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26th March 2021

Airwallex: Cross-border multi-currency payments


In last week’s edition of Fintech Fridays, we explored Stripe, a disruptive B2C payment provider. In this week’s edition, we’re diving into the story of Airwallex, a disruptive B2B international payment provider helping businesses save money and time when paying international suppliers & employees. Read on to discover how the Melbourne based start-up, founded by three University of Melbourne alumni, successfully grew the company to a US$2.6 billion valuation in just under 6 years.


Remittance is the international transfer of money, often as a payment or gift, with a common example being internationally-based people sending back money to one’s home country as a form of financial aid. The global remittance industry was valued at US$682.60 billion in 2018 and is projected to reach US$930.44 billion by 2026, growing at a CAGR (cumulative annual growth rate) of 3.9%. Traditional banks continue to dominate the remittance market due to their outsized financial power. However, with the advancement of startup fintech companies such as Airwallex, businesses are now offered with modern, cheaper alternatives - with remittance fees as low as 0.5%, as compared to higher remittance fees charged by traditional banks.


Airwallex started out by providing businesses with a cheaper, faster method of making cross-border payments. As of today, they have built a global financial infrastructure and platform, further expanding their services to include foreign bank accounts, multi-currency debit cards for travelling employees or paying suppliers - provided in partnership with Visa, bank feed integration with Xero and online payment capabilities. 


Airwallex has successfully raised nearly US$500 million since its establishment in 2015. Whilst backed by world-leading investors, the team has set their global expansion plans into motion, particularly focused on expansion into the US. The competition is fierce amongst digital remittance companies such as Wise - formerly known as Transferwise, OFX - a listed ASX company, Instarem - headquartered in Singapore, and other traditional remittance services which are also going digital. 


“What distinguishes Airwallex from their competition is their rich product offerings that helps companies simplify a clunky financial infrastructure and turning that into a simple and delightful product experience for customers” - paraphrasing the appraisals of Airwallex investors Patrick Backhouse of Greenoaks & Jeremy Kwong-Law, CEO & CIO of Grok Ventures.


Having secured $US100M in seed funding from Greenoaks this week, as well as pushing back several offers from acquisition offerings in the US, Airwallex has a strong foundation to accelerate its business expansion, and whilst the company has reportedly not turned a profit from its investments as of yet, the continual backing from investment firms and software companies certainly shows a strong trajectory in the future.



Upstart: Using AI to Increase Lending

Upstart is no traditional lending platform. While other lending platforms will track your credit history using your credit history, Upstart is one of the first companies in the world to apply AI to the credit industry, where it uses non-conventional variables at scale to provide what they consider to be a superior representation of their customer and improve access to credit. This week Upstart’s shares were up 171% in only 3 days, as reports surfaced that the company saw a fourth-quarter revenue growth of 39%, and an  operating income almost tripling in value to $10.4 million.


Upstart itself is not a lender, but rather is a platform for peer-to-peer lending. The system uses AI to allow lenders to make better loan decisions and connect them to the right borrower, while leaving the traditional credit score behind. With an underlying philosophy that four out of five Americans have never defaulted on their credit product, yet only half have access to the prime record they need, ex-Google Executive David Girouard sought to find a solution. Using statistical models that considers the school you attended, your area of study, and employment history in addition to your credit history, Upstart’s model is significantly more accurate than traditional lending models, which allows them to be able to approve more applicants at a lower loss rate.


Upstart currently offers only fixed rate personal loans only, with amounts ranging from $1000 to $50,000, with repayment terms of 3 to 5 years. While their products can be quite limited, their efficiency and administration of their loans is where the AI excels, with borrowers expecting to receive their funds within 2 business days after accepting the terms of their loans. With an A+ rating from the Better Business Bureau, Upstart ensures it works with regulators such that its models would not have statistical bias to disadvantaged groups.

In an internal study done by Upstart, the company replicated the models of three large banks, evaluated their approval rates and hypothetical loss rates, and compared the same models to Upstart’s. The results found that by comparing Upstart’s model to traditional banking models, Upstart’s had 75% fewer defaults at the same approval rate and 173% more approvals even at the same loss rate. The AI model implemented by Upstart has also allowed 71% of all their clients in Q4 2020 to have a majority of loans be approved instantly through a fully automated process, rewiring the traditional verification process.


Through the momentum this week, Upstart has differentiated itself and grown exponentially, while  recalling it first going public in December where it was initially valued at $2.1 billion, this week it is now valued at $12 billion. Upstart in its quarterly report this week has also predicted to have a full year 2021 revenue consisting of about $500 million, more than doubling their revenue last year, While there is expected significant growth for its future, currently there are still no plans to continue expanding overseas.



The views expressed within this article are those of the authors and do not represent the views of the Finance Student's Association. All images and references in this article are for fair and educational purposes only. The content in this article is not intended as legal, financial or investment advice and should not be construed or relied on as such.

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