It’s 5.30am in Singapore on March 10, 2023. Jack Zhang gets up in his hotel room, looks at his phone and realises something is wrong. As the founder of Airwallex, a financial technology scale-up with 1400 staff in 20 offices around the world, Zhang is accustomed to a busy WhatsApp inbox. But he has dozens of missed calls and unread messages. From a quick glance, they seem to all be about Silicon Valley Bank.
Wiping his eyes, Zhang groggily recalls that Airwallex had earlier that week parked some of its balance sheet cash with the Californian institution. SVB is in danger of collapsing? How much do they have in there? About $US100 million? Zhang calls his chief financial controller in the Netherlands to find out, and is wide awake when he gets the answer – $US345 million ($543 million). It’s more than a third of the $US902 million that Airwallex has raised across five venture capital rounds in its eight-year history.
“I was like, ‘what the eff?’”, Zhang recalls, in characteristically no-nonsense fashion. He’s reliving the moment while talking to The Australian Financial Review Magazine in August over a video call from Melbourne, where the 38-year-old has briefly returned from his New York base to visit family. It was while studying computer engineering at Melbourne University that he met Max Li and Xijing (Jacob) Dai, with whom he founded Airwallex in 2015. It now has more than 100,000 business customers, in large part on its promise to transmit payments faster and more cheaply than banks. All three are on the Young Rich List.
But on that Friday morning in March, Zhang is at the mercy of those same banks. With Bloomberg TV on in the background, full of talk of a run on SVB, he quickly calculates that it is 1.30pm on Thursday in San Francisco. He has just one hour before what is known as the “Fedwire cut-off” – the latest you can let a Federal Reserve-regulated bank know that you want to send money to another bank, and have the transaction happen that day.
Zhang scrambles to get the sign-offs he needs to move that much money; the $US345 million is about two-thirds of the cash on Airwallex’s balance sheet. But he can’t wake the final approver he needs, Lucy Liu. She is the fourth founder of Airwallex, who came on board after she met Zhang at a Melbourne dinner party.
From a well-connected, Shanghai-based family, Liu tipped $1 million into bootstrapping Airwallex’s first products in 2015, alongside $100,000 each from Zhang and Li. Weeks before Zhang’s frantic calls to her, she had also given birth to her second child – and her well-earned sleep-in was about to possibly cost the business its future.
As Fedwire cut-off loomed, Zhang remembered that Liu’s father was in New Zealand, four hours ahead. He was up and able to give Zhang the number for Liu’s nanny, who woke his co-founder in Shanghai with minutes to spare and got her to approve the transfer. Thirty minutes later, the $US345 million was back in Airwallex’s account with JPMorgan. Zhang fell back on his bed, wrung out. Before the day was over in Singapore, California’s regulators had ordered SVB into receivership.
What happened next illustrates the unlikely seriousness with which Airwallex is now taken in financial services circles. As news of SVB’s collapse ricocheted around the world, Zhang rallied and was on social media, spruiking Airwallex’s “strong global financial services infrastructure”, and pointing start-ups expanding overseas to the company’s onboarding page.
Chief financial officers trusted the message. Even after the US treasury secretary and Federal Reserve chair announced that all SVB depositors would be protected, many of its customers switched their cross-border payment arrangements to Airwallex. The business had been averaging 3000 sign-ups a month – it got 6000 in March.
Airwallex is still not the household name that Atlassian and Canva have become. Yet there’s every chance that it might one day dwarf them both. Provided, that is, it can overcome increasing scrutiny of its internal culture.
Zhang declined to respond to anonymous accusations in the Financial Review, published after his interview with AFR Magazine, that he demands unreasonable hours from staff and publicly humiliates those he perceives as underperformers. The company’s headquarters are in Singapore, but its holding company is registered in the shadowy Cayman Islands. Raising even more eyebrows are the connections between some of Airwallex’s investors and the Chinese government.
While he refuses to respond to the criticism, in talking to Zhang you are in no doubt of his ambition. Airwallex’s origin story, told often by Zhang, is that it all began with coffee cups; Li was running a Melbourne cafe that Zhang had invested in, and they noticed foreign exchange charges on a $15,000 remittance to their Chinese supplier of coffee cups had been nearly $800. According to the company’s website, they “believed something better must be possible. That’s when Airwallex was born, as the founders set out to build a financial infrastructure to support operations that transcend borders”.
