Payment unicorn Airwallex: Pandemic won’t stop globalization

May 07, 2020 06:00
Airwallex's co-founder and president, Lucy Liu plans to launch a services marketplace, where it will connect customers to other useful tools that integrate with Airwallex. Photo: Airwallex

Cross-border payment operator Airwallex, which achieved “unicorn” status last year, announced this April the completion of a US$160 million Series D funding round.

Participants in this latest round, its largest to date, included ANZi Ventures, the investment arm of ANZ Bank, Salesforce Ventures, and several existing investors, such as DST Global, Tencent (00700.HK), Sequoia Capital China, Hillhouse Capital, as well as Horizons Ventures, backed by Hong Kong's richest man Li Ka-shing.

The fresh capital will be used to accelerate worldwide growth in Europe, the US and new markets, and to expand the product line of Airwallex, which reached a valuation of US$1.8 billion in the new funding round, according to Airwallex’s co-founder and president, Lucy Liu Yue-ting.

Despite a “temporary” decrease in the transaction volume on its cross-border payments platform in recent months due to the coronavirus crisis, Lucy remains optimistic in the year, with Airwallex’s new partnership with Visa and integration with accounting software Xero.

“Being a well funded company, in a way makes sure that we survive any difficulties,” said Liu, adding that the firm has “a lot of expansion plans” for this year in terms of new markets and products, such as launching a “services marketplace”, where it will connect customers to other useful tools that integrate with Airwallex.

Critics suggest the coronavirus pandemic can lead to “deglobalization”, as businesses are reassessing China’s role in global supply chains, and setting up alternative supply chains to reduce their dependence on China.
Yet, Lucy told EJ Insight the globalization will never be stopped: “The world is now even more connected than ever in a digital way, thanks to the huge growth of consumers moving online.”

In the bid for Hong Kong’s virtual banking license, the five-year-old startup previously formed a joint venture with Bank of East Asia (00023.HK) and Sequoia Capital China. But the consortium failed to make the final shortlist of eight virtual bank licensees in 2019.

But Liu said that she would not rule out a re-application in the future.

“[Virtual bank] industry is definitely big enough for multiple players,” she said, as the eight virtual banks are focusing on consumer products so far, while Airwallex targets the B2B side for its virtual banking vision.

Edited excerpts of the interview:

EJ Insight: As we know that Airwallex has closed its Series D fundraising round at US$160 million, how does Airwallex plan to use the new funds?

Liu: In terms of the funding round, we actually kicked off late last year, which is why we were able to complete most of the conversations with investors, the pitching and have a good negotiation on the terms prior to COVID-19. Saying that, I still think we're quite fortunate that we have very supportive investors and we were able to close the round, despite all the financial and economic challenges. I think it shows that investors still have a lot of confidence in what we're doing, as our value proposition is really around globalization as well as the digitalization of the general global economy.

Q: Is there any impact over Airwallex’s business from the coronavirus pandemic?

A: We've done some analysis around the economic impact of COVID-19. And despite that there are a lot of difficulties for the e-commerce and the travel industry, there are some opportunities that arise from this because people's behavior has fundamentally changed.

From our perspective, even though there has been a decrease in the trading volume on Airwallex, it's still quite temporary. Understandably, cross-border e-commerce has been affected by the international logistics shutdown. We have seen a 20 percent decrease in trading volume against predictions in the first quarter. However, we have started to see some recovery as factories and supply chains have begun to resume operation. For our clients in online education, live streaming and gaming sectors, we have seen an uptick amid COVID-19, we saw a year-on-year increase of 30 to 40 percent in their trading volume in the first quarter.

So in short we're still quite optimistic about 2020. And this funding round is also our protection against any challenges, being a well funded company in a way makes sure that we survive any difficulties, and we still have a lot of expansion plans for this year in terms of geographic regions, as well as products.

Q: Do you expect a further decline in the second quarter, what’s your projection for the full year?

A: There's a lot of uncertainties still [for projection]. We are already starting to see a recovery mostly from our new transacting clients. Take e-commerce as an example, as one of our main industries, a lot of offline businesses started to shift online, people started opening stores on [platforms] like Amazon and Shopify, to help them survive. If [people] are thinking of launching a new business, their only choice is to launch it online now. So definitely, people are more active looking for online solutions as opposed to walking into a bank setting up an account.

Despite this [crisis] being a hit to the existing companies and players in the market, there's still new joiners and new trends, particularly from companies who are trying to digitize their business and trying to operate online. And I think as soon as this behavior is adopted, they actually will still stick to it, even when things start to get back to normal.

Q: For Airwallex, a startup with the core value proposition around cross-border businesses and globalization, do you think the coronavirus will reverse globalisation?

A: The pandemic is slowing down the process of globalization, but it will never be stopped. In fact, the world is now even more connected than ever in a digital way, thanks to the huge growth of consumers moving online.

