The revolutionary crowd-sourcing money transfer service has recieved a cash injection in its mission to take on the banks – we meet the founder
Remember when Skype came along and made calling your relatives in far flung parts of the world a whole lot cheaper?
Well it looks like the same could soon happen to international money transfers.
Clerkenwell-based start-up TransferWise has been reducing the cost of sending money to Europe since its launch back in early 2011, and today they have announced seed funding of $1.3m.
Since January of last year the company has proven their peer-to-peer model works in the world of money transfers saving their customers a considerable sum in transfer costs.
Back in February, the company announced that it had transacted €10m in its first year, representing €500,000 in saved fees for its users by charging just £1 per transaction under £300.
“TransferWise is moving the money transfer market to the 21st century at a time when many banks and traditional financial services firms are forgetting innovation and customer experience,” says Roger Ehrenberg, managing partner at IA Ventures who contributed to the $1.3m funding round.
Taking on the banks with this disruptive model is Taavet Hinrikus, co-founder of TransferWise (employee number one and former strategy director at Skype).
We caught up with the entrepreneur to find out exactly how it all works and see just how that investment will be used.
Congratulations Taavet you must be delighted with the investment news!
I think it really shows that we have proven that our business model works by being able to attract investors from the financial world.
It also shows that this is an area that really needs a bit of disruption!
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How did the idea for TransferWise come about?
It goes back quite a few years. I moved to the UK from Estonia in 2006 and regularly transferred money from my savings at home to my new account here. I found that I was losing five per cent of the money each time I moved it.
At the same time my co-founder Kristo Kaarmann (also from Estonia) was starting to get paid in the UK and was losing a lot of money transferring cash back home to pay for a mortgage there.
In the end we solved the problem for ourselves by paying each other the money in the respective counties, I paid his mortgage and he paid me in pounds. At this time I was busy building Skype and Kristo was doing his own thing.
It came to 2010 and nothing had changed in the world of money transfers, and it seemed so many people were in need of a simple and cheaper service, so we applied our personal money savings model and came up with TransferWise.
So how exactly does it work?
Basically we are using the crowd sourcing approach. If you imagine two rivers of money, one in pounds going from the UK to Europe and one in euros heading over here – we utilise these rivers so that money never has to leave the country of origin.
We have accounts in sterling and euros. Our customers go onto our site, put the details of the transfer and transfer the money to us in either pounds or euros and we convert and pay in the other currency from our other account without moving money across borders.
We are using the power of technology and the crowd to disrupt the industry and cut out the middlemen, and many of the middling fees, from a service that is dominated by banks.
Sounds great – how did you find the seed round?
We went out looking to build the company by working with the smartest group of people possible. We were very selective about who we chose as investors.
We weren’t looking at how we could get the easiest money but how we could get the smartest money.
With people like Max Levchin [co-founder of PayPal], Errol Damelin [founder of Wonga], IA Ventures and Index Ventures behind us, we’ve got a team together that has shown repeatedly that they can build successful global companies.
What do you intend to do with the investment?
We want to expand our offering, we currently only deal in euros and pounds so we want to increase the number of currencies. We also want to hire more people to grow the business here in Clerkenwell.
Has being based on the edge of Tech City helped you at all?
London is a great place for start-ups and the businesses here have done a good job at building up an eco-system of technology.
With London being a financial centre it helps when you are dealing with financial technology as we are and we are also close to a lot of the people that we have partnered up with.
Did your time at Skype inspire the business?
Yes, definitely! If you think about it, Skype took expensive long-distance calls and replaced them with free calls. We are taking expensive money transfers and offering low cost ones instead. We haven’t quite found a way to do this for free yet but we will try.
Is it nerve wracking taking on the power of the banks?
Ha, ha! Should I be excited or scared? We are increasingly excited every day. I