them to have that sense of simplicity and ease of use. So we are working on that as well.
Another area is what I’d broadly call automation. For example, a big problem in this industry is that clients don’t send documentation properly. So we are working on tools in this area, where if you have someone sending a picture of their driver’s license but it’s done incorrectly, there is zero manual intervention – they get feedback immediately saying what the problem is and how to fix it. There are areas like this across our entire business.
So I don’t think we’ll grow our headcount in technology much more. But equally there is no end to the amount of things that we could do with the team at the moment.
On the point of making your app simpler, there is a tension between offering stocks and more ‘trader-friendly’ products. A lot of providers seem to just use stocks to lower their CAC anyway and so neglect the stock offering. So how do you manage that, if at all?
I don’t see any tension there. I think what has to be extremely clear is the distinction between CFDs, stocks, and so on. If you look at other popular apps, they started out with an e-wallet and card. Then they added stocks, crypto, commodities, and so on. So I think it’s about user experience and making things transparent, rather than there being a clash.
What is more important is about market positioning. We have repositioned ourselves, which is actually extremely difficult, as a multi-asset broker. But at the same time we cannot let people forget we offer CFDs. I believe this is a mistake some firms are making where they are heavily advertising unprofitable products, like interest on uninvested funds or free stocks. There is a limit we cannot go beyond in that regard.
You are in a position now to acquire firms. Is that something you would consider doing?
Yes that is something we would do but with caveats. Firstly, it does not make any sense for us to acquire a broker if we are based in the same location as them already, because we are ultimately fighting for the same clients. So if we look at CFD brokers then we only look at companies that are either in different geographies or which would help us acquire a license in a new region.
The key point in either case is that we need to merge with these companies and have them onboard with us easily and quickly. We don’t want companies that we acquire and then one year later their clients cannot access our products and we’re still trying to get them transferred to our platform.
One country you’ve been investing a decent amount of money in is the UK. This is a tough market to crack, it’s competitive, and really dominated by a few players. On the stockbroking side it is very saturated with established players and a huge number of startups. So is this a lower priority market?
Countries where we are in the top three are always going to be our priority, so places like Spain, Portugal, Poland. But that doesn’t mean markets like the UK or Germany aren’t going to be important. We’ve already significantly expanded our marketing spend in these countries.
And now we have a very competitive product, that’s only going to continue. The other thing to keep in mind is that these countries are enormous. That means you can still have a great business, even if you are not the biggest firm or in the top 3.
Plus I would say, if you have amazing technology then you can enter a market and see a lot of success. Look at Trading 212 in the UK or Trade Republic in Germany. A few years of hard work and they have managed to see a massive increase in market share and huge success.
So if I look at the UK, we have begun the push this year, but that branch will be allocated even more next year.
Looking at the industry as a whole, there are now a large number of players solely targeting emerging markets. This is often gray area business. Does the fact you are listed preclude you from doing business in those places, given the scrutiny it entails, even if it’s arguably a key growth area for this industry? Say places like Thailand or Vietnam?
The fact we are listed makes no difference to how we approach compliance. We want to be number one in Europe and it’s always going to be a priority for us. The UAE is also a region which I can imagine potentially being as big as our Polish entity.
You got an Indonesian license recently, which is one of these EM growth areas. What is the goal with that?
Indonesia is a country with a huge population and a growing economy. We want to have exactly the same offering there as we do in every country that we are active in, which is why it’s taking us a bit longer to roll out properly there.
That may also be a hub for us in the region long-term, assuming other countries do end up having other regulations. But Indonesia is also a very competitive market. There are lots of local companies, fintechs and so on, so it’s not going to be easy. Having said that, this is a market with a big subset of brokers still stuck on MetaTrader, which we can outcompete on product and technology .
XTB has also been looking at getting a Brazilian license. I thought that was an odd one as my understanding is CFDs are not permitted there.
You are correct that CFDs cannot be advertised in Brazil but that does not mean they cannot be traded there. So they will be on the platform but that is not the product we want to market there. Ultimately Brazil is also very saturated and we want to position ourselves as a way to access overseas stocks as this is something we don’t believe has been done well in the local market. I would say that, at the moment, Indonesia is a higher priority for us.
Would you get a license anywhere else?
Chile is the only place we are waiting on at the moment and the goal there was to move from being just a CFD broker to a multi-asset broker. And I truly believe Chile will be one of the best branches for us. We already have a very strong brand there and I think it will become like another Czech Republic for us – so one of the top five branches in the company. But that’s not going to happen until we expand our product line.
In terms of other geographies, we just want to focus on where we are already active at the moment. Currently we aren’t applying for any other licences and we aren’t planning to make any other applications either. But obviously if you came up to me and told me Thailand was introducing a license next week, I’d be the first in line.
From a maximising shareholder point of view, Poland is 1% of the MSCI EM Index. I’m not saying that’s a bad thing. But that means the country is not really a beneficiary of big passive or active fund flows. Would you consider relisting elsewhere because of that?
At this given moment, no. I know this was something the company looked at a long time ago but it’s just not on the radar now. We understand the Polish market perfectly. We’re headquartered here. And from a dual-listing point of view, we already have a huge amount of regulatory standards that we have to follow, outside of the standard brokerage ones, to meet listing requirements. I think doing it in another place would make life incredibly difficult for us. It’s not worth the hassle, so we aren’t thinking about changing our listing or having a dual-listing.
You’ve mentioned the UAE a few times. This is already a very saturated market. It’s a small population. Is this just a case of, even if you are not growing that much in real people terms, those people are very wealthy and so a small client base can become a very large one in revenue terms?
There are two aspects to it. One is what you say, which is that clients are often very wealthy, which brings in more revenues. The other is that the UAE is a regional hub. So we can work with the best influencers and educators in the UAE, but they have an indirect reach into the wider region. So because people in the region are interested in what is happening in the UAE, it means that you get a very broad reach without having to do any marketing directly to those people.
Is Saudi one of them?
Yes but they are a very small proportion of our UAE client base. It’s a huge country but we are looking at different regulatory facets of Saudi Arabia.
