Airwallex, a Melbourne-based fintech unicorn, has introduced a new product called Yield, which allows businesses to earn returns on their foreign currency balances without opening overseas bank accounts. Yield, which is backed by JP Morgan, offers competitive interest rates for Australian and US dollars, and promises to expand to other currencies and markets in 2024.
Yield works by pooling the funds of Airwallex customers and investing them in low-risk, high-return assets such as government bonds, corporate debt, and money market funds. Customers can access their funds at any time, with no lock-up period or penalty fees. They can also convert their currencies at Airwallex’s market-leading rates, which are significantly lower than those of traditional banks.
Why did Airwallex create Yield?
Airwallex says that Yield was created to address a common pain point for businesses, especially startups, that operate across borders and hold funds in different currencies. These businesses often face challenges in earning returns on their foreign currency balances, as they either have to convert them to their local currency and lose out on exchange rate fluctuations, or open overseas bank accounts and deal with complex regulations and high fees.
According to Airwallex, many businesses also have surplus funds that are sitting idle in their accounts, which could be put to better use by earning interest. Yield aims to provide a simple and flexible solution for these businesses, by enabling them to earn returns on their foreign currency balances without sacrificing liquidity or security.
How does Yield compare to other products in the market?
Airwallex claims that Yield offers better returns than major banks, which typically offer low interest rates for business saver accounts. For example, Airwallex says that Yield offers 3.39% for Australian dollar balances and 4.07% for US dollar balances, while the average rates for AUD and USD business saver accounts are 1.38% and 1.50%, respectively.
Airwallex also says that Yield is more convenient and cost-effective than other products that require businesses to open overseas bank accounts, such as TransferWise or Revolut. These products often charge fees for account opening, maintenance, transfers, and conversions, and may have limitations on the amount of funds that can be held or withdrawn.
What are the benefits and risks of using Yield?
Yield offers several benefits for businesses that want to grow their global operations and optimize their financial performance. Some of the benefits are:
- Higher returns: Yield offers competitive interest rates for foreign currency balances, which can help businesses increase their income and cash flow.
- Flexibility: Yield allows businesses to access their funds at any time, with no lock-up period or penalty fees. They can also convert their currencies at Airwallex’s market-leading rates, which are significantly lower than those of traditional banks.
- Security: Yield invests the funds of Airwallex customers in low-risk, high-return assets, such as government bonds, corporate debt, and money market funds. These assets are carefully selected and monitored by Airwallex and JP Morgan, and are subject to strict regulatory and compliance standards.
- Simplicity: Yield does not require businesses to open overseas bank accounts, which can be complicated and costly. Businesses can use their existing Airwallex accounts to access Yield, and manage their funds through a user-friendly interface.
However, Yield also involves some risks that businesses should be aware of before using it. Some of the risks are:
- Currency risk: Yield does not guarantee the exchange rate of the currencies that businesses hold or convert. The exchange rate may fluctuate due to market conditions, and businesses may lose or gain value on their foreign currency balances.
- Interest rate risk: Yield does not guarantee the interest rate of the currencies that businesses earn. The interest rate may change due to market conditions, and businesses may receive lower or higher returns than expected.
- Liquidity risk: Yield does not guarantee the availability of the funds that businesses withdraw. The funds may take some time to be transferred from the investment assets to the Airwallex accounts, and businesses may face delays or disruptions in accessing their funds.
How can businesses use Yield?
Yield is currently available to a select group of Airwallex customers who meet a minimum initial investment threshold. Airwallex plans to roll out Yield to more customers, markets, and currencies in 2024. Businesses that are interested in using Yield can contact Airwallex for more information and eligibility criteria.
Yield is part of Airwallex’s suite of products and services that aim to help businesses scale internationally and simplify their global payments and financial operations. Airwallex, which was founded in 2015 by Jack Zhang and his university mates, achieved a valuation of $8.8 billion after a $156 million funding round in November 2022, making it one of Australia’s most successful tech startups. Airwallex has secured $1.4 billion across 12 rounds from investors such as Square Peg, Salesforce Ventures, and Tencent.
