View all newsletters
Receive our newsletter - data, insights and analysis delivered to you
  1. Analysis
April 11, 2017updated 19 Jan 2022 10:40am

Cracking China from Down Under

By Anna Milne

Melbourne-based Airwallex has ambitious plans to be the first e-commerce gateway into China, and by all accounts is on course to do so. Anna Milne caught up with its global head of partnerships to find out how hard it was to crack China, disrupting SWIFT, and why he thinks the future of many things is WeChat

We would like to be the first cross border e-commerce gateway into mainland China, and we think we might well be that,” says Joe McGuire, head of sales and partnerships at Airwallex.

China has had a lot of problems with people taking money out of the country – take the Sydney and Melbourne property market for starters. And McGuire should know. Based in Melbourne, he can see first-hand the evidence of huge outflows of money from China.

The People’s Bank of China (PBOC) is particularly careful around how people are spending their money and where their money is going. Not only does it have reason to be, due to past experiences, it also has good reason to take control of what it has now – and to be wise to the growing affluence in the country and the ever-burgeoning economy.

A recent McKinsey report stated that disposable income in urban parts of China will equal that of South Korea by 2020. Things have very much shifted in China over the last ten years from an export-driven economy to a consumer-driven economy.

All this, coupled with significant challenges around historical corruption in China, the current government is highly focused on stamping out corruption and making sure that people are not unduly taking money out of the country. “They are very risk-averse about it, and yet small businesses in China would be very interested in having a gateway to be able to export out of the country,” explains McGuire.

“For businesses outside China, to sell direct into China is of massive appeal.”

Enter Airwallex, a company which was founded between late 2015 and early 2016 by Jack Zhang and Lucy Liu. It all started because Zhang owned and ran a cafe alongside his role at a bank building foreign exchange (FX) payment systems.

Zhang struggled to purchase stock such as coffee cups from China with a fair FX rate, so he created this business to give the opportunity to SMEs with a lot of international trade but which were not getting a fair price from the Australian banks – fair being better than 3.3%, the average transaction rate, according to McGuire.

Zhang and Liu pitched Gobi Partners, the venture capital fund for Alibaba, on the concept with a prototype and raised €3m ($3.2m). After the seed-round funding, the business grew to over 30 people.

“We have built an FX product for importers and exporters but really the focus is on two products, which are based on a number of APIs [Application Programming Interfaces].” “Being a fintech business is really expensive. A lot of that money was used for legal purposes, and we hired the head of compliance from AIG Singapore, which didn’t come cheap,” says McGuire.

“We have an Australian financial services licence, the equivalent in New Zealand and Hong Kong, and most importantly we were able to get access to the cross-border third-party and foreign-currency licence in China.” It took Zhang and Liu a lot of groundwork to crack this, and being Chinese came at a massive advantage – in fact it was “absolutely crucial”.

They spent a great deal of time working with contacts and partners in China to build that trust.

This licence is a huge barrier to entry for other people trying to do the same. There are 28 licences across the globe to take money in and out of China, issued by the PBOC, and Airwallex is not in the least bit complacent about having access to one of these

A lot of those are actually dormant, say ten, because they are held by institutions such as  tax offices, etc. “Of the 15-18 that are left, we have access to one,” McGuire explains. “Effectively, we have a licence to use that licence and we are very careful with it  because it is so hard to come across. We are very careful around who we are working with and the reasons why they are sending it, and making sure they are within the cap the PBOC has set on money being taken out of the country and it not being used for gambling or investments, etc.”

Two products: acquiring and distribution

The acquiring product is around accepting all the new forms of payment coming out of China, such as WeChat; the other product is enabling businesses globally to distribute things cheaply. The acquiring product is to get WeChat acceptance mainly, but also all the Chinese forms of payment, accepted in Europe for the Chinese tourists coming over.

