Loosen the nation’s ‘cartel-like’ grip on payments: Airwallex

Unicorn fintech start-up Airwallex says a lack of competition is contributing to Australia’s cost-of-living crisis.

The Albanese government is being urged to reform the nation’s payments regime, with billion-dollar fintech start-up Airwallex calling for changes to loosen a “cartel-like” grip on payments to help tackle the ongoing cost-of living-crisis.

In a submission to Treasury and assistant treasurer Stephen Jones, seen by The Australian, Airwallex chief executive Jack Zhang says that Australia’s current payments system has helped entrench the dominance of incumbent players, leading to higher costs that are then passed onto end consumers.

Apart from the banks, only Wise and PayPal have payments licenses in Australia, highlighting the fact the licensing system discourages new entrants.

Now one of Australia’s highest valued private technology companies, Airwallex was co-founded in Melbourne by Mr Zhang and three of his university friends in 2015. It was the fastest Australian start-up to ever reach a $1bn valuation and was most recently valued at $US5.5bn ($7.91bn) in a November funding round when it sought $US100m in financing.

Airwallex's co-founders. Picture: Supplied

The fintech’s platform allows other businesses to operate internationally, by enabling quick cross-border transactions.

“Australia is, unfortunately, not among the top five in the global fintech rankings today,” Mr Zhang said in his letter to Mr Jones

“I urge you … to pursue an ambitious agenda that will remove barriers to entry and encourage and promote competition, leading to better services, better products and lower costs for businesses and their customers. We see this as a win-win proposition.

Mr Zhang said small and medium businesses pay tens of millions of dollars each year in higher payment costs, because the current system discourages competition.

“Those higher costs are passed on to everyday Australian consumers and their families,” he said.

“If Australia wants to help tackle the cost-of-living issues families are now facing, reforms to the payments system will save Australians millions each year. The most effective way to do this is by reforming the licensing regime to encourage new entrants that will compete with the incumbents, pushing prices down.”

The federal government in December released a consultation paper into a strategic plan for the nation’s payments systems. As part of the review the government is assessing regulations across digital wallets, buy now pay later and crypto assets, including exploring the policy rationale for an Australian central bank digital currency.

Airwallex is calling for changes to regulations that currently require payment providers to hold an additional 5 per cent of total funds, which it says is higher than anywhere in the world except for Malaysia and disproportionately impacts payments start-ups. It also wants changes to the Shareholding Act, arguing that current limitations are arbitrary and disadvantage younger companies.

The current threshold for ownership of a payment provider is 20 per cent and Mr Zhang said a 2018 amendment to the Act did not go far enough to support successful start-ups.

“[The amendment] ignored the fact that successful start-ups require flexibility in respect of how they raise capital to fund innovation and growth,” he said.

Assistant Federal Treasurer Stephen Jones.

“It prevents shareholders from having representation on the board of start-ups because the associate test aggregates shareholding interests of unrelated parties triggering unacceptable shareholding situations. This is unattractive to foreign investors who view this as draconian, limiting potential additional follow-on investment in Australian payment service providers by the relevant shareholders.”

Airwallex last month detailed plans to hire up to 500 new workers this year, growing its headcount by as much as 40 per cent amid lay-offs at Alphabet, Meta and Amazon.

“There’s a tsunami of talent out there that other companies have turned their back on. We’re growing and want to snap them up because good people are what helps bring our vision to life,” Mr Zhang said following his address to last month’s World Economic Forum at Davos.

“I don’t think you can quantify the missed opportunity from cutting back on the talent and skills that could shore up your future.

“We’ve got big ambitions for 2023 while other players are cutting back on functions like engineering and product design. Australia is where we started and it’s where we have some of our largest engineering and product teams so we want to keep building on the great pool of talent that are helping make us the go-to financial suite for modern businesses.”