In April, when the pace of fundraising for young tech companies had slowed dramatically, digital payments network Airwallex bucked the trend. The five-year-old start-up raised $160m from a diverse group of banks, tech groups and investment firms, in a deal that valued it at $1.8bn.
Many areas of fintech — especially those using data analytics to extend loans to consumers and smaller enterprises — have been caught out by the speed of the economic slowdown that has followed the pandemic.
But Airwallex, whose head offices are in Hong Kong, has held up better because it operates in a more promising fintech space: it helps small enterprises with operations beyond their home borders manage their foreign exchange needs, sending and receiving multiple currencies without handing exorbitant fees to the banks.
“We are building a digital payments infrastructure to help small and medium enterprises operate globally,” said its co-founder, Jack Zhang.
Airwallex has ambitions that potentially far exceed eating into what has been a hugely profitable business for the banks. If successful, it will pose a challenge to one of the principal building blocks of the international monetary system — illustrating the speed with which technology makes it possible for new entrants to upend the status quo.
It is creating an entirely new infrastructure to replace the traditional pipes of the global payments system, now dominated by Belgium-based Swift, which is not controlled by any government but is still seen as part of a financial world dominated by the west.
“It is a big deal. It took five decades to build up Swift into a system which is low cost, robust and resilient,” said Dino Kos, who ran the markets group at the New York Fed for many years and is now an executive vice-president of CLS, which provides foreign exchange settlement services for the world’s largest banks. “There is no alternative today.”
While Swift has tried to be politically neutral, it has come under pressure in the past from the US, seeking information on transactions that may be violating US laws, added Mr Kos. At the same time, governments including those of Russia and China have talked about trying to develop an alternative to Swift — but have never actually done so.
Airwallex is gaining ground just as digital currencies have the potential to challenge both a system in which central banks have a monopoly on creating money and the US dollar dominates international payments. And it is in discussions with Facebook to explore synergies with that group’s Libra experimental digital currency. Mr Zhang declined to comment on the talks.
Despite its potential disruptive power, Airwallex has sought to accrue allies among both traditional financial institutions and big tech. Today, it is backed by a diverse group. Its investors include Tencent, Sequoia Capital, Hillhouse Capital, DST, and financial institutions such as credit card giant Mastercard, as well as regional banks, such as ANZ and BCA in Indonesia.
Salesforce invested in the latest fundraising round, enabling Airwallex to offer its services to the Salesforce ecosystem as it already does with the Tencent ecosystem.
“The existing system is inefficient and fragmentary,” said Lucy Liu, Airwallex’s co-founder, who is based in Shanghai. “And while we want to build our own payments platform, both for settlement and payment, we want to work with banks and other financial institutions.”
Even given these positive dynamics, Airwallex faces many challenges before it can begin to have a transformative effect.
As Mr Zhang noted, the digital world may be borderless but any financial product is heavily regulated by different jurisdictions. In the US, for example, the firm needs licences from all 50 states. An application to the People’s Bank of China is subject to such tight non-disclosure agreements that Airwallex’s founders cannot even disclose how long the process may take.
Precisely because it — and most of its customers — live in a digital world, Airwallex also faces global competition, not only from local Asian start-ups including Hangzhou-based PingPong Payments but those in Silicon Valley such as Stripe.
This has done little to dent its ambition. “If there is an alternative rails for the global payments system, you want to be part of it,” said Mr Kos. “You do not want to be on the outside looking in.”
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