How a mooncake led Leaf Li to start a Nasdaq-listed broking app

Chinese philosopher Laozi famously said that a journey of a thousand miles begins with a single step. For Chinese tech billionaire Leaf Li, that step came in the form of a mooncake.

He was then riding high on the success of legendary Chinese tech unicorn Tencent, which he had joined in 2000 as its 18th employee. Serving in several senior management roles such as head of Tencent’s multimedia business and its innovation centre, the computer science and technology graduate helped develop key products like popular social media app Tencent QQ. Rising stock options, he notes, had brought him robust financial security.

But it was a visit from his broker during the Mid-Autumn Festival in 2007 that prompted Li to leave all of this behind. The broker came bearing a mooncake as a gift, and Li asked him why no similar gesture had been offered since 2004 when he began using his services. The response was that the mooncake was a gesture of appreciation for the approximately HK$5 million ($858,149) that he had paid in commission for his large trading volume that year.

“I was very shocked. I knew that at Tencent, we only received HK$10 per QQ user. And we had to put in a lot of effort and care into [serving them],” Li tells The Edge Singapore.

It did not seem fair to him that he had to pay so much just for a few meetings and a single mooncake.

Li also thought that stockbroking platforms at the time were relatively crude and clumsy to use. Service standards, he recalls, were sloppy while clearing services were unavailable after trading hours ended at 3.30pm.

“We were working in product management and user experience (UX) work at the time and found that the gulf in standards was significant,” says Li, whose first interaction with the stock market came during Tencent’s Hong Kong IPO. He was confident that his skills and experience would allow him to develop far better broking solutions for investors than what was then available.

Li struck out on his own and founded Futu in 2011. The company is an online brokerage service that eventually listed on NASDAQ in 2019, raising US$90 million ($119.8 million) during its IPO. Through its Futubull and Moomoo apps — the latter caters to overseas investors — the Hong Kong-based firm seeks to disrupt the stockbroking industry by developing an easier way to invest. Trading volume in-creased 381.1% y-o-y in 3QFY2020 ending September to more than HK$1 trillion.

Unlike most entrepreneurs, Li did not feel much apprehension about leaving his position of relative security for the unknown waters of entrepreneurship. The exponential appreciation of his Tencent shares, he muses, has blessed him with a significant degree of financial freedom. Having already paid his dues in Tencent’s early days of uncertainty at the turn of the millennium, Li was able to approach his new venture at the turn of the decade with confidence.

The future of broking
While Futu is typically spoken of as an online brokerage service, Li prefers to define the company as a “technology firm that does broking” rather than a “brokerage firm with technology”. Seven in 10 of Futu’s more than 1,400 employees are responsible for technology functions. Even the culture and corporate structure of the firm is more closely aligned with the tech world as opposed to a financial institution — Li’s typical attire is a polo shirt and jeans as opposed to a business suit.

“Traditional broking firms...rely on a more personal style of selling. We on the other hand rely on our app and our trading platform to at- tract clients,” explains Li. Besides a slick interface that is designed for easy use, users are also provided with market data and news, research, as well as powerful analytical tools to improve UX. This includes free Level Two market data that shows real-time bids and asks and trades being executed.

These features have naturally drawn tech-savvy millennials to the young firm. In its NASDAQ IPO prospectus in 2018, Futu said that the average age of its clients was 35 years old, with 43.8% working in the internet, IT or financial services industry. Li thinks Futu’s apps better resonate with young people with less assets, who may feel intimidated in the more aloof and high society atmosphere of traditional brokerages. It saw 136.5% y-o-y growth in paying clients to 418,089 in 3QFY2020 and 209% y-o-y growth in Hong Kong paying clients — a new quarterly high since its IPO.

Of course, low commissions have proven attractive too. Futu charges zero-commission for US stock trades and options trades and a 0.03% or HK$3 and RMB3 ($0.62) commission for Hong Kong and Chinese stocks respectively. US stocks (under a promotion scheme) and options are currently also not subject to a platform fee; a platform fee of HK$15 or RMB15 is levied for each Hong Kong and Chinese stock purchase respectively. The average trading commission in Hong Kong is about 0.073% based on data collected from its nine most popular brokers.

More than just a trading platform, however, Li hopes that Futu’s apps will help make trading a social activity. Futubull features a Niuniu Community equipped with social media tools so that users can compare notes, watch live events and even attend classes together. It believes that this will reduce information asymmetry and support investment decision-making.

“It has been said that retail investors find themselves either ill-informed (wuzhi), helpless (wuzhu) or bored (wuliao),” quips the Futu founder. Engaging with a community of like-minded investors, he believes, will help make trading a more pleasant experience. Futubull currently has a 4.5 rating on Google Play, though some users cited concerns with the user interface, customer service and occasional glitches.

Beyond stock trading services alone, Futu has also forayed into wealth management through Money Plus, which offers Hong Kong investors a diverse range of fund products for zero subscription and redemption fees and “very low investment thresholds’’. Monies from money market fund redemption can be quickly liquidated and used immediately for stock trading via Futubull. Futu is also expanding into enterprise services through FUTU I&E, providing Hong Kong and US IPO distribution services and employee stock ownership plans to corporate clients.

Strong demand

Not content with its already considerable achievements, Futu is looking to roll out its services in Southeast Asia. Already operating in Hong Kong and mainland China with a subsidiary — Moomoo — in the US city of Palo Alto, it plans to set up its regional HQ in Singapore to kick off its expansion into the wider region. It has received a Capital Markets Services license from the Monetary Authority of Singapore (MAS) and has a team of around 10 people supported remotely by 150 staff working from China’s Shenzhen and neighbouring Hong Kong.

“We have observed that there is a strong demand for Futu’s products and services in Singapore,” says Li, who currently plans to conduct investor engagement with potential clients in Singapore. With investors worldwide increasingly looking to buy stocks beyond borders digitally, he believes that investors wish for apps like Futu to enable them to trade stocks over a wider geographical range. This is especially in the wake of Covid-19, when people have become more used to digital trading as a result of lockdown measures.

The firm is using an unconventional sales tactic to win over Singaporeans - offering a single free Apple stock to new clients, for example. Li explains that the logic behind this is to ride on Apple’s more established brand to give Futu greater brand recognition and a more sophisticated brand image. From the firm’s projections, he sees this strategy yielding results, allowing Futu to compete against more premium broking platforms even if Apple stocks are now more than US$120 apiece.

Having benefited from the business-friendly environment in Singapore, Li expressed a desire to contribute to the city-state’s digital transformation efforts. This includes bringing in local talent into its ranks to lead its regional expansion. Futu has also been engaging with business associations to share their experiences and best practices with local businesses, as well as working with institutes of higher education to provide professional and educational opportunities for tertiary students.

Lofty ambitions aside, what anchors Futu is its commitment to put the client at the heart of its operations. “We place the client’s pain points and problems first. We always strive to provide a solution at the greatest speed and highest rate of responsiveness,” vows Li. Stockbroking, it seems, is no longer just about delivering moon- cakes on Mid-Autumn Festival.