What’s overlooked is that Zhang, who was 30 at the time, was working in technology on the foreign exchange system at National Australia Bank, having earlier worked at ANZ. He had a decade of experience in payments and, being Chinese-born living in Melbourne, he had a clear sense of what it’s like to be caught by Beijing’s strict rules on transferring money in and out of China. Airwallex’s success is the result of the singular experience of its very driven CEO.
The prize on Airwallex’s horizon is enormous. Revenue in the global payments industry is expected to top $US3 trillion by 2026, according to McKinsey, and Zhang wants to be an entire layer of it. Using myriad partnerships with banks that plug into a proprietary cloud network, Airwallex now offers everything from payments, to expense management (including the ability to issue staff with so-called “borderless cards”), to a treasury platform that can collect, store and disburse funds globally.
It’s a platform into which businesses plug in to transfer money, pay bills in different currencies and even pay staff. Small businesses use it to process simple transactions, while bigger businesses such as Qantas and Afterpay use application programming interfaces (APIs) to integrate and rebrand them. (Qantas Business Money is actually Airwallex.) Zhang likens his company to Apple’s iOS operating system, but for business finance.
To prosper it has needed to strike partnerships with local banks and make peace with domestic regulators for every one of the 50-odd countries it currently serves. In Australia, for instance, ASIC has decided that Airwallex needs a purchased payment facility licence, of the type automatically granted to authorised deposit-taking banks.
“Unlike the banks, we don’t lend out any of the money in our Australian customers’ accounts – ANZ safeguards it on trust for us – but they want us to hold an extra 5 per cent of our own capital as a buffer anyway,” Zhang says, shaking his head. “We’re trying to promote competition, but a lot of the regulation in Australia is very in favour of traditional banks.” In the US, Airwallex had to apply for a separate money transmitter licence for every state. (It’s got 49; Hawaii is a work in progress.)
The result of all this grunt work, however, is a network that can challenge banks’ pricing on cross-border payments, which for 50 years they have controlled via a financial messaging system called SWIFT. SWIFT’s network links more than 11,000 financial institutions in 200 countries, and is owned by around 3500 of them. It hosted 90 per cent of the $US140 trillion transmitted across borders in 2021 – the last time anybody did a detailed analysis, in this instance consultancy FXC Intelligence for The Economist magazine.
SWIFT’s dominance is lucrative for its member and owner banks. Just look at the receipt from the last time you bought something online from overseas. The amount of foreign currency it says your Australian dollar was able to purchase on your behalf will probably be less than what your bank actually received, given its access to wholesale (or “interbank”) exchange rates.
A 2019 Australian Competition and Consumer Commission inquiry found these “retail mark-ups” by banks were routinely around 10 per cent, even before explicit fees. Remittance companies like Western Union and PayPal largely link to the traditional bank accounts nominated by their customer – and hence charge SWIFT-like premiums over the interbank rate.
In contrast, Airwallex has plugged directly into local banks’ infrastructure. The connection is made via Airwallex’s API, the rudiments of which Zhang and fellow software engineer Dai – who worked on start-ups in China before being lured back to Melbourne – began coding in 2015.
They drew upon Zhang’s decade of experience as a solutions architect on the foreign exchange systems at ANZ and NAB. Their quest to avenge the 5 per cent spread they were slugged for the forex on those coffee cups was helped enormously by the instant scale Airwallex gained with two early partnerships.
It’s become part of Australian start-up folklore that within 18 months of starting Airwallex with $1 million of Liu’s money, it had raised millions more and entered commercial relationships with two of finance’s biggest names. The first was Mastercard, which was trying to become known for instant payments rather than the days-long settlements for which credit cards are notorious. The second was Tencent, the operator of China’s ubiquitous mobile payment and digital wallet service, WeChat Pay.
Plugging its API into the local partner banks of these two giants, Airwallex created a cloud network that was able to match customers who wanted to exchange, for instance, yuan for Australian dollars on a particular day with those who wanted to do the opposite, enabling a large proportion of the bulk transfer to be done instantly, without involving the banks at all.
