Coming to America: Foreign agents seek to subvert domestic tech incumbents

It’s a procurement dilemma: If you’re responsible for acquiring trading and data-related technology and infrastructure at a financial firm, you want to maintain a diverse array of suppliers, and avoid concentration risk created by vendors buying rivals and independent companies. On the other hand, you don’t necessarily trust an unknown startup with infrastructure responsible for billions of dollars. So, what do you do?

What if there were companies with established technologies, an existing client base, and the scale to make management feel confident that they’ll have a world-class product with local support? There are—and they’re about to start knocking on your door. Tech companies with successful track records overseas see the growing US economy as an opportunity to win more business outside their own domestic markets by disrupting the status quo of incumbent suppliers.

One such provider is Dubai-based GTN Group, a broker-dealer and trading technology provider that’s already been in business for two decades and whose strategic investors include SBI Ventures Singapore and the International Finance Corporation, which is a member of World Bank Group.

Last year, GTN hired Eric Krueger, who has spent the last 25 years in senior sales and trading positions at Saxo Bank, Barclays and Merrill Lynch, to set up a US-based subsidiary to expand its business in the region. The firm appointed him CEO earlier this year.

Initially, GTN Americas will focus on executing order flow on US exchanges for its clients in the Middle East. But Krueger will also be building a sales force covering the US, Canada, and Latin America to sell its white-label trading systems and API library to potential clients among trading firms and broker-dealers in the region. If a client differentiates itself to customers based on its look and feel, then it would likely buy the API library and build its own applications on top of those services. Or, if a client wanted a simpler and faster solution, it could purchase the white-label system, or connect to GTN via the FIX protocol for execution only, Krueger says.

GTN’s technology is built and maintained by a “sizable” development team that’s based mostly in Sri Lanka, with some in South Africa and the Middle East. Krueger says there are two key reasons for entering the US market: One is operational—to ensure execution quality and speed of connectivity across the Americas. The second is to grow its business in a new region.

“The company has invested in our trading and investing solutions that we believe can be leveraged by firms in the Americas to expand their own trading and investment businesses,” he says. “We can engage with all types of clients because of the breadth and depth of our offering. But we want to focus on the fintech space and legacy institutions that are being disrupted by these new challengers. We think that they could quickly improve their product offering and client experience by working with us.”

Once the company establishes itself as a strong partner for US broker-dealers, it can expand to serve more verticals, and to focus more heavily on the growing fintech space in Latin America. But before that, there will be some technical and implementation work required to get the platform ready for US markets—though Krueger says the front end itself is ready to use today, and the remaining work is more compliance-related. Nevertheless, he believes users value choice and will be willing to give GTN’s offering a shot.

“I feel confident that—given the robustness of our offering—we will be able to generate significant uptake,” he says. “The focus at this stage is on ensuring our product gets promoted around the Americas, building our brand in the Americas region, getting in front of as many prospective clients as possible, and ensuring that we’re meeting the needs of existing clients.”

Feargal O’Sullivan, CEO of sales agency and strategic advisory firm Usam Group, which specializes in helping companies—primarily from the UK, Europe and Canada—to gain traction in the US, says it’s no surprise that foreign companies want to target the US, especially with fears that a global recession might hit markets in other parts of the world harder than the US.

While all efforts to target US-based clients stem from the desire to grow revenues and win new clients, the reasons for how vendors approach that aim can be wide and varied

“The US has always been the place companies want to go, especially in financial services, with the financial centers of New York and Chicago,” he says. “I’m not seeing that expanding dramatically, but what I am seeing is concern about the economy. I also see some firms that might have been happy in other markets now wondering whether they should put more effort into targeting the US.”

While all efforts to target US-based clients stem from the desire to grow revenues and win new clients, the reasons for how vendors approach that aim can be wide and varied. For example, Avelacom, an established international low-latency network provider, already had salespeople in the Americas. But it recently appointed Lorenz Voss as managing director for the US to lead a targeted expansion in North America. Voss previously held a range of supplier management and procurement/sourcing roles at Tower Research Capital, network companies GTT and Perseus Telecom (which was acquired by GTT), and Trading Technologies.

