Pre-launch Melbourne startup Airwallex, which looks to give individuals and small businesses access to interbank mid-market exchange rates, has raised $4.5 million in a pre-Series A funding round led by Gobi Partners, with participation from Gravity VC and angel investors including Huashan Capital One and Billy Tam, CEO of Easylink Payments.
Cofounded by Jack Zhang, who has worked at ANZ and NAB, the platform looks to open up to small businesses the opportunity to do business overseas better by providing them with exchange rates that have traditionally been the domain of big business, before being hiked up for consumers.
The platform works through a peer to peer algorithmic engine, big data analytics, and quantitative models that predict currency volatility and auto-hedge conversions in real time to allow people to issue and pay invoices in their preferred currency, avoiding inflated fees and margins.
Zhang said the idea came from his time working as a foreign exchange developer at NAB, when he also opened a café across the road from the bank’s Docklands office.
“It had the dual benefit of giving me my caffeine hit, and a place for me to learn the foundations of entrepreneurship. It also gave me the idea for Airwallex. After ordering a big batch of food packages from China, I was shocked at the costs of the foreign exchange rates and fees. Airwallex was established as a cheaper alternative to banks, Paypal, Western Union and the traditional processes for cross border payments,” Zhang explained.
Zhang said the startup set out to approach investors in both Silicon Valley and Asia, preparing itself for what it thought would be a long journey to raising capital. As it turned out, they managed to secure funding from Asian investors in just two weeks.
“I’ve found that Chinese VCs are quick to make decisions on promising startups, and given we already have an Asian footprint with an office in Hong Kong, it was quite easy for us to make a connection with investors there,” he said.
Michael Zhu, managing partner at Gobi Partners, said the firm believes the Airwallex team has the potential to truly disrupt the current cross-border payment ecosystem.
“With cross-border consumption booming in Asia, demand for foreign exchange is higher than ever. Meanwhile, traditional forex channels remain slow, expensive and inefficient. There is a real need for innovation in the sector and Airwallex has created the perfect solution,” he said.
Airwallex is one of the few startups working in the forex space, with robo-advice and peer to peer money lenders instead all the rage in Australian fintech, due to the fact that forex is a particularly complex, highly regulated area.
“Even the big banks haven’t invested a lot of resources into improving efficiencies in the forex transaction process, which remains highly manual, time consuming, and expensive,” Zhang said.
One company working in this space is OFX, formerly OzForex, which recently announced a range of initiatives to expand its offering, including a redesign and relaunch of its application programming interface (API) to allow startups to “outsource” the end-to-end international transfer process to OFX, access OFX rates, and leverage off OFX’s safety and compliance standards while still managing the entire customer experience from the front-end of their platform.
It also launched its OFX for Online Sellers service, a merchant solution that helps ecommerce entrepreneurs streamline payments from international marketplaces like Amazon and eBay into bank accounts based in the United States, Canada, Australia, United Kingdom, Europe, and Hong Kong.
Meanwhile, Zhang said Airwallex has managed to build an end-to-end integration method that acts as a payment gateway, connecting multiple payment processes. However, he said regulatory compliance remains the startup’s biggest challenge: it has recruited an in-house legal and compliance team that is working to secure the relevant licenses to help its growth across the Asia Pacific region, UK, and US.
Airwallex has secured the relevant licences to operate in China, and is ready to launch as soon as it secures its Australian Financial Services Licence (AFSL) over the coming weeks. With Hong Kong, China, and Australia its first target markets, Zhang said Airwallex with then look to push into the UK, Japan, and the rest of APAC, with plans to raise around $15-$20 million in a Series A round towards the end of the year.
Image: Jack Zhang. Source: Supplied.