Financials Author: Yangni Liu Editor: Zhiqing Chen & Luke Sheehan Jun 08, 2021 11:58 PM (GMT+8)

The unexpected outbreak of COVID-19 took countless people away from regular outdoor life activities. While staying locked down at home, people nonetheless kept busy – for some, this meant investing more in stocks. Under these circumstances and with governments' expansionary policies, some Internet securities brokers, like UP Fintech, realized significant profits.

UP Fintech Delves Into Wealth Management

● The firm's revenues kept rising after 2018; most of its income was from the brokerage business.

● UP Fintech is benefitting from the brokerage industry's change, rising individual investors and beneficial policies. 

● To further increase its competitiveness, this technology broker is also focusing on increasing globalization, expanding businesses, and investing more in the R&D process. 

● Although UP Fintech's business performance is showing a sharp upward trend these days, it has lagged behind Futu Securities in terms of profitability and sales volumes. 

According to Morgan Stanley Capital International's(MSCI) recent announcement in May 2021, UP Fintech was to be involved in MSCI China All Shares Index, taking effect on May 27, 2021. MSCI Index has strong international influence, which is widely accepted as a global standard for optimizing investment portfolios. In other words, UP Fintech's joining implies the investors' confidence.

UP Fintech has attracted more and more attention since 2019, when it appeared and began to act as a leading broker of China Concept Stocks, active for two consecutive years. Initially, it focused on the brokerage business, with its self-developed trading platform – Tiger Trade. UP Fintech has gradually expanded its businesses and reached 1.4 million customers by the first quarter of 2021.

Turning losses into gains from 2020

Regarding UP Fintech's profitability as a financial service firm, its revenues have presented an upward trend since 2018, with an average YoY growth rate of about 105.32%. More surprisingly, after going public on the Nasdaq in 2019, its net income started becoming positive and generated USD 19.2 million in 2020. 

As UP Fintech's main business, its brokerage business is still occupying the largest part, composed of commission and interest incomes. As a whole, these two types of income occupied about 76.77% of the total revenue over the last three years. Specifically, the commission income average increase rate was the highest, at 96.64% during this period. Although revenues from financial services were relatively small, the firm has been putting more effort into the investment bank business, helping more firms get listed in the US and Hong Kong. 

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Opportunities from outside

Individual investors have made their presence overriding in recent decades in China. As China's economic condition keeps improving, the scale of wealth management is also expanding. 

According to Credit Suisse Research Institute's Global Wealth Report 2020, China's household wealth achieved USD 81.44 trillion, with a YoY growth rate of 4.4%. China will add another USD 23 trillion in the upcoming five years with a steady progress to popularize wealth management in China's society. 

Although Chinese citizens' wealth scale is rising, its proportion of overseas assets is deficient. As Oliver Wyman's data presented, China's overseas investment permeability was merely 2.2% in 2020, indicating a larger room for its future growth. As a result, more and more Chinese investors will begin investing in overseas markets in the future, giving more chances for cross-border securities brokers. This situation has been also reflected in the increased proportions of Chinese individual investors in online securities trading. To be more precise, both Hong Kong and the US stocks' trading volumes kept rising during these years, with Chinese investors showing more preference for Hong Kong stocks.

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Last but not least,  the State Foreign Exchange Administration of the People's Republic of China released more beneficial policies that encourage international investments. Through continuing to extend cross-border financial services, China has promoted Shanghai-Hong Kong Stock Connect and accelerated the opening of the inter-banking bond market, along with introducing Qualified Foreign Institutional Investors (QFII).  In February 2021, the State Foreign Exchange Administration of the People's Republic of China announced that it would also allow Chinese citizens to invest up to USD 50,000 in foreign countries.

Three tips for self-innovation

UP Fintech is also actively conducting its self-innovation while catching up with the above opportunities. To begin with, the company is constantly implementing globalization in its business strategy. The Internet securities broker not only has a license in China, but also has licenses in the US, Australia, Singapore and New Zealand. Moreover, as mentioned in the firm's 2020 financial report, over half of its new customer accounts came from foreign nations. Taking Singapore as an example, after eight months' operations in 2020, the chain growth rate of Singapore's new customer accounts was over 100%. 

The company never stops expanding its businesses. Since its establishment, UP Fintech has been insistently finding ways to attract more clients. From a single business in brokerage to an integrated Internet securities broker, the company also covers investment banking business, Employee Stock Ownership Plans (ESOP), and wealth management. Due to its comprehensive service matrix, the firm's total customer accounts rose 178.73% from 502,352 users in 2018 to 1.4 million users by the first quarter of 2021.

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The company has also been increasing R&D expenses. To improve the automatic liquidation procedure, UP Fintech acquired Marsco Investment Corporation – the US's renowned securities firm, which has over 30 years of liquidation procedure experience. Moreover, UP Fintech kept increasing its R&D expenses, with which its average R&D expense ratio was about 26.85% in the last three years, even higher than some big tech firms, such as Huawei.

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Competition pressure from Futu Securities 

It is undeniable that UP Fintech's grew rapidly these days, but it has still lagged behind Futu Securities, who also went public on NASDAQ in 2019. These two Internet securities brokers share the same businesses – brokerage, investment banking business and ESOP. However, when comparing their profitability, Futu Securities' revenue scale was three times larger than UP Fintech's in the last two years. As for the number of customer accounts, Futu Securities had ten times more customers than UP Fintech by the first quarter of 2021, with 14.24 million and 1.4 million separately. Additionally, Futu Securities' total client assets were also double those of UP Fintech at the same time. 

The only area in which UP Fintech beat Futu Securities was in the number of financial permits  in the US. By the end of 2020, UP Fintech owned 24 financial plates in the US, while Futu Securities merely had 11.

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The bottom line

With more young people stepping into the stock markets, Internet securities brokers seize this opportunity and innovate their products with convenient functions that allow quicker processing time. Not only limited to Chinese customers, UP Fintech gradually expanded its business to other countries. Even if its scale is relatively small compared with Futu Securities, it is reasonable to expect it to grow substantially in the future.

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