The Borderless Decade
Globalization and the new global financial paradigm with Airwallex Co-founder Lucy Liu
By Min Chen
At the turn of the Millennium, sitting at a Starbucks in Tokyo or watching a film with subtitles were seen as globalization doing its work. Today, in a world where billions of people know about a district in Seoul called Gangnam and where third-culture kids walk among us in greater numbers, a new age of interdependence is taking shape. While it would appear that we’ve acclimated to cultural homogenization with ease, economic integration seems to be another story.
In 2015, then 25-year-old Lucy Liu–a Chinese-born Melbournite–decided to take a break from her investment banking career. She went on vacation in Europe with her husband and recalled feeling “ripped off” by exchange rates as they traveled from one country to the next. Upon returning home, she visited her college friends from the University of Melbourne, Jack Zhang and Max Li, at their newly-opened coffee shop, where they shared a similar frustration of having to pay high transaction fees for importing cups from overseas.
The three friends immediately identified the need for a more streamlined, transparent, and cost-effective solution for cross-border business payments, and founded Airwallex the same year with a fourth co-founder, Xijing Dai. While consumer-facing forex products have seen notable progress in the digital age–the prime example being TransferWise, Europe’s most valuable fintech startup–the same can’t be said for businesses, which is the gap Airwallex works to fill.
In addition to facilitating cross-border payments, the platform also allows companies to set up bank accounts in countries where they have paying customers and move revenue back to their headquarters at a competitive exchange rate. These products, alongside others in the pipeline–such as the Airwallex Virtual Multi-Currency Card–serve to realize the founders’ vision for a simpler global financial infrastructure, where business opportunities are truly borderless.
Airwallex is, by all accounts, well-equipped to take on this task. The company achieved unicorn status last year after a US$100 million Series C fundraise led by DST Global, becoming the third tech startup to do so in Australia and in record time, no less. Jumpstart sat down with Liu to better understand the company’s technology, expansion plans, and vision for the future as we enter a new decade of fintech innovation.
A breath of fresh air
Since coming onto the scene, Airwallex has become a leading player for cross-border payments in the Asia-Pacific (APAC) region, with clients including JD.com, Bank of East Asia, and SHEIN. But identifying the right model took some tweaking, as the company pivoted from being a web application for small and medium-sized enterprises (SMEs) to an API solution in its first year.
Liu says the founders “didn’t anticipate the acquisition cost of SMEs” and realized that “the pain point is not as obvious as enterprises” due to the low volume of payments. But they knew that a web application and an API solution go hand-in-hand, so the company now offers both.
“We have clients who have been on the web application and want to move onto a full API integration, and we have API-integrated clients who still want a manual dashboard to use,” says Liu. “The API product generated volume, but a web application is always a better stock because it’s just easier to sell.”
Airwallex’s core business centers around its role as a forex market maker; forex margins differ in each country and region, reaching as high as 4 to 8% in the U.S. and Europe. By plugging into various liquidity providers, the company can access wholesale exchange rates that are usually offered to institutional banking clients, and passes on the discount to its users, saving them up to 90% on their forex spend. Liu uses the analogy of “sending a big cargo instead of small parcels” to explain how the company achieves economies of scale.
As for innovation, Airwallex’s primary proprietary technologies are (1) point-to-point money transfer and (2) infrastructural tools. The former is an algorithm that allows the platform to identify the best route for money to arrive at its destination
Traditionally, money is routed through a complex network of banks between the two countries, making it a slow and costly process. Airwallex overrides this process by integrating with the local settlement systems, either by partnering with a bank or obtaining a license to operate as a settlement provider.
On the infrastructure side, Airwallex designs products that specifically cater to cross-border commerce. “We focus on building applications that help businesses expand and scale in the new digital world,” says Liu. “These tools haven’t been given to them as a service because their business models are so new as well.”
For example, Global Accounts allows clients to collect money locally, and exchange it into the currency of their home country or use it to pay a local supplier. It also supports merchant payouts, which could involve thousands of cross-border payments–a manageable task for marketplace giants like Etsy or eBay, but a different story for businesses that need to carry out the payments manually.
AI development is also a priority for Airwallex, where it now has a wealth of data at its disposal after years of operation. Liu explains that such efforts focus on detecting non-compliant behavior and analyzing trade activity, which help the company manage liquidity and prepare for events like Black Friday or Singles’ Day.
“The magic of data is that it can help you find patterns and build risk profiles to predict certain behaviors or prevent certain behaviors from happening. You then pass it on to human intervention, as opposed to using thousands of operations people like banks,” adds Liu.
Automation is invaluable for a company that has been international from day one. Even so, Liu recalls spreading the team very thin in the early days, adding that having satellite offices was a challenge to keeping employees engaged.