It’s this ability to directly match out transactions that’s at the core of what Airwallex offers, and how it sidesteps SWIFT. Some transfers still need to travel the SWIFT rails – Zhang says about 6 per cent of payments processed by Airwallex use the bank-owned channel – but overall the discount in the spread over the interbank rate can be amortised across all customers, greatly reducing their forex fees. Zhang’s firm today advertises a forex conversion rate of just 0.5 per cent above the interbank rate for a basket of 11 major currencies, and 1 per cent for all the others, well below the spread charged by major banks.
“Airwallex is solving a problem that’s hard from a software, regulatory and counterparty perspective,” says Paul Bassat, whose Square Peg Ventures joined Mastercard, Tencent and Sequoia China in Airwallex’s $30 million Series A in 2017, and has returned for each of the four series since. “There wasn’t a lot of incentive for banks to change how things worked, but Jack’s had this really compelling vision to bypass the SWIFT rails, that he’s to a large extent delivered on.”
Airwallex is not alone in circumventing SWIFT and challenging the banks – but it’s in a very select club. Daniel Schlagwein, an associate professor at the University of Sydney’s Business School, says that of the wave of start-ups in payments, only Wise (formerly TransferWise) on the consumer payments side, and Stripe and Adyen in business-to-business payments, have built a more formidable network of local agents to overlay their services upon.
“Airwallex is one of the disruptors that has exerted downward price pressure and triggered innovation at SWIFT, much like the rise of bitcoin has forced central banks into working on digital currencies,” Schlagwein says.
Of course, the payments sector is tightly regulated for good reason. The downside of the rise of these disruptors at the expense of regulated banks, according to Schlagwein, is the reduced oversight they allow domestic authorities.
The perception of risk is particularly acute at Airwallex, according to Yi Li, a senior lecturer in international business, also at the University of Sydney. He notes that Tencent, Airwallex’s first major investor, collaborates with the Chinese government to allow surveillance of its WeChat messaging app. In January, the Communist Party became a direct investor in Tencent, taking so-called “golden shares” as it has done in several other local tech giants, which allow it a seat at the board table.
“The [government-controlled] People’s Bank of China would be looking at all the WeChat Pay transactions into China,” says Li. “That is fine, every regulator wants to do that to prevent crime – but I wonder if they would like a look at Airwallex’s international transactions too. There is no evidence that they have or can, but the insights they would get into supply chains and customer channels in Australia might be very useful in crafting policy for their benefit.”
Zhang dismisses such concerns. “Tencent has no influence in the management of the company,” he says, visibly annoyed at the question, and pointing out that Tencent has invested in many other fintechs around the world, notably Australia’s own Afterpay. “We’re governed by common law, regulated by 49 states in the US, the [UK’s] Financial Conduct Authority, the Dutch Central Bank, ASIC, you name it, they’ve all done deep due diligence on our shareholdings and not found any concern.”
Still, there are other reasons why Beijing would be interested in Airwallex, given it offers a way to pay in yuan outside of China. Another University of Sydney international business lecturer, Huan Zhang, recalls observing how Chinese students in his classes became among the earliest customers of Airwallex, and a major reason was so they could circumvent Beijing’s strict capital controls.
“You can only exchange yuan for the equivalent of $US50,000 in foreign currency per year, which makes it very hard for an international student where your annual tuition alone is about 60,000 Australian dollars,” Huan Zhang says. “When WeChat Pay became available in Australia through Airwallex’s network, a lot of Chinese restaurants and supermarkets in the Chinatowns began accepting payment in yuan so people didn’t have to run down their exchange limit.”
Then there’s the matter of Airwallex’s ultimate holding company, and the holding companies of many of its investors, being in the Cayman Islands – the British territory in the Carribean infamous for its low disclosure requirements and lack of corporate taxation. “There’s no conspiracy – our seed investor gave us terms that we had to set up a holding company in Cayman,” Zhang says, referring to Shanghai-based Gobi Partners, to whom he was introduced through his friendship network in mainland China, and which led a $US3 million seed round in Airwallex in July 2016.
“It is what it is – it makes it much easier to attract investors because they don’t have to worry about some of the rules we have in Australia.”
