Airwallex Raises $200M at $4B Valuation

The Rise of Digital Business Banking and Airwallex's $4 Billion Valuation

Contemporary business is increasingly reliant on digital solutions, and a startup focused on revolutionizing business banking is announcing a substantial funding injection to capitalize on this trend. Airwallex, a provider of comprehensive business banking services – both directly to businesses and through APIs powering other fintech companies – has secured $200 million in a Series E funding round, achieving a valuation of $4 billion.

Investment Details and Backers

Lone Pine Capital spearheaded the investment, with participation from new investors G Squared and Vetamer Capital Management. Existing backers, including 1835i Ventures (formerly ANZi), DST Global, Salesforce Ventures, and Sequoia Capital China, also contributed to the round.

This latest funding elevates Airwallex’s total raised capital to $700 million, building upon a $100 million Series D round concluded just six months prior.

Strategic Allocation of Funds and Expansion Plans

Airwallex intends to utilize the newly acquired funds to further enhance its product and technological capabilities. Continued geographical expansion is also a key priority, with a particular focus on penetrating the European, U.K., and U.S. markets.

The rapid pace of funding and increasing valuation highlight Airwallex’s successful implementation of its vertically integrated strategy, as articulated by CEO and co-founder Jack Zhang.

A Vertically Integrated Approach to Fintech

This strategy encompasses two core components. Firstly, Airwallex has developed a complete infrastructure for delivering business banking services, primarily targeting small and medium-sized enterprises (SMEs). Secondly, this infrastructure is offered as a suite of APIs, enabling other companies to seamlessly integrate financial services into their own offerings – a concept known as “embedded finance.”

“Our ambition is to control the entire ecosystem,” Zhang explained. “We aspire to become the Apple of business finance.”

Impressive Growth and Revenue Performance

Airwallex’s performance to date demonstrates the viability of its approach. Revenues surged by nearly 150% in the first half of 2021 compared to the previous year. The company now processes over US$20 billion in transactions for a global client base that has quadrupled in size.

Beyond serving tens of thousands of SMEs directly, Airwallex’s APIs power financial services for prominent companies such as GOAT, Papaya Global, and Stake.

From Coffee Beans to Banking Innovation

The origins of Airwallex, like many successful startups, lie in addressing a personal challenge faced by its founders. Jack Zhang initially aimed to establish a “Blue Bottle Coffee” equivalent in the Asia Pacific region, operating from Australia. This venture involved sourcing and importing various materials, including coffee, from around the globe.

“We quickly realized that making payments as a small business was both slow and costly,” Zhang recounted. The process involved navigating multiple banks and banking systems, manual money transfers, and lengthy clearing times. “However, my background was in payments and trading, and I determined that resolving this issue presented a more compelling challenge.”

The founding team ultimately comprised Zhang, Xijing Dai, Lucy Liu, and Max Li.

Early Traction and Regional Focus

Founded in 2014, Airwallex garnered early attention from venture capitalists due to its advantageous timing and location. While numerous startups were emerging to provide financial services for SMBs in North America and Europe, the Asia Pacific region lacked comparable solutions. Early solutions were also highly localized.

Consequently, Airwallex’s initial focus on cross-border payments naturally evolved into a broader range of banking services.

Expanding the Financial Infrastructure

“Over the past six years, we have established over 50 bank integrations, facilitating payments in 95 countries, and leveraging a partner network,” Zhang stated. 43 of these countries support real-time transactions. This led to the development of bank accounts and other essential financial tools, ultimately creating a comprehensive payment stack.

Currently, direct customers account for approximately 40% of Airwallex’s revenue, while the remaining 60% is generated through its API-based services.

The Power of Embedded Finance and Strategic Partnerships

Airwallex’s decision to package its technology into APIs for other businesses proved to be a pivotal move. Recognizing the growing demand for comprehensive customer engagement solutions, the company identified an opportunity to offer its technology to businesses serving small businesses.

This API-driven segment is now Airwallex’s largest revenue contributor, growing at a faster rate than its direct customer business (although the direct customer base is expanding more rapidly).

Unlike some embedded finance companies that avoid direct competition with their customers, Airwallex adopts a selective partnership approach. They collaborate with companies whose financial service offerings do not directly overlap with those of their partners, such as GOAT and Papaya Global.

Future Outlook and Potential Acquisition

As Airwallex continues its growth trajectory, speculation arises regarding potential acquisition by one of its partners. Salesforce Ventures’ renewed investment is particularly noteworthy, given the company’s expansion beyond its initial focus on sales software into a broad cloud services platform.

However, Airwallex’s unique regional roots, vertically integrated approach, and technological prowess suggest a strong potential for continued independence and growth.

“Airwallex possesses a distinct competitive advantage in the digital payments market,” stated David Craver, MD at Lone Pine Capital. “Its unique Asia-Pacific origins, combined with its innovative infrastructure, products, and services, underscore its global growth potential and impressive expansion within the competitive payment landscape. We are excited to invest in Airwallex and support its continued expansion and success.”

Note: The original text has been updated to clarify that the coffee business was based in Australia, not Hong Kong.