June 13, 2021


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Transferwise takes on the world’s banks


Anyone who sends money to another country on a regular basis soon becomes aware of the hidden fees charged by banks and the troublesome interfaces of their websites. The Estonian cofounders of peer-to-peer money transfer service Transferwise, Kristo Käärmann and Taavet Hinrikus, became aware of this when they were living and working in London. Hinrikus was working at Skype and got paid in euros, but needed pounds to pay his bills. Käärmann worked for Deloitte in London and got paid in pounds, but needed euros to pay off his mortgage in Estonia. Every month, they transferred money through their banks and soon realized that about 5% of the money wasn’t arriving in the receiving account. Hinrikus started to wonder if there was a better way. The pair came up with an ingenious solution. They checked the exchange rate on Reuters, and then Hinrikus transferred euros from his Estonian bank account into Käärmann’s Estonian account while Käärmann transferred pounds from his British account to Hinrikus’ British account. Since these were both domestic transfers, they saved both the international transfer fees and the banks’ hidden markups on the exchange rates. The pair soon recruited other Estonians looking to make similar money transfers. By 2011, the pair quit their jobs to start TransferWise. By 2016, they had raised $117 million in venture capital, including $6 million from Peter Thiel's Valar Ventures, a further $25 million with Richard Branson as an investor, and $58 million led by investors Andreessen Horwitz. The company now moves more than $1 billion every month through its online interfaces and has nine offices and 600 employees across four continents.


TransferWise operates in a similar manner to the arrangement that the cofounders first used. The company matches people transferring money in one direction with people transferring it in the other direction, thus avoiding currency conversion and cross-border transfers. They charge mostly flat fees for the service. The company now offers a borderless account that holds up to 28 currencies, offers bank details for Australia, the Eurozone, the US, and the UK, and includes a debit MasterCard for select account holders.


TransferWise has found that the key to success in the global market is strong teams with expert local knowledge to take on its biggest challenges: following regulations and complying with regulators, finding partnering banks to complete transactions and ensure liquidity, and adapting marketing for local payment methods. As TransferWise has expanded globally, it has also scaled up its teams globally. It is adding offices all over the world, and locations are developing their own product management, payment operation, marketing, customer support, regulatory compliance, and legal staffs. In Japan, TransferWise received approval from Japan’s Financial Services Agency, so it had to find new solutions to deal with challenges such as postal address requirements and relatively low daily transaction limits. In the US, users tend to prefer writing checks, and the US payment network is much slower than in other regions, so transactions may take five times longer. As a result, TransferWise had to adapt its marketing to capture consumers’ trust. In India, forming a new partnership lowered TransferWise’s costs, so they reduced the fees on U.S.-to-India transfers from 1.5% to 0.9% in an effort to scale.

Also published on Medium.


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