Zhang, who was born in Qingdao, a port city in China between Beijing and Shanghai, is a reluctant interviewee. He speaks with a bluntness and directness that has made him something of a love-him-or-hate-him figure. In the “love” camp are investors like Bassat. Zhang describes the Seek.com founder turned venture capitalist as one of his closest confidants, and Bassat more than returns the plaudits. “Jack is an exceptional founder. He’s smart, driven and focused, and has really good strategic insights,” says the venture capitalist. “And while Jack’s clearly the leader of the business, his co-founders are impressive too, and they’re all still involved.”
However, this view was not shared by the half dozen former and current Airwallex employees interviewed by the Financial Review for its article in October. The article reported an internal Airwallex memo revealing that 10 per cent of its entire workforce left in the third quarter of 2022 alone. Dozens of anonymous negative reviews on workplace evaluation site Glassdoor speak of extremely high turnover at the organisation. Many blame Zhang, variously painting him as slave-driving, micromanaging and mercenary.
Zhang declined a follow-up interview with AFR Magazine to comment on the reports. Indeed, he only agreed to our interview on the condition the questions were about Airwallex and not him, thus leaving much of the public information about his leadership style to anonymous feedback from past and present employees.
But the criticism is not out of the blue. “Great intensity and pressure will cause decline in [employees’ net promoter scores], but it’s what required to survive,” Zhang wrote in a post on Twitter last year in response to Blackbird Ventures’ Niki Scevak. When Zhang was still based in Melbourne in the late 2010s, he told a start-up conference that it was hard to expect employees to do the 15-hour days that he and his co-founders were then routinely doing – until they also had shares. Airwallex’s employee share option plan has since grown to the extent that Zhang boasted last year that there were now “nearly 100 paper millionaires” in the company.
An aside during our interview from Zhang, who has two young children, suggests the matter of work-life balance might be higher on Airwallex’s agenda than in the past. Asked how he was juggling his family responsibilities with the Herculean hours he promoted from the top at Airwallex, he replies: “I definitely need to see more of my kids.”
The June appointment of former Milkrun executive Luke Latham to run the Australian offices, where over 200 of its 1400 employees are based, might also be helping.
Internal staff engagement scores obtained by the Financial Review, derived from surveying employees on their sense of belonging and commitment to Airwallex, and the quality of information from its leaders, show a move from 57 per cent in April to 84 per cent in August.
So what is the future for Airwallex? It’s hardly unique in having teething problems as it rapidly scales, although the appetite for 15-hour days is being curbed at businesses everywhere. The Financial Review article about Airwallex’s culture, and Zhang’s leadership style, noted that the finance team had suffered particularly high turnover during 2022, which was said to have led to slow and patchy reporting to its board and investors.
Sources in the venture capital markets say this atmosphere was the main reason that two of Airwallex’s Australian backers, the family offices of Atlassian founders Mike Cannon-Brookes and Scott Farquhar, have not followed on from their initial investments in the scale-up three years ago. (Although Airwallex’s spokesman points out that Cannon-Brookes’ vehicle, Grok, has since stated it would be focusing on ventures related to climate change.)
Still, Airwallex has enough investor support that it managed the rare feat of a fundraising in October 2022 that maintained its $US5.5 billion valuation, while many of its high-growth tech brethren quietly raised emergency cash at lower valuations. Bassat, for one, thinks Airwallex could be the next big Australian tech firm.
“There are so many growth drivers to this business and so many customers to be acquired,” he says. “They’ve recognised that with the rise of marketplaces, all sorts of small businesses are now born global and have really complex financial services needs. And Airwallex is catering for that.”
The reckoning will come when Airwallex attempts to go public, as is inevitable for any business backed by venture capital. And while Zhang refuses to be drawn on talk on his leadership style, he has certainly pushed out the timeline on a listing. Last December, he told Forbes that 2024 would be the year for Airwallex to go public. But when talking to AFR Magazine, he says he is in no hurry.
He reveals that Airwallex is set to break even globally for the first time in the last quarter of this year, has $US500 million in the bank, and is still growing revenue at an annualised clip of more than 120 per cent. It’s an equation that suggests it might not need to tap capital markets for quite a while.
“We’re basically venture capital independent – we’d only go back to them to give our employees liquidity on their shares – so going public is kind of optional for us,” Zhang says.
The statement reflects the single-mindedness required to think side-stepping the global payments system is possible. Will Zhang’s zealousness ultimately alienate the investors and employees he requires to complete his mission? You can bet he’s already working on a plan.
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