Jay: This week’s show guest is Jack Zhang. Jack is the co-founder and CEO of Airwallex, a multinational, cross-border payments platform. The Melbourne-based fintech company has recently raised a series B funding round from investors including Tencent, Sequoia China, Hillhouse, and Horizons Ventures. This also happens to be the second largest funding round in Australian history. So, Jack, welcome to the show.

Jack: Thank you.

Jay: For the audience listening in, why don’t you give us a little bit of background of yourself — where did you come from? What did you study? And how did you become an entrepreneur?

Jack: I guess I founded the company, Airwallex, about three years ago, end of 2015. Since then, we’re growing the company from four people to over a 140 people within close to three-year’s time. So it was quite a dramatic experience, to be honest. Myself, I went to Australia when I was 15 or 16 years old to study high school. There I went to Melbourne uni and after that, I worked in different jurisdictions like London, Hong Kong, Beijing, and Melbourne, pretty much in investment banking or financial services industry. My last career before I founded Airwallex was a solution architect in ANZ, sort of FX front office. So I designed technical product and solutions from an FX pricing and risk management and trading perspective.

Jay: So you do have a background in technology.

Jack: Yeah, of course.

Jay: Cool. I’m just curious to hear how… And you’re from Hong Kong originally?

Jack: No. I was born in Qingdao in China. So I work here, near Hong Kong for just under a year — early 2010s, 2011s.

Jay: Okay. So originally from China, but you were educated in Australia, and you have global experience, also financial and technology background. So what was it exactly along your journey working at ANZ was your last corporate job that you did. What was it that came along that made you come up with the idea to start Airwallex? Or was it a personal pain point, some experience that you had that you realized, “Hey, I can come up with a solution that’s better for this problem”?

Jack: Yeah, my cofounder, Max, at the time, ran a cafe business and a retail business. So I also invested in that business. And he would import a lot of materials and packages from Shenzhen, in China, obviously needed to do the US payment to the suppliers. And both Max and the supplier complained about it because Max had to do all the US conversion. And I think at that time, about fifteen thousand dollars. Then Max was recommended to use Western Union, and they charged them about 600 AU or 400 US at a time.

Then the suppliers complained about it because it’s very hard for them to do the US to CNY conversion, moving the money back to China because there’s a lot of compliance issues and a lot of cost issues as well.

A few times they complained to me, and it just rang a bell that it is a big pain point, and we spent a bit of time investigating what can be done in the cross-border payment industry to facilitating business growth globally and then to fix all these pain points, to make the business kind of growing cross-border faster and scale faster. That ultimately become the vision of Airwallex.

Jay: That’s pretty interesting. So is your friend still working on his own startup, the one that you invested in?

Jack: No. That was my co-founder Max. And then, I think when I told him, basically, “I want to do Airwallex,” and, “I think we’re solving a larger issue, and it’s more challenging, and it’s probably going to help more people, helping more businesses to expand their business, going from offline to online, going from local to global” — it’s such an exciting opportunity and vision for him as well. So he decided to join me to do Airwallex instead of that coffee business.

Then he hired professional managers to do that. We all sort of… Obviously, he left to start Airwallex with me.

Jay: Wow. Very interesting. A pretty cool story on how you came across helping your friend out, solve his problems, and then you decided that this is a probably that is probably global. People globally are experiencing the same problem. So I have a business here that I can build that can solve this.

So why don’t you tell us about Airwallex, just a brief overview. First of all, Airwallex, does it have something to do with wallet? Is that how you came up with the name? Is there any significance to the name?

Jack: No, the wallet thing is basically a multi-currency account. So we changed the T of “wallet” to X. So basically that means multi-currency. Because everything is virtual, it’s online, so that we put an “air” in front of it, wallex — that’s how the name came about.

The actual fundamental product we’re offering is not about just wallet. Our vision to use technology to build financial infrastructure and applications to help the businesses to grow potentially globally. That is the vision of AirWallex. So basically anything to do with how they move the money — whether it’s cross-border, receivable, payable, or FX, or it’s accounts, we all have a certain product to solve that.

Obviously, originally we had a very simple payment and FX product, but now we have much significant business, and we have a suite of products tailored for different types of user cases.

Jay: I see. I understand the basic of the business model. Maybe you could give us a couple of examples, like a practical use case. Let’s say, for example, I was running a business like your co-founders. Did you say it was coffee?

Jack: It was just a retail business.

Jay: Let’s say I was a shop, a store owner. How would Airwallex help me directly? Can you walk us through that user experience from both the customer side all the way through a transaction?