The reasons for Avelacom’s decision were multi-fold: First, the company—which already has offices in Brazil, Hong Kong, India, Japan, Latvia (replacing its original headquarters in Russia), the UK, and an office in San Francisco in the US—had outgrown its original corporate structure and wanted to delegate leadership to regional heads with authority and autonomy to grow the business in each region. Second, it identified a large number of potential clients among mid-market firms currently underserved by low-latency connectivity options. And third, some large firms required a local presence in terms of support and product management before they’d consider signing a deal with a new supplier.

“So far, we’ve been focusing on US clients who need a global presence—for example, to remote places where others don’t provide services,” says CEO Aleksey Larichev. But the company realized that while it may be winning deals to serve the overseas connectivity needs of US parent companies, it was missing out on domestic US opportunities to connect firms between marketplaces in the US itself.

“Though from a technical perspective we could satisfy their needs, these firms had never considered us a major US infrastructure supplier. They would say, ‘Why use Avelacom if its sales and service functions are outside the US?’” Larichev says. “And some firms use local incumbent suppliers but may not be totally satisfied with their service, and they want an alternative. So, Avelacom entering the market will give them more choice.”

Mind your business

Then, there are other companies with demand from clients to enter other markets, but which take a more measured approach. Take, for example, South Africa-based Absa Bank (formerly known as Amalgamated Banks of South Africa). At one point, the bank was owned by UK-based Barclays Bank and known as Barclays Africa. But after Barclays sold most of its stake in 2017 and sold the remainder last year, Absa inherited technology assets that were the envy of other banks in the region, and a team of 150 developers in Prague maintaining and developing the technology and algorithms.

Thus, the bank doesn’t need to use third-party solutions from vendors that aren’t totally focused on the South African market. And as such, it’s free to offer its own solutions to clients in other markets.

Merlin Rajah, head of equities electronic product at Absa’s Corporate and Investment Bank, says clients tell him that the bank’s technology is better than solutions they buy from the UK and the US, so he’s now looking at the potential to expand internationally. One of its technology assets is a proprietary FPGA risk layer for performing pre-trade checks on client orders. Rajah acknowledges that building and maintaining hardware FPGAs is a big investment, but says the benefits to the firm and its clients—typically international hedge funds, asset managers, and large banks—that use it are significant.

However, Absa doesn’t want to become an FPGA vendor. Instead, it would offer the risk layer as part of trading and execution services—either by directly entering a new market and becoming a member of the local exchanges, or by partnering with an existing exchange member in that region and offering risk and execution via that member.

But in the meantime, the bank is beginning an ambitious plan to connect to all local exchanges across the African continent to provide a gateway to all African markets for investors in other regions seeking exposure to emerging markets as a hedge against other emerging market exposures, or to diversify their portfolios. Absa already has connectivity to Equinix’s LD4 and LD5 datacenters in Slough (outside London), and Interxion’s datacenter in the City of London, as well as to the Johannesburg Stock Exchange (JSE) and newer rival A2X Markets. The next local markets that Absa aims to connect to are the Nairobi Securities Exchange in Kenya, which—like the JSE—uses the London Stock Exchange Group’s (LSEG’s) MillenniumIT trading platform, and then possibly the Namibian Stock Exchange, whose trading platform is hosted by JSE.

Beyond those relatively easy wins, it may prove tougher going because there’s little harmonization between trading venues across the continent. Each local market has its own nuances and complexities: different settlement cycles, direct market access (DMA) policies, trade formats and connectivity standards. But the point is, by having Absa—which has offices in each location, familiar with all these nuances—take on these challenges, clients don’t have to. That means fewer obstacles to attracting flow from international players. But it also means that Absa can win US business initially without setting foot in North America—but can do that later if there’s sufficient client demand or if an opportunity presents itself.

I always tell firms that they need to have a very successful business at home before they think about breaking into the US market. It takes time. You have to show commitment and be ready to spend money to make money

Feargal O’Sullivan, Usam Group

Usam’s O’Sullivan says this is key, and warns that while the US may present an appealing opportunity for overseas vendors, it’s not an easy market to win over, and it will take time to build business organically.

“I always tell firms that they need to have a very successful business at home before they think about breaking into the US market,” he says. “It takes time. You have to show commitment and be ready to spend money to make money.”

But one thing these new players have in their favor is that firms are under pressure to deliver more for less, and are more open to alternatives that can help them become disruptors, rather than being disrupted themselves. The old adage that nobody got fired for buying IBM—with all due respect to IBM—is no longer true. Procurement professionals are paid to find solutions and think outside the box. Maybe they should also think about suppliers from outside the “box” of their home marketplaces, too.