Payment Platforms, the Forex Market & KYC/CDD Explored: An Interview with Georgios Pantzis

Georgios Panzis

How has COVID-19 affected the trading industry? Any gains that might deserve to be highlighted?

Georgios PantzisGeorgios Pantzis (GP): It is definite and globally acceptable that the COVID-19 pandemic has represented an unprecedented disruption to the global economy and world trade. There is no dispute that both production and consumption have been adversely affected at a global level. As a general observation, nearly all sectors of the economy have been negatively impacted with minor exceptions like that of online trading.

The trading industry as such has proved to be the paradox to the rule as most of its relevant indices have indicated a rising trend. More precisely, the industry has observed a positive trend in the Q1 2021, particularly in the commodities and cryptocurrencies sectors. While volatility has been high, there has been a simultaneous increase in revenue streams, trading volume, profitability and market capitalization.

The companies belonging to the vertical sector of Forex/CFDs brokerage have experienced a positive trend in their financial indicators, including in the number of new registrations, amount of cumulative deposits, trading volume in lots and monetary terms, EBIT and net profitability, with an approximate average increase clause ranging between 20-50%. It is a safe estimate to state that the positive trends are mostly evident for the time frame between the beginning of Q1 2020 to end of Q1 2021. The major reason behind this has been the opportunistic view of retail investors who have been actively looking for alternative sources of income and wealth.

The online trading facility has been observed as a convenient, flexible and easily-accessible means of accessing and materializing the traders’ personal investment strategy and goals.

Closed or open payment platforms and why?

GP: Increased competition between the respective providers of closed and open payment systems is anticipated.

Closed payment systems usually operate within a specific company. Users pay using specifically developed applications. For example, such a system works at coffee chain shops, where you can accumulate bonuses and pay with them. Open payment systems are usually not aimed at loyalty programs, but they can be used for payments everywhere.

Closed systems are expected to create proprietary products for payment ecosystems that offer increased value to the consumer within a single platform. On the other hand, open systems are aimed to make payments easier.

In an effort to identify the response to this question, we should ask: What do the end-consumers value more from the service offering of a PSP?

The answer lies behind the following two options: a) Do the consumers value more a closed all-in-one platform to finalize the whole flow of the buying experience, including the payment? or, b) Do they value more the capability to have multiple choices of purchasing with no restriction in what they want, how they want it and when they want it, which is offered through an open payment platform?

From a merchant perspective, closed loop payments systems carry the following advantages:

  1. Ability to capture big data on customer transactions, including customer insights, buying habits, popular items and even return on marketing campaigns.
  2. Internal payment processing, which can lower merchant costs.
  3. Increase in customer loyalty through integration of loyalty programs within the application.

While closed loop systems make the customer experience with a single vendor more convenient, they also require that customers acquire and manage a payment app for each vendor, rather than having one central platform from which they can make purchases anywhere. So, if a user wanted to use their phone to pay at ten different retailers, each with its own proprietary system, they would need to manage ten separate apps.

Thereafter, analyzing the major advantages and disadvantages of the open loop solutions, it would be helpful to state the following:

The value end users gain from open loop payments is convenience.

In theory, a single, centralized digital wallet that allows you to pay anywhere, for anything, from your smartphone is much easier than having to manage multiple, fragmented proprietary applications for each and every vendor.

The disadvantages of the open loop system include the fact that major market participants are still resilient to change and adopt. On the other hand, from a merchant perspective, the convenience to end-users has not yet been realized.

In summary, although the open payment systems seem to be continuously gaining ground, there are many merchants that continue to opt for closed payment systems. The global evolution of payments is yet unclear if it will transpire with a clear winner. Thus, the hybrid model and coexistence of these two options could be the answer.

What are some of the more innovative and interesting banking solutions you’ve come across with these days?

GP: Customer experience is often the deciding factor when it comes to banking. During the era of COVID-19 pandemic, banks have realized that customers want personalized interactions, simplified banking and online access to their accounts.

The first innovative banking solution is the use of Chatbots. Multiple banks make usage of a chatbot to connect with customers. Banks have developed chatbots, which were integrated to their core banking systems and offered a user-friendly experience. Through these flexible chatbots, basic functionality could have been executed or processed, such as deposit of funds, internal transfer between own accounts and search for past settled transactions. Multiple thousands or millions of users could have visited the chatbot upon launching it to the market.

