Our investment notes on Airwallex

Led by Paul Bassat.

We live in a world that expects businesses to service international customers easily. To do so, having the right infrastructure for cross-border payments is crucial.

That’s why we’re excited to invest in Airwallex, a Melbourne-based team who are helping businesses make better international payments at scale.

The phenomenal Airwallex founders.

International payments are a mess

Let’s say you run an online travel marketplace, helping Aussie tourists find and book local tourist guides for South East Asia.

The local guide wants to be paid in Indonesian Rupiah, while the Aussie tourist wants to pay with their Australian bank account or credit card.

Here’s what normally happens

  • your online travel platform uses a local bank to convert AUD to IDR.
  • you often need to do this in bulk, to avoid high-fees and transaction costs.
  • but, the bulk-transfer rate is often different to the rate your platform offered to the Aussie tourist because the currency rate fluctuates minute to minute.
  • the banks then add discretionary charges to the transfer on the way through.
  • this process can sometimes take days. Yes, days.

This system is called the correspondent banking network (CBN) (supported by the SWIFT messaging protocol and largely unchanged since the 1970s). The original purpose of the network was to ensure trust, compliance and a global network of banks with the ability to facilitate international payments.

In practice, businesses that use this service are subjected to high-fees, slow-processing times, minimum transaction sizes and volume limitations. Plus, there is limited breadth and depth of compliance screening in terms of — prepare for important banking acronyms–: KYC (Know Your Customer), AML (Anti-Money Laundering) and CTF (Counter-Terrorism Financing).

The process is so complex that only a few banks are able to maintain the relationships and compliance that international transfer through correspondent banking requires (think Citibank). This means that huge profits pool between a few players, resulting in limited internal pressure to change the system for the customer’s benefit.

In short, it is a mess.

This hurts businesses

To provide a great experience for customers, platforms tend to guarantee FX rates, even though they themselves don’t get access to up-to-date rates. To reduce upfront fees, platforms tend to exchange their money in bulk, meaning that they are even further exposed to volatile transfer rates. To make it worse, in many cases, businesses can’t guarantee a payment timeframe because they aren’t sure where transfers are at any one time.

For high-volume tech platforms that require cross-border transactions, this is a major problem. Plus, the scale of the problem is huge, affecting travel platforms (Booking.com), social platforms (WeChat), cross-border marketplaces (Wish.com or Fiverr.com) and payment service companies (Instarem).

Enter Airwallex

In a similar way to how Stripe has made the receipt of payments frictionless and easy for online businesses, Airwallex allows high volume platforms to make international payments at scale, through a simple set of APIs which:

  • directly connects banking counter-parties across borders,
  • provides direct access to FX liquidity,
  • offers real-time transaction monitoring/screening,
  • reduce costs per transaction, and;
  • removes the hidden cost of accessing poor rates and fees normally experienced in the correspondent banking network.

No wonder we’re excited

In FX, this level of service and transparency is an absolute breakthrough.

It’s also really, really hard to achieve. Establishing the correct technological (and human) relationships to make this work requires the sophistication and quality to make it through arduous diligence processes and audits, plus it needs to withstand the volume requirements of these large platforms.

So, it is even more impressive that Airwallex has already established trading in over 100 countries across North America, Europe and Asia Pacific, with aggressive plans to crack open more areas of the international banking sector.

Which leads us nicely into the phenomenal Airwallex team

Airwallex was founded in 2015 by Jack Zhang, Lucy (Yueting) Liu, Jacob (Xijing) Dai, Max (Cheng) Li and Ki-Lok Wong. They are the perfect example of the types of entrepreneurs who we love to back: highly capable, super smart, deep domain knowledge, driven and looking to solve a real and large, global problem. The Airwallex team are unashamedly technical and incredibly focused. We are big, big fans.

We briefly met Jack (the CEO) when we spoke at Tech23 in 2016 and then spent more time with him after a timely prompt from Atlanta Daniel (who is part of the investment team at Blue Sky VC — thanks, Atlanta!). We love getting to know founders early in their journey so that we can build a trusted relationship over time. This was no exception.

We know that Airwallex is solving a major problem for businesses, and are equally excited by the potential of Jack, his team and the incredibly scalable business they’re building. This is why we’ve tipped US$6m into their Series A+, joining Tencent, Sequoia China, Gobi Partners and MasterCard as investors.

Check out the Airwallex solution at airwallex.com.

As an aside, our investment in the Airwallex team is the 4th new investment in Australia this year — following UHG, Prospa and Vero (with a 5th to be announced soon). It is certainly an exciting time for Australian tech.