FINANCIAL TECHNOLOGY

Fintech start-up leads charge to improve forex payments for China cross-border e-commerce

PUBLISHED : Tuesday, 05 July, 2016, 7:51pm
UPDATED : Wednesday, 06 July, 2016, 10:34am

Growing investments in financial technology (fintech) services are poised to disrupt traditional foreign-exchange channels and drive the expansion of cross-border retail e-commerce for Chinese companies, according to industry experts.

“None of the big names in the industry have dedicated technology to simplify the international payment requirements of businesses conducting cross-border e-commerce,” Jack Zhang, the co-founder and chief executive of fintech start-up Airwallex, told the South China Morning Post on Tuesday.

Zhang said increased venture capital support for key fintech providers, such as his company, ensures that cross-border e-commerce payment solutions in China and the rest of Asia would not be “expensive, clunky and time consuming” like current processes.

The stakes are high for online merchants as research firm eMarketer forecast that there will be 291.8 million active, cross-border retail e-commerce buyers on the mainland by 2020, up from an estimated 181.2 million this year.

There is a real need for innovation in the [payments] sector
Michael Zhu, Gobi Partners

E-commerce shoppers in China are predicted to make online cross-border retail purchases totalling US$157.7 billion by 2020, compared with this year’s estimate of US$85.8 billion.

The surge in cross-border sales is attributed by eMarketer to increased activity on global retail platforms established by Post owner Alibaba Group and rival JD.com.

Michael Zhu, a managing partner at Shanghai-based venture capital firm Gobi Partners, said the boom in cross-border consumption has seen “demand for foreign exchange higher than ever”.

“There is a real need for innovation in the [payments] sector,” Zhu said.

That market potential has led Gobi Partners to join Chinese venture capital firms Gravity and Huashan Capital, as well as Easylink Payments chief executive Billy Tam, to make a combined US$3 million investment in Airwallex, which is based in both Melbourne and Hong Kong.

Zhang, who previously worked as a foreign-exchange solution designer at ANZ and National Australia Bank, said the Airwallex payments application is currently in beta trial stage.

The application is designed to be embedded in e-commerce platforms used by online merchants. It would enable businesses to issue and pay invoices in their preferred currency at the mid-market foreign exchange rate, avoiding inflated bank margins and minimising currency fluctuation risks, according to Zhang.

Airwallex can also instantly tap into the online payment gateways merchants in China use, which include Ant Financial Services’ Alipay, Union Pay and Tencent Holdings’ WeChat Pay.

Zhang said the funds Airwallex has raised will be used to further develop its proprietary technology and roll out new features, as well as set up offices in Singapore and Japan over the next few months.

Falguni Desai, the managing director at New York-based Future Asia Ventures, said in a report that Asia is now the dominant region for fintech innovation as 3,000 start-ups tackle payments, mobile wallets, currency exchange, remittances, credit scoring and other financial processes.

“While the West might lead the world in business-to-business innovations that change institutional processes, Asia will likely lead in business-to-consumer fintech applications,” Desai said.

The report estimated 2,500 fintech start-ups are active on the mainland and about 150 in Hong Kong.

Data from professional services giant KPMG and venture capital database CB Insights showed that China was driving fintech investments in Asia.

They estimated the world’s second largest economy attracted US$2.4 billion in investments into venture capital-backed fintech companies from March through nine deals, compared to just US$300 million in six transactions recorded in the fourth quarter of 2015.