The second innovative banking solution is Open Banking. It may offer benefits in the form of convenient access to financial data and services of multiple financial institutions to consumers and streamlining some costs for financial institutions.

Open Banking opens the way to new products and services that could help customers get a better deal. It could also give a customer a more detailed understanding of their accounts, and help find new ways to make the most of their money.

Open banking forces large, established banks to be more competitive with smaller and newer banks, ideally resulting in lower costs, better technology and better customer service. Established banks will have to do things in new ways that they are not currently set up to handle and spend money to adopt new technology. However, banks can take advantage of this new technology to strengthen customer relationships and customer retention by better helping customers to manage their finances instead of simply facilitating transactions.

While Open Banking continues to gain traction all over the world, foundations are being laid for the next wave of financial innovation: Open Finance. This service will be meeting increasing demand, which inevitably leads to greater haste in the development of new products and services. Open Finance empowers consumers to access their financial data beyond current accounts (extending to mortgages, credit, student loans, automotive finance, insurance, mortgages, investments, pensions, loans, etc.), ultimately delivering real value for the customers.

The third innovative banking application is the Peer-to-Peer Payment systems. Peer-to-peer (P2P) payment systems allow people to send or request money from each other with only a single application. P2P apps gained a great deal of traction amongst the millennial generation and have since made their way to the broader consumer population.  One of the most recent changes includes offering an option for consumers to instantly transfer funds to a bank account for a small fee instead of their free transfer option that takes one to three business days. Such solutions allow the launch of a debit card that notifies consumers of every transaction made and enable consumers to instantly use the money they have in their account, load additional money to use, and easily split all purchases made with the card in their application.

I strongly believe that, as the market becomes more consolidated more and more innovative, more solutions will emerge.

What would be your top 3 business development tips for someone looking to set up an FX broker?

GP: That is a great question. The answer to this question is rather complex and it always adheres to the risk appetite and profile of the Ultimate Beneficial Owner.

However, to respond to the question on which would be the top three business development tips for someone looking to set up an FX broker, I must admit that the essence and real value is hidden behind cumulative experience in the sector, innovative mindset and structured thinking on the level of strategic management.

The first adequate step in the process of setting up a Forex broker is the selection and recruitment of the human capital and, in precise, the fulfillment of critical positions with individuals that possess precious cumulative experience, right competences and in-depth knowledge of their departmental functions, policies and procedures. Business owners have to feel comfortable with the level of professionalism, character, integrity and trustworthiness of the members of their team.

The second tip, which adheres to business operations and is linked to corporate governance and risk management, is the evaluation and selection process for the company’s business partners.

Under this umbrella, the following service providers should be captured, constituting an integral part of a hub of business partners: Credit Institutions, Electronic Money Institutions, Payment Service Providers, Platform Providers, Price Feeders, Liquidity Providers, Financial Advisory Providers, Fintech Service Providers and others. This enhanced due diligence procedure should consider different aspects before entering a business relationship with any business partner, which includes, among others, brand enhancement, costing, service quality, specialization of the human resources function and safeguarding of company’s reputation.

The final tip that could be crucial for the establishment and business continuity of a start-up Forex broker is the development of a comprehensive Marketing Plan. This plan would potentially include market research analysis, a defined Marketing mix (Product, Price, Place, Promotion and expand to Policies/Procedures and People) and focus group, geo-targeting, interactive marketing campaigns, search engine optimization, selection of social media, digitalized trading environment, business intelligence tools and regulatory compliance. This coordinated effort shall generate leads and cross-selling activities for the company.

The three previously mentioned tips should enable the newly set-up Forex broker to build its basic infrastructure and thus enlarge the possibilities for becoming feasible. Apparently, the Forex broker needs to bind all these together and establish its generic strategy by deciding how it wishes to position itself in the marketplace.

How important is it to follow through with KYC and CDD in the trading industry?

GP: It is not only very important for the market participants in the trading industry to follow through with Know-Your-Customer (KYC) and Customer Due Diligence (CDD), but I would say that it is both obligatory and crucial to adopt and apply these critical concepts.