Jack: Yeah. Obviously, the first thing you do is go on the website to sign up. Then, because this is to do with money, so we have to do a standard KYC, an onboarding process to understand what is the identity, what is the nature of your business, what is your ultimate beneficial, and just to understand a bit of your corporate structure or company structure. Once you’re onboard, everything becomes straightforward. For example, if you’re a Hong Kong business, you want to make a payment to a supplier in the US, and you can just create a single payment or a batch payment. Or if you just want to do an FX conversion, you can just basically book the deal straight away. If you’re using a standard bank in Hong Kong, the retail rate is about 1% to the midi-market rate, and our entry point is 0.5%, which is, literally, a 50% discount from the bank from the get-go. As the volume of your business goes up and transacting more and more with Airwallex, then you can enjoy a tiered pricing which is even cheaper, from a cost perspective.

But this is just on the FX part. But also, from a payment part, because Airwallex actually builds a global payment network that directly integrates into each country’s local payment infrastructure, so we don’t actually use SWIFT to send the funds, which means… If you’re using the traditional SWIFT network, you’re paying $1,000, by the time the money arrived in the US, it might become 950 or it might be 970. It depends how many corresponding banks are in the middle. And the time to send a fund could be a day, it could be two days, it could be three days. It depends on how many corresponding banks are in the middle as well. So it’s not a full amount delivery. It’s not a guaranteed delivery time. If there’s any sort of intermediary bank and they’re not really sure what the money is for, and they will raise more questions to even slow down the process further. So it’s quite a complicated experience, and it’s been out there for the last 50 years.

But using Airwallex to do payment, we guarantee T + one or T + two arrival, and we guarantee full amount delivery. And because the settlement is using local clearing, we also are using machine learning and AI to do AML transaction monitoring stuff. So the actual success rate of the payment is very, very high. It’s actually above 99.5%. So it’s very rare it could bounce back or anything.

Also, we’re validating the recipient’s account details before you even send the payment. So you know if there’s anything wrong with the account details or the name not matching with the account. So you know that beforehand. From a cost and the user experience and also the experience of the actual recipient, it’s a much better experience.

And also, if you want to enjoy a real-time payment to the recipient, you can actually ask the recipient to onboard as a customer of Airwallex, and all the transactions between these two parties can be instant.

Jay: Oh, wow. I see. So let’s say we’re counterparties. I’m in the US, and you’re here in Hong Kong. And if we’re both customers of Airwallex, then you can sent me money; I can send you money instantaneously.

Jack: Yes.

Jay: Wow. That’s pretty impressive. What’s the technology like? Let’s go back to the retail shop example. Let’s say I’m a retailer sitting here in Hong Kong, and I want to sign up with Airwallex. What is that experience like after the onboarding? Let’s say we passed the KYC and all this stuff. Is there a front end that we have to just download into our systems?

Jack: Yes. It’s all web-based, and everything is on web or mobile. And then you can just use an internet banking application. And for the slightly larger businesses and corporate or institutional, multinationals, we would have an API so that you can integrate our product into your financial system or accounting system or CRM system or ERP system. It depends on how you want to automate the product. So it depends on the need of the automation. It also depends on how large is your business. And then you can choose whether you think API or web product.

Jay: That makes sense. As far as the… I guess this would be the revenue model. If I were to sign up as a customer, how do the fees work there?

Jack: If you’re a small business locally in Hong Kong when you sign up, standard fee we’re charging for FX is 0.5%, which is 50% discount from the retail banking world. If you’re a larger business, and you can try negotiating a tiered pricing. And for the payment perspective, I think our standard pricing was only 30% of what the banks are charging for SWIFT. We also guarantee full amount delivery, and within one day, the funds will be available to the recipient as well.

If the recipient is onboarded as an Airwallex client as well, all the transactions on the payment side is free. We only charge on the FX.

Jay: So you don’t actually charge a subscription fee or anything like that. It’s just a spread on the FX?

Jack: It’s actually not a spread because we’re actually giving interbank price to all our clients.

Jay: So it’s just a flat rate, basically.

Jack: We just charge you a service fee which is point-something percent. That doesn’t matter how volatile the market is, and we guarantee you get the best price in that transaction second, and we give you that transparency fee model. So you don’t have to worry about how much I’ll get charged because you know you’ll always get the best rate, and we’ll be transparent about what you actually paid.

Jay: Interesting. That’s all you charge the customer? There’s no subscription for the technology frontend or anything?