During the pandemic we have continued to see businesses become increasingly digitized and wide-range of online businesses thrive. We believe this shift to digital will continue, even after the lockdown ends.

Plan to launch ‘service marketplace’

Q: Airwallex has launched Airwallex Borderless Cards in a partnership with Visa, which is scheduled to open up to Hong Kong SMBs and enterprises in the year. What is the purpose of this new partnership?

A: So, previously, we could only pay out into bank accounts. But actually, a lot of our clients want a card solution, which is similar to our own experience in a way because as a startup before, we couldn't get a business transaction card with a bank, whereas I think nowadays businesses have a lot of transactions which are still very card-based. So with our virtual card, you can generate another one easily, or if you're a very large business, you can actually use our issuing API and issue multiple cards very quickly. Also, you can actually set all sorts of different restrictions on the card, say the expiry date, the limit, as we are doing more customizations down the track, to allow for more complex business payment needs.

Q: Will Airwallex offer a credit card in the future?

A: It's not a priority at the moment. We are working on working capital solutions for our clients who do have credit needs, but it's not a thing to do with the card. Also, under the new partnership, we become the principal member of Visa, which gives us a lot of flexibility in terms of what we can build, and it's also interesting because we are the first FinTech that Visa is working with in the APAC region.

Q: On the other hand, how does Airwallex’s integration with accounting software Xero work out?

A: Xero is a very good example of what a good ecosystem can do for us, because they have thousands of applications on their platform. So the first part of the integration is that our users are now able to see the transactions that they did on Airwallex in Xero. I think that's only just the beginning of what we want to do with Xero and potentially we're also looking at other things like foreign exchange and payment plugins,but [they are] a little bit up in the air at the moment.

Q: As we know that Airwallex is also set to launch a services marketplace, where it will connect customers to other useful tools that integrate with Airwallex, what is the vision about this plan?

A: It is, again, an extension of our strategy around the ecosystem. [For the service marketplace,] the working capital solutions I mentioned, of which we are using our transaction data to help our customers secure loans with someone else; those type of services will be on our service marketplace. We would mainly be working with other partners and vendors on that. Because our strength is still in payments and foreign exchange, and we want to be able to quickly launch the service without doing everything in house.

I think we will start with a few partners, in the second quarter probably, and adding more as we build it up. The value in our service marketplace is not really simply just referring our clients to someone else. We want to be able to at least have a data layer sharing so that people can access these types of other services without doing a lot of background work. Obviously, Xero is one of the services that potentially would be on there.

Ambition beyond “neobank”

Q: As the company has its sights set on becoming a platform business like Xero or Salesforce, while offering working capital solutions for customers, will Airwallex look more like a “neobank”?

A: It really depends on how you look at it. I think "neobank" in a way is just a label. We are not a bank, we don't have a banking license, but our positioning is very much on servicing the SMEs, at least, offering them a bank alternative. And we don't necessarily want to constrain ourselves to just be a “neobank” or a “challenger bank”. We are a tech company and that's a broader idea.

Q: As we know that Airwallex previously joined the push for Hong Kong’s virtual bank license, yet, it couldn’t make it to the final shortlist. Will you apply for the license again?

A: We're not ruling it out. In the first round, there were very few companies who got approved, and they were industry giants like Ant Financial, so I think my take is that there's definitely still a demand in the market for virtual banking services. For the existing virtual banks, I think there are only some beta versions [of their offerings] now, with mostly consumer products, so it is interesting to see what happens on the business side, because for us, we are mainly on the B2B side.

As an industry, it's definitely big enough for multiple players and it's a very competitive market. So I think if we are to apply again, we are confident we would be successful, but currently it is not really affecting us on the product side.

Q: Is there any specific reason provided by the HKMA that Airwallex could not obtain the license in the first round?

A: HKMA did not share reasons as to why our application in the first round was unsuccessful.

However, despite this small setback, our commitment to the Hong Kong market remains unchanged. We will continue to support SMEs and enterprises to navigate financial complexities to help them grow internationally. For example, our Borderless Card and the integration with Xero will be available in Hong Kong later this year.

Q: Is there any plan or timeline for Airwallex to launch its initial public offering?

A: It's in the back of our head, in my head. That's not a priority at the moment. In terms of IPO, it really depends on what purpose it serves. For us, we really need to think about why and we don't have the answer to that yet. We don't want to make IPO as our goal yet, because it's purely a financial milestone.

[In the private market] these days, we can actually get very similar valuations as the public market, and it's definitely faster if you're a payments company, because all the papers you require for public trading is probably a lot. But, every startup is different. For some companies, especially if you are in the consumer space, being listed is seen as trustworthy, and they get some good PR, but that also puts you in the spotlight.

Do you want to be in the spotlight, like do you want all your data and financials to be public? If you're in a competitive market, you might want to keep those information a little bit secret a little bit longer.

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EJ Insight writer