Growing from four to over 400 employees in four years necessitated that Airwallex implement an onboarding process that would lay the foundation for a strong team. All new hires work from one of the main offices in Australia, Hong Kong, or Shanghai for three weeks as a way to connect with the company’s culture.
“People-growth is more important than business growth,” says Liu. “You can be slow in growing your revenue, but if you make the wrong hire or if you don’t have the right people in place, it affects you a lot.”
This people-centric approach also applies to the company’s fundraising strategy. Fintech startups are disproportionately put under the microscope, as trust–on the
part of consumers, institutions, and regulators–is paramount. Liu stresses the importance of relationship-building, believing that “it’s almost impossible to build trust without personal interactions,” but adds that it does become easier over time. For Airwallex, bringing in heavyweights like Tencent, Sequoia China, and Mastercard for its Series A fundraise helped instill trust in the company for partners, clients, and other investors.
“At different stages, you run into different things. Trust-building is a marathon. You need to always be professional and working on things to make sure people trust you,” says Liu.
Businesses without borders
Airwallex is now taking on both developed and emerging payment markets around the globe. Liu says the company’s proposition in mature markets like Europe and the U.S. remains unchanged, where its extensive network makes for a compelling case.
“For European clients, [they] already have everything in place, but our knowledge and infrastructure in APAC is pretty unique,” says Liu. “The market is big enough for everyone to have a piece of the cake.”
Localization is more nuanced in less developed markets like Southeast Asia, Latin America, and–to an extent–China, as users made a direct jump from cash to digital payments. Thus, companies like Airwallex must look at building prepaid cards or digital wallets into their system, which also has the added benefit of encouraging financial inclusion for the unbanked in these regions.
“For our network to be impactful, we need to enable additional endpoints other than bank accounts,” says Liu. “Localization-wise, we need to enable whatever is the preferred payment method in that country.”
Navigating local compliance regulation continues to take precedence as Airwallex expands, especially when operating in countries with lower risk appetites and tighter capital controls. Liu has always pushed the idea that oversight is good for fintech companies because lack of policy clarity is a huge source of frustration, and it’s “tough to compete in a market where there is so much noise.” As a whole, she observes a trend toward openness and eagerness to catch up with innovation on the part of regulators.
“Four years back, everyone was so cautious, saying I have no idea what you do, so we might as well not let you do it. Now, regulators are more observant and knowledgeable about what’s going on,” she adds.
As for product diversification, Airwallex is looking at loan payments and other products that address the most pressing needs of any businesses, namely payments, liquidity, and working capital. Liu says that Airwallex doesn’t endeavor to build each of these products themselves, but hopes to create an ecosystem of partners that have the same vision.
“I hope to see another fintech company built on top of our infrastructure–such as one that only focuses on loan applications to use our API–so they can have their own mini Airwallex, in a way,” says Liu. “It’s a complex product, but I think, over time, it will become our most powerful.”
Despite such ambitions, Liu says that Airwallex is not in it to disrupt financial markets. Instead, its future goes back to the company’s founding mission: making international growth financially and operationally feasible, and establishing a paradigm where businesses don’t need to wait months to open a bank account.
“The road we want to pave is one where people don’t need to ask How do I get paid? or How do I get the money back to my working capital? We want to be the default choice,” says Liu.
Becoming the go-to international payment service provider is no small undertaking to say the least. Startups and institutions are scrambling to innovate in a space that offers a wealth of opportunity in light of the increasing fluidity of cross-border commerce. In 2018, business-to-business cross-border transactions generated $125 billion in revenue. It’s this sense of urgency that has propelled Airwallex to grow at such a pace (SWIFT and McKinsey & Company).
“I think with us, becoming a unicorn was not by choice because you have to rapidly expand to become a player in the industry,” says Liu. “In my opinion, there’s no such thing as a small payment company.”
To Airwallex’s co-founders, fundraising was never an end, but a means for them to continue to execute their business model effectively, and increase volume and flow. Liu has another aspiration for the company, which is to inspire the next billion-dollar startup.
“I look forward to an employee becoming a founder. I think the coolest thing is to have something like the ‘PayPal Mafia’–when employees leave established startups to found their own company,” says Liu. “That would be really awesome.”
The past few years have been a whirlwind for Liu personally. She admits that there is no work-life balance when it comes to building a startup, although she does enjoy working and letting herself get lost in the process.
She still travels when her schedule permits, making time to dine at new restaurants and fuel her coffee obsession. It’s with this balanced attitude that she is able to take on the “two startups” in her life–the second being her 14-month-old daughter.
“I’m very lucky to have a supportive family, so it can be done,” says Liu. “I’ve been telling people that you can have whatever you want in life as long as you work hard at it.”
Min is Jumpstart’s Editor in Chief.