Fintech company Airwallex buys MexPago to expand in Latin America
The co-founders of Airwallex, from left to right: Xijing Dai, Lucy Liu, Jack Zhang and Max Li.
Airwallex
Global fintech giant Airwallex said Thursday that it has agreed to acquire MexPago, a rival payments company based in Mexico, for an undisclosed amount to help the company expand its presence in Latin America.
The company that competes with like-minded people PayPalstripes and block, sells cross-border payment services primarily to small and medium-sized businesses. Airwallex makes money by collecting a fee on every transaction.
The deal, which is subject to regulatory approval and customary closing conditions, represents a major push by Airwallex into Latin America, a market that has become more attractive to fintech companies thanks to a predominantly younger population and increasing online penetration.
SumUp CEO Jack Zhang said the company views Mexico as a hedge as it deals with geopolitical and economic uncertainty between the U.S. and China.
“US citizens export to Mexico to sell to consumers there,” Zhang told CNBC. “Because of the supply chain, you can export from Mexico to other countries like the United States.”
“You get both the inflow and the outflow of money,” he added. “We really like that best. We can bring a global company to Mexico and also help the global companies make payments to the supply chain.”
Trade tensions between the U.S. and China have escalated in recent years as Washington seeks to address what it sees as China’s downward spiral in trade.
The US accuses China of intentionally devaluing its currency by purchasing large amounts of US dollarsmaking Chinese exports cheaper and US exports more expensive and worsening the US trade deficit with China.
China has tried to address those concerns by agreeing to “significantly reduce” the U.S. trade deficit by pledging to “significantly increase” its purchases of American goods, although it has struggled to meet those commitments.
“Mexico is one of the most populous countries in Latin America,” Zhang added. “As the trade war intensifies in China and the US, much is shifting from Asia to Mexico.”
“[Mexico] is very similar to the USA. Labor is cheaper domestically compared to the US. A large part of the supply chain goes there. E-commerce also offers many opportunities.”
A mature fintech
Airwallex operates worldwide in markets such as the USA, Canada, China, Great Britain, Australia and Singapore. The company, founded in Australia, is the second most valuable unicorn there after the design and presentation software startup Canva, which was most recently valued at $40 billion.
The company, whose customers include Papaya, Zip, Shein and Navan, processes more than $50 billion in a single year. Additionally, the company has partnered with companies such as American Express, Shopify, and Brex to expand its services internationally.
It’s been a tough environment for fintech companies recently with interest rates soaring. This has made it more expensive for start-up companies to raise capital from investors.
For its part, Airwallex has so far raised more than $900 million in venture capital from investors such as Salesforce Ventures, Sequoia, Tencent and Lone Pine Capital. The company was most recently valued at $5.6 billion.
At this point, we are still expanding toward our mission, which is to enable these smaller companies to operate anywhere in the world and continue to develop world-class software.
Zhang said the company is at a stage where it has reached enough maturity to consider an IPO – the company says it now handles more than $50 billion worth of transactions on an annual basis. However, Airwallex will only start the IPO once it reaches a certain annual turnover, Zhang added.
Zhang is targeting $100 million in annual recurring revenue (ARR) for the company within the next one to two years. Once Airwallex reaches this point, it will consider an IPO, he says.
“At this point, we are still expanding in line with our mission, which is to give these smaller companies the ability to operate anywhere in the world and continue to develop state-of-the-art software… to protect our margins.” [and] “We will increase our margins from a cost perspective, not just from an infrastructure perspective,” Zhang said.
MexPago offers many of the same services as Airwallex – multi-currency accounts for small and medium-sized businesses, foreign exchange services and payment processing – but it offers a few more payment methods that Airwallex does not currently offer.
Why Latin America?
A big selling point of the MexPago deal, Zhang said, is the ability to obtain a government license in Mexico without having to go through a lengthy application process with the central bank. The company has secured an IFPE (Institution of Electronic Payment Funds) license from MexPago.
This gives Airwallex customers both in Mexico and around the world access to local payment methods such as SPEI, Mexico’s interbank electronic payment system, and OXXO, a voucher-based payment method that allows shoppers to order something online and receive a voucher, and then fulfill their order with cash.
“The ability to access the license for local infrastructure there will give us a significant advantage with our global offering,” Zhang told CNBC.
Airwallex experienced huge growth in America last year – the company reported a 460% jump in sales there year-on-year.
Airwallex is not the only company recognizing the potential in Latin America.
SumUp, the British payments company, has been active in Latin America since 2013 and already opened an office in Brazil in 2013. The company’s CFO, Hermione McKee, told CNBC in June at the Money 20/20 conference that the company plans to further its expansion in the region.
“We’ve had a lot of success recently in Latin America, particularly in Chile,” McKee said in an interview with CNBC.
“We are considering opening up new countries in the coming months.”
More than 156 million people in Latin America and the Caribbean are between the ages of 15 and 29, making up more than a quarter of the population. These consumers tend to be more digital and suspicious of established banks.