“The acquiring product is pretty simple. Think Stripe – Stripe is an acquiring API. Its focus is on developers, winning over developers with really beautiful API documentation: ten lines of code to plug into a website to change from .com to .ch so that you can sell directly to the Chinese consumer.

“We want to do Stripe directly into China – cross-border, into China. The reason why Stripe hasn’t done that is lack of a licence.” Currently, if you want to sell direct to the Chinese customer there are only really two options: Alibaba, which has a number of sites, or a local distributor.

In both instances if you’re a brand that cares about price point, about who is buying your product, how it’s being sold, neither of those are good propositions as an online merchant.

“It’s interesting because in China no one has Visa or MasterCard, so the majority of payments there are through WeChat Pay, Alipay, and some other mobile payment solutions, such as UnionPay, which is actually a very small percentage of the transactions in the country, 10-12%.”

The second product is a distribution product, involving a number of APIs.

“SWIFT has 11,000 financial institutions plugged in, in every jurisdiction. They have been very important for global trade – but a commonly held view is that they haven’t kept up with changes in technology,” says McGuire. To compete – because Airwallex doesn’t have the funds to build its own payments network or payment rails, nor the financial connections, Zhang and team have built a piece of machine learning, which sits atop several different payment rails that they’re connecting into the system.

“I can’t tell you just yet who they are, but there are six or seven companies also trying to disrupt SWIFT and beat them at their own game, and they’re building payment rails off SWIFT for transactions. “What we’re doing is really simple: We are going to connect them all together. Our piece of machine learning will, per transaction, funnel transactions through the cheapest and fastest rail, depending on the jurisdiction it’s going into,” McGuire continues.

“There are a few people trying to disrupt SWIFT by building payment rails and all of them are doing a really good job in certain jurisdictions, but none of them have the global reach of SWIFT.

“We think we will be able to send money anywhere in the world within a day within the next six to 12 months. And that’s a direct transaction. Currently SWIFT goes through correspondent bank networks, with a fee of around 3-5%, and takes three to four days.”

McGuire says that for the majority of businesses, Airwallex’ service would mean a 90% reduction in transaction fees. The team currently stands at 20 developers, and is relying on a series A funding round in the pipeline. If Airwallex is going to be the first cross-border e-commerce gateway into China, does it expect more will follow?

“Stripe is doing some things with UnionPay and Alibaba, leveraging its licence to get in there. I’m not 100% sure of this but we are certainly going to be one of the first cross-border e-commerce gateways into China. Other people have been trying to do it for a long period of time; they just don’t have a licence.”

Airwallex is already looking to expand its reach, hopeful of garnering some space in one of Barclays’ innovation labs in London.

Where to from here?

“We’ll hire a couple of staff, and then when summer hits we’ll be ready to go,” says McGuire. “Alipay is doing a really good job in terms of getting memoranda of understanding with the right businesses here, but really the future is not Alipay, it’s WeChat Pay.

“A huge proportion of Chinese people – 85%, don’t quote me– have WeChat Pay. Users spend on average about an hour a day on it. Once they start to roll that out globally, it will take over as the biggest form of payment. “People who buy stuff on Alibaba have Alipay, but most people would use WeChat for P2P payments,” McGuire adds.

“It’s such a rich app in terms of functionality, it’s going to really take over the West as well I think; it’s going to be huge. People do everything on it; it’s Facebook, it’s Tinder, it’s booking flights, hotels, doctor appointments, Didi Chuxing, the Chinese equivalent of Uber.

“Alibaba will still be really important and Alipay will always have a place, but I think WeChat will dominate – it’s what everyone uses,” says McGuire.

“I think the next generation of kids will be on WeChat as opposed to Facebook.”

Topics in this article:
NEWSLETTER Sign up Tick the boxes of the newsletters you would like to receive. A weekly roundup of the latest news and analysis, sent every Wednesday.
I consent to GlobalData UK Limited collecting my details provided via this form in accordance with the Privacy Policy


Thank you for subscribing to Electronic Payments International