Jack: We can do spot, we can do forward for a lot of the online businesses. We actually offer a guaranteed rate as well. You can guarantee for five minutes, 15 minutes, an hour, 24 hours… If you’re an airline, you might want to guarantee for three hours. For an e-commerce website, you want to guarantee for 24 hours. So basically, we manage the entire currency risk for the website, for your business as well through an API, and when you actually need to do the settlement, and that’s through the Airwallex network, will allow you to do clearing as well.

Jay: Okay. This is quite an interesting concept, and I think it’s pretty novel, especially, as you mentioned, the antiquated system of SWIFT is over 50 years old. So this is definitely one of these things where it’s like I’m curious as to why someone hasn’t discovered this before you. But it sounds like a great and very innovative solution.

Tell us a little bit about your reach right now. How many customers do you have, in what parts of the world, and what are your main target markets?

Jack: I guess I would go to market strategy with targeting those platforms in the last two years. So we have pretty large customers like JD.com or [inaudible 0:18:04] or Ctrip. They’re super large clients spread across Asia-Pacific, Southeast Asia and Europe and North America. And we’re in the process of scaling each of these markets.

From earlier this year, we also launched, basically started targeting smaller businesses, especially SMEs in Hong Kong, Australia, Singapore — APAC jurisdictions and look forward to expanding to UK and Europe as well.

That is how it works at the moment.

Jay: I’m curious, Jack, as far as regulatory and capital controls coming in and out of China, what sort of challenges do you face there? Does that continue to be an area of scrutiny? Or have you guys figured out how to get around that?

Jack: First of all, the limitation around capital control is on personal remittance. So you have a single transaction of 5,000, a daily transaction of 10,000, and a yearly transaction limit of $50,000 USD. While this is basically people moving money in and out of China without any reasons or you just have a personal reason. What we’re doing, the money we’re servicing and the kind we’re doing is more trade-based or service-based or e-commerce or travel, education, digital advertising, logistics — there’s a purpose of the payment, I guess. In that case, as long as you can provide the compliance data points electronically to the PBOC and also to the local bank that you partner with, there’s actually no limitation of that transaction. That’s how the e-commerce or even trade are done day in, day out at the moment.

Jay: Right. So as long as you have the invoices and the supporting documentation, then that’s fine. It’s just on the personal level where they have the capital controls that are more stringent.

Jack: Yeah. For example, it could be an e-commerce platform. They maybe don’t have the invoice, but they have all the data on the website. So sometimes they require that we actually integrate into the actual e-commerce platform ourselves so we can have all the consumer purchase information, logistic information, as well as the product information so that we can reconcile back to back, and we can give the regulators actual assurance that this is not just compliant with money laundering regulations, it’s also complying with local regulations around how to legitimately transfer money in and out of China based on the purpose.

Jay: Right. Sure. That makes sense. I have another question, which I’m sure you’ve been getting a lot of as of recent, and it’s around cryptocurrencies. Obviously, there are some direct competition with crypto, whether it be the likes of Bitcoin or Litecoin or Bitcoin Cash or even something like Ripple, which is very much in the same arena that you’re playing in. What are your views on cryptocurrencies? Do you view that as a threat to your core business? And how do you see it panning out in the future?

Jack: First of all, as a legitimate cross-border payment platform, we don’t touch any digital currencies at all. And we don’t really see ourselves competing with any crypto platform. First of all, foreign exchange is a daily transaction involving a $6 trillion market. And crypto, the whole entire crypto market in daily transaction volume is a couple of billion dollars. It’s just a completely different market size.

And the way they’re using crypto for transferring money across border, it’s just not viable for businesses because there are a lot of volatilities, a lot of liquidity issues. For example, if you want to make a payment to the Philippines to actually using crypto exchanged into the local currency, somebody in the Philippines would have to buy that crypto. But what happens if no one wants to buy? Then they have to take the volatility risk of the cryptocurrency itself, which is just not acceptable to businesses at all. Even for individuals for large transactions, you don’t want to take that risk anyway.

And also, a lot of people using cryptocurrency to get around that, the capital control issue that you just mentioned about, which is completely illegal. So we’re not really seeing much of a competition at all with cryptocurrencies. Funny that you mentioned Ripple. I don’t want to comment too much on Ripple’s network, but I don’t think that the volume is anything significant for us to be, I guess, aware of at the moment.

Jay: Fair enough. So, Jack, tell us a little bit about your future plans. Obviously, congratulations on the large series B funding round that you did. All the premier and top bespoke names of China and Hong Kong, as well, were joined into that funding round, so it’s obviously proof that you’re doing something right there. So congratulations, first of all. What do you plan to do with that money? What are your future plans of expansion?

