And one of the nation’s greatest recent entrepreneurial success stories has its origins in Frydenberg’s hometown of Melbourne: the Tukk & Co coffee shop in Docklands which was operated in 2014-15 by Jack Zhang and Max Li. That small coffee shop sparked the $2.6bn financial services operation, Airwallex, which is now about to launch its products in the US and dramatically expand in Australia, Asia, the Middle East and Europe.
When operating the coffee shop Zhang and Li found the process of importing coffee cups and labels expensive and cumbersome, partly because of the legacy banking systems. They joined three Melbourne University friends – Xijing Dai, Ki-lok Wong and Lucy Liu — and, backed by family linked finance, conceived and developed the Airwallex systems.
In principle, the idea was simple: create a system so that payments can be made in real time, at a cost of less than half a percentage point, via access to local and international clearing networks. Airwallex constructed a technology layer (an application programming interface layer, or API) sitting on top of the systems of more than 50 banks around the world.
While the system operated above the banking network, it remained connected to it enabling Australian and international banks to provide international services to their customers in a way that their own cumbersome systems simply could not do.
The operation started in miniature late in 2015 but did not gather momentum until 2017.
Suddenly international commerce was made far cheaper and the Airwallex network soon covered around 1000 large international corporate customers and tens of thousands of small enterprises, able to cover 130 countries.
No other banking organisation had such a reach and after an initial 2017-18 turnover of $US1.6bn the Melbourne based operation exploded.
Airwallex recently raised $275m, mainly from other successful entrepreneurs who believe that its growth is only just getting started.
SMB push
Airwallex is now undertaking two major thrusts that have been grafted onto its original currency based operation which take it deeper into global banking style services for its smaller and medium sized enterprise customer base in Australia, Asia the Middle East and Europe.
The Airwallex payments system for international currencies has been extended to all payments made by its Australian and international customer base. To help achieve this, Airwallex linked with the giant credit card operator Visa to produce a business card. Airwallex is now providing a total payments service covering salaries and all financial transactions for small and medium size businesses.
As in foreign currency the banks provide the base services but their cumbersome systems are streamlined for the Airwallex customer base. Two years ago the former head of National Australia Bank’s business lending operation Anthony Healy looked to provide cashflow-linked loans to small enterprise customers based on the bank being able to monitor the cash flow going through its banking systems.
NAB got the process going but it was limited because of the difficulties the bank had in its systems. Many other banks around the world have encountered the same problem so the next stage of the Airwallex operation is to use its customer cashflow knowledge to offer its small and medium business enterprise customer base cash flow base short-term credit. There is no need for real estate security because the cash flow can be monitored. It's a huge step and has the potential to transform the funding of Australian and international entrepreneurship.
Cracking the US market
The second major thrust of Airwallex is to take its Australian and international operation into the toughest market of all – the United States of America. The Airwallex US operation will be based in San Francisco and it now has approval to operate in most states. Step-by-step it will attempt to duplicate the Australian based operation in the US. The $275m that has been raised will finance these two thrusts although the base business is now profitable.
Among Airwallex’s early backers was DST Global, which was the primary investor in Facebook, Airbnb, Spotify and Stripe. Another was the co-founder of Seek in Australia, Paul Bassatt, who now backs a start-up funding operation called Square Peg. Bassatt added to his base holding in the latest fund raising. He was a joined by another great Australian entrepreneur: Atlassian co-CEO Scott Farquhar and wife Kim Jackson.
Jack Zhang and his original partners have all retained their shareholding, but unlike Atlassian they do not plan a public listing. It’s a lot easier to run a fast moving flexible operation without the burdens of the public marketplace and there is capital available for non-listed securities. The challenge for Zhang is that the business has grown rapidly and is now set to grow at even faster pace. He believes he can meet the challenge because in essence he is expanding base systems as well as developing new ones. In developing in the US one of his greatest assets will be that Airwallex is Australian based, although during the pandemic Zhang is living in Hong Kong.
Footnote The Tukk & Co coffee shop is still operating but like all coffee shops struggles in the Covid environment. It has the potential to be a national inspiration.
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