Frank Niehage, CEO of flatexDEGIRO, speaks with Acuris Capital Intelligence about the German online broker's plans for expansion into new business lines this year and why market volatility has been a boon to its trading platform. 

Interview by Patrick Costello 

Q. What is your operational outlook for 2022 and beyond? 

Under our current growth plan through 2026, we are aiming to end up with at least seven million clients and 250-300 million trades per annum on our platform. We currently have more than 2.2 million clients on our platform that settled more than 90 million securities transactions in 2021.

While market volatility has fuelled our business model in the past two years, it’s important to note that our guidance does not depend on this. Pre-COVID-19, our clients were making 30 to 35 trades annually.

When the pandemic kicked in, it went up to 70 times per year, now it’s down to around 50 trades. Our planning is based on the lower baseline of 30 to 35 trades per client per year, which is a very realistic assumption, and if volatility continues to be unexpectedly higher, then we will do even better.

In the past eight years, we have always outperformed the previous year following the principle of under-promise and over-deliver, and we are going to continue this tradition in 2022.

Q. What is the biggest risk you see to your outlook? 

The biggest challenge is always IT security. To make sure no hackers can bring us down, we like to provide 100% uptime to our clients.

We invest a lot in IT security and, this year, we doubled the budget to make sure we stay ahead of the curve. We manage all our IT security resources in-house and I take this issue very seriously, with our head of IT security reporting directly to me.

It’s a field that is moving very fast but having all of our IT under our roof gives us an advantage over competitors that rely on more outsourced oriented models where you depend on what your partner does or doesn’t do. We can control this and add more to the budget if we feel it’s the right thing to do.

Q. How are the pandemic and Ukraine war affecting the business? 

I don’t like the pandemic or war, but those situations lead to increased volatility, which in turn fuels our business as I mentioned.

In addition to volatility and a low interest rate environment, we benefit from the fact that people took the time to inform themselves about investing during COVID-19 lockdowns. This attracted new clients, as many people became more open to trying out online brokerages.

People saw the so-called V curve of indexes like the DAX in 2020 and realised they could get involved in capital markets and make some money. This encouraged them to start trading on their own.

After the pandemic, people won’t return 100% to their pre-COVID-19 behaviour—the idea of buying stocks yourself is here to stay and will continue to gain traction, I think. Especially in a market like Germany, where we are starting out from a very low level, with most Germans not owning stocks. The mentality has changed and there is huge potential for our industry. The same is true in other continental European markets such as France, Spain, Portugal and Italy.

As a bank, we have almost no exposure to the market in Ukraine. We also have very few clients in Russia or Russian nationals on our platform, so the sanctions against doing business there have no impact on our KPIs.

Q. What other developments are shaping your industry? 

There are always discussions around volatile versus stable revenue streams. We hear from the market and shareholders that there is an increasing appetite for assets under management products beyond the traditional brokerage offerings.

Robo advising is one such in-demand product and we plan to begin offering this service this summer through our partnership with Whitebox.

Cryptocurrency trading is also of importance to many people and we believe we have found the right partner—Börse Stuttgart and its BISON app—to offer this to our customers starting at the end of Q3 2022.

Q. Where does M&A fall in flatexDEGIRO’s strategy? 

M&A is certainly something we generally consider, particularly when it comes to acquiring other online brokers or competitors to expand our service offerings, but we need to identify the right target and have a clear plan to integrate it.

It must also create value beyond just buying market share to justify the purchase price. We wouldn’t make the mistake of spending money to acquire customers via M&A given that our organic customer acquisition costs are quite low.

Otherwise, we are prepared to act fast when the right opportunity arises. We already obtained approval at our AGM last year to raise fresh capital of up to 50% of our market cap to finance acquisitions.

We have done two deals so far, with the acquisitions of XCom Group in 2015 and then DeGiro in 2019, and I wouldn’t be surprised if there is a third one in the future. As we say in German, all good things come in threes.

A bit of background: flatexDEGIRO is the leading European online broker with over two million customers in 18 countries. Prior to joining flatexDEGIRO in 2014, Frank Niehage was managing director at Goldman Sachs. In previous positions, he was instrumental in the growth of Bank Sarasin AG as CEO in Germany. Prior to this, he served in various senior positions at Commerzbank, Credit Suisse, UBS and international law firm Beiten Burkhardt, both in Germany and internationally, especially in Asia.