Jack: Thanks, Jay.  Obviously this is a very exciting time for us. There’s a couple of things we’re working on. Obviously, moving our global HQ to Hong Kong as we have more and more exposure in China, Southeast Asia, and the Hong Kong local markets. I think it’s a strategic movement. So now I personally reside in Hong Kong, and I’m building a team here. So we wanted to expand the team to at least 50 people in Hong Kong before the end of the year.

Jay: Wow. Fantastic.

Jack: So it’s a very, very exciting time for us. And we also try to expand our team in China. We recently opened an office in Beijing and Shenzhen on top of our Shanghai office, so we’re building a BD (business development) and customer service team in Beijing and Shenzhen on top of Shanghai.

We’re also expanding our team in Singapore, London as well. And then we recently opened a San Francisco office as well. So now we have eight offices around the world with maybe to open our Tokyo in Q4 this year. So there’s going to be a lot of money spent on business development and global expansion.

And on top of that, we’re also spending a lot of money on R&D to further strengthen our technical capability and product development capability. Our main R&D office, which is Melbourne and Shanghai, we have about 30+ engineers and product people in Melbourne. We have about 50 in Shanghai. So we just look to further expand both of the teams there.

Apart from Airwallex, we also wanted to expand into the digital banking industry. So we’ll announce some big news, partner with a local bank in Hong Kong, basically a joint venture, to apply the virtual bank together in Hong Kong. So that’s going to be exciting for us as well.

Jay: Wow. It sounds like there’s a lot of exciting milestones ahead of you. That’s super exciting. I’m very happy for you. I’m looking forward to tracking your progress because I think it’s a pretty novel solution that you guys have come up with, and it definitely has the ability to basically scale globally.

Jack, thanks so much for your time. I just have a couple last questions for you. I always like to ask entrepreneurs for one piece of advice for some of our listeners that are listening in. You obviously have a very diverse background, but you also spent some time in corporate, in banking, and this sort of thing. There’s a lot of people listening in that might want to have a piece of advice, maybe, if they want to break out or try to do something on your own. From your couple of years as an entrepreneur, what piece of advice what you give them?

Jack: Everyone that spends more than probably 50% of their time at work, apart from sleep. I think to find something that you’re truly passionate and excited about and you actually love and you enjoy doing day to day is really, really critical for everyone’s lives. I think that the challenge is to spend time really thinking about what excites you. What sort of things are most important to you from a work perspective and finding that thing to do. And if that’s to become an entrepreneur or if that’s doing a startup or if that’s working in professional services or even a bank, that’s entirely up to the individual.

But if you do choose the entrepreneur path, I guess the timing and also the ambition and vision of what you want to do and also the team you put together, it’s very, very critical. At the end of the day, you’ve just got to give it a try. That’s the most important thing. You will find that you have a lot of things that you don’t know about yourself once you become an entrepreneur. You’re discovering the abilities you never thought about, you have. That’s very exciting. You become a much more adaptable to anything that’s new — any sort of challenge or any sort of environment, which is something I’m excited about. And I encourage everyone that, if they’re thinking entrepreneurship or startup is something they’re interested in, they should give it a go.

Jay: Absolutely. That’s good advice. Great advice, Jack, and I think that last point that you mentioned is particularly relatable because most people, unless they step out of their comfort zone, they don’t actually know what they’re capable of achieving. So to really just give it a go, like you said, and step outside the system, it’s not easy for anyone and, I think, particularly, it’s less so accepted in Asian culture and this sort of thing. But the more than you step out of your comfort zone and push yourself out there, then you can actually probably be surprised at what you can achieve.

Last question, Jack, is where is the best place that people can find you or follow you or connect with you and learn more about AirWallex?

Jack: I guess LinkedIn or Twitter are the best places to find me. I use Jack Zhang, my own name on LinkedIn, so it’s very easy to poke me. Also, you can follow me on Twitter. My username is AWXJack — So, AWX is the short card of AirWallex and Jack — it’s easy to reach me on that as well. Feel free to follow me and ping me messages directly and tweet me.

Jay: Fantastic. We’ll have that all linked up in the show notes underneath the episode when it airs. Thanks so much, Jack, for your time and for sharing your story and, obviously, the advice. We’re real excited, and best of luck with building your company and moving forward.

Jack: Thanks, Jay, for your time today.

Jay: Alright, take care. Bye.