As China steps up oversight on cross-border capital flows, Australia-based payment unicorn Airwallex considers it a beneficial approach to clamp down non-compliant operations and promote overall industry development.
“I think it is a good thing that the [Chinese] authorities are tightening regulations in the cross-border payment field because it can help reduce ‘noises,’ or non-compliant operations, in the market,” said Lucy Liu Yueting, co-founder and president of Airwallex, in an exclusive interview with DealStreetAsia.
The remarks come about two months after China’s State Administration of Foreign Exchange (SAFE) strengthened regulations of cross-border capital flows. In a notice sent to payment institutions and commercial banks on August 22, the regulator blacklisted 43 forex trading firms and circled two companies under suspicion of conducting illegal forex activities, including “Airwallet (Hong Kong) Limited” (assumed to refer to “Airwallex”).
Airwallex is not on the Watch List set forth in the annex to the recent renewal document from SAFE after the company “actively” communicated with the regulators to clear up “misunderstandings about its business model” and erase concerns over the legitimacy of its business, said Liu.
China’s regulators have launched a crackdown on illegal leveraged forex trading and sent blacklists of illegal enterprises to banks and payment institutions since 2018, in an attempt to restore financial order and revive a gloomy macro-economic environment.
“The authorities have to step in and regulate the industry once it develops wildly and creates many structural risks,” said Liu, warning that the cross-border payment industry should avoid the path of China’s collapsed online peer-to-peer (P2P) lending market where over 80% participants were not proper businesses.
The cross-border payment industry is burgeoning in China, driven by the increasing popularity of cross-border e-commerce business, outbound tourism and overseas studying.
The total amount of cross-border online payments booked by Chinese licensed third-party financial institutions has exceeded 490 billion yuan ($69 billion) in 2018, up 55% compared to 2017, according to the Payment & Clearing Association of China (PCAC). PCAC is operated by the country’s de facto central bank, People’s Bank of China (PBOC).
Airwallex, launched in Melbourne by four Chinese founders in 2015, is a cross-border payment solutions provider that allows companies to manage cross-border revenue and financing in their business through an online platform. Its corporate clients can set up overseas bank accounts to collect revenues and move the money back to their headquarters on the platform.
High market entry barrier
“The cross-border payment market has a very high entry barrier because the regulator will not grant licenses to all companies in the market,” said Liu.
Despite serving a significant amount of business in Hong Kong and mainland China, Airwallex does not have a license in mainland China – the same for some of its counterparts including PayPal, PingPong and Payoneer.
Most of them now partner with local third-party payment companies to do business in the region. PayPal acquired a 70 per cent equity stake in China’s GoPay in late September to become the first foreign payment platform eligible for offering payment products and services in China.
Since the Chinese regulators kicked off the cross-border payment license application process in March 2013, the country has so far granted licenses to some 30 domestic companies including Alipay, Lianlian Pay and Hong Kong-listed Huifu Ltd.
“The regulators in mainland China have been protective toward the domestic market as they are cancelling some licenses, and it’s less likely that they will issue new ones,” she said. “Whether Airwallex will obtain a license in mainland China or not really depends on the timing, our business development, and strategic demands in the future.”
Airwallex currently holds licenses in Hong Kong, Australia, EU and the UK, and operates as a registered financial institution in Canada and the United States, although its business also covers mainland China and Southeast Asia.
As a direct result of the more stringent control of licenses, the number of market players in mainland China has become relatively stable with only a few new firms emerging nowadays. Commercial banks still play a dominant position in the market even though they highly rely on manual operations instead of automated solutions.
Even so, Liu still considers mainland China as a mature cross-border payment market compared to countries like the United States and Britain. “Japan, South Korea, India, and the Philippines could be the next batch of economies to catch up with the development due to their large populations and high market demands,” she added.
Airwallex reached the unicorn valuation at over $1 billion after a $100 million Series C round led by late-stage venture capital firm DST Global in March 2019. Sequoia Capital China, Tencent Holdings, Hillhouse Capital, Gobi Partners, Horizon Ventures and Square Peg Capital also poured money into the previous round. Liu said that the company is well-funded after the Series C round, and it is not in a rush to kick off a new funding round at this stage.
Lucy Liu Yueting serves as the co-founder and president of Airwallex, mainly in charge of the firm’s branding and operations. Prior to Airwallex, Liu worked as an investment consultant at China International Capital Corporation (CICC) and as a board director at Hong Kong-based investment firm Hong Stone Investment Development Limited.
Liu spoke to DealStreetAsia about Airwallex’s experience of communicating with the Chinese authorities, the cross-border payment market development in Greater China, and the unicorn’s major business plan. The interview was conducted in Chinese. Below are the translated and edited excerpts:
