Banks charge you a lot to send money abroad. This company lets you bypass them.

Image credit: Ken Teegardin

Banks charge you a hefty, marked-up fee when you exchange currency or make international payments. The real exchange rate, or “mid-market rate”, is off-limits to average consumers like you and I.

Not anymore. Startups are doing their best to cut banks out of the forex bounty, and in doing so benefit millions of people and businesses making international transactions. TransferWise is a famous example. InstaRem is another.

Add Airwallex to the mix. The Hong Kong and Australia-based startup lets you pay tuition fees, pay a contractor, or invoice a client in another country, in your own currency. Businesses can embed its APIs to help users pay for cross-border purchases on their stores.

While the company is still in private beta, it already has some serious investor backing. It raised a pre-series A round of US$3 million led by Gobi Partners, which manages Alibaba’s Hong Kong fund.

Top-secret stuff

Airwallex is secretive about its technology. It didn’t say much in its press materials, except that it “built a direct connection that gives any business or individual access to this exclusive mid-market rate with an algorithmic risk management engine in real time.”

How does this direct connection work exactly? When pressed, Jack Zhang, the CEO and co-founder, tells me that Airwallex has “electronic connections to trade in the interbank market.” Not very descriptive, but whatever.

It also didn’t say much about the fees it charges, except that it varies by volume and is “very competitive.”

And then there are the algorithms, apparently the new magic word in startup circles these days.

Anyway, Airwallex has mechanisms to net better forex deals and speed up transaction times. Based on these superficial details, it appears to function rather differently from competitors.

TransferWise, for example, runs buckets of money in individual countries.

Say you live in Sydney, and you want to transfer $20 to a friend in Singapore. Your money is put into a Sydney pot. Then, $20 is removed from the Singapore pot and transferred to your friend. No money actually crosses the border.

Are banks worried?