Sound KYC procedures play a vital role in the effective management of financial risks. The concept of KYC goes beyond simple account opening and record-keeping. It pushes firms to have in place an acceptance policy and a sound identification and verification program, which will enable them to assess each potential customer during the initiation but also throughout the lifetime of the business relationship.

The Basel Committee, FATF recommendations, and the European Supervisory Authorities have issued several guidance and publications on the essential elements of KYC standards and their implementation.

Sound and prudent KYC procedures would help protect firms’ reputation and the integrity of the financial system by reducing the likelihood of reputational damage via it becoming a vehicle for financial crime. Additionally, they constitute an essential part of sound risk management.

The reason it is very important to apply is because of the high cost of its impact when these concepts are absent. The inadequacy and absence of KYC standards can subject companies in the trading industry to serious customer and counterparty risks, especially reputational, operational, legal and concentration risks.

The purpose of CDD is to enable the obliged entity to have a complete picture of the client in order to identify irregular patterns in customer activity that require scrutiny and might be subject to suspicious transaction reporting (STR).

In summary, an effective CDD program should comprise of the following broad categories: Customer Identification, Economic Profile, Customer Acceptance, Risk Classification, Monitoring and Suspicious Transaction Reporting.

This leads us to the last subsequent procedural step, which is the adjustment of the initial CDD measures on a risk-sensitive basis. As such, where the risk associated with the business relationship is low, the Simplified Customer Due Diligence (SDD) may be applied (provided that the national legislation permits so).

On the contrary, where the risk associated with a business relationship is significantly higher, obliged entities should apply Enhanced Due Diligence (EDD) and on-going monitoring. In essence, EDD is applicable for clients with high level of money laundering risk, and the obliged entity applies this in order to bring the risk to an acceptable level.

Having appropriate KYC procedures is a regulatory obligation of financial and non-financial organisations. To conclude with, the first and most important step of CDD when establishing a business relationship with a client is to take appropriate KYC measures to ensure that the client is who he claims to be. In order to achieve this, the obliged entity should obtain all required information and then verify the accuracy of this information.

Is there anything else you would like to share with our network?

GP: I would like to take this opportunity to express my sincere thanks and appreciation for the opportunity I was given for an interview with the International Governance & Compliance Association (IGCA).

The IGCA’s mission is to improve the integrity of the global financial services and this is adjacent to my personal principles.

We should all join forces to achieve enhanced transparency, openness, fairness and equity in the trading industry and the global markets at large.

The challenges are obvious under these market conditions but the opportunities for exploitation are also evident in the market place.

The situation with the COVID-19 pandemic constitutes a psychological burden for all of us and I hope that soon we will return to normality. I wish to everyone to stay safe and healthy. Better days are to come soon.

 

Georgios Pantzis, IGCAP, Chartered MSCI, CySEC Advanced Certificate, CySEC AML Certificate, is a Forex/CFDs professional. He possesses cumulative experience in the Forex/CFDs markets equivalent to eleven years in the positions of Head of Brokerage, Head of Dealing on Own Account, Non-Executive Director and finally CEO/General Manager. Georgios Pantzis is a holder of Bachelor’s degree from the Nottingham Trent University, UK, and a Masters Degree from the Cyprus International Institute of Management (CIIM), in the fields of Business Administration and Business Management, respectively. He is an International Governance and Compliance Professional (IGCAP) since 2020 and a Chartered MCSI member of the Chartered Institute for Securities & Investment since 2021. In addition, he successfully completed both the CySEC Advanced and CySEC AML certificates. Finally, he holds the Bloomberg Market Concepts certificate and Google Analytics individual qualification.

Georgios Pantzis serves as the CEO/General Manager at Octa Markets Cyprus Ltd since 2018, a Cyprus Investment Firm, regulated and authorized by CySEC. The Company offers online trading of CFDs on Forex, Precious Metals, Commodities and Equity Indices through the MT5 Trading platform.

Comments (1)

Leave a Reply

Your email address will not be published. Required fields are marked*

Contact us




By submitting this form, you submit your information to IGCA, who will use it to communicate with you regarding this query and their other relevant services, based on legitimate interest. You will always be given the opportunity to opt out of any future marketing communications