International money transfer has been the exclusive domain of banks, but UK-based startup TransferWise is fast changing that status quo. The folks at TransferWise say that their startup was born out of frustration, largely precipitated by the inordinate amounts that banks used to charge for sending money abroad. Kristo Käärmann and Taavet Hinrikus, the founders of TransferWise, felt that there has to be an easier and cheaper way to send money abroad. This was the primary motivation that inspired them to launch TransferWise in 2011.
How TransferWise works
The idea for TransferWise was an epiphany that helped the founders save loads of money. It all started when Taavet Hinrikus and Kristo Käärmann faced a unique problem. Taavet worked in Estonia, got his salary in euros, but he used to live in London. On the other side, Kristo worked in London, but he needed to pay a mortgage in euros in Estonia. Both thought about it and found a simple solution to the problem. They checked the exchange rate on Reuters and accordingly deposited money in each other’s bank account. Kristo deposited pounds in Taavet’s UK bank account and Taavet returned the favor by depositing euros in Kristo’s euro account. This unique solution not only solved the problem, but the founders did not have to pay even a single penny in bank charges. Soon after, the founders realized that other people may also be facing similar problems. This eventually led to TransferWise. The simple homespun solution was transformed into a proprietary algorithm and made available as an affordable international money transfer platform to everyone who may need to send money abroad.
What makes TransferWise affordable
What makes TransferWise affordable is that it utilizes a peer-to-peer network to facilitate international currency transactions. It’s like connecting people across borders, which reduces the cost of sending money abroad. Connecting people on a peer-to-peer network eliminates the need to buy and sell currency, which in turn eliminates brokerage and other related charges. Taavet describes their idea as ” the Skype of money transfers”, something that is truly pioneering. On an average, banks can charge up to 5% in hidden costs. In comparison, TransferWise is up to 8x cheaper. This is why more than 2 million customers across 59 countries now prefer TransferWise to send money abroad.
TransferWise is approved by the UK financial regulator, which means that customers can utilize the platform without any worries. It is also worthwhile to note that TransferWise is funded by top investors such as Virgin, Andreessen Horowitz, IA Ventures, Index Ventures, KIMA Ventures, Valar Ventures, and Seedcamp. Private investors associated with PayPal, Skype, Betfair, Simple.com and others have also invested in this startup. TransferWise has been a runaway success and has plans to expand business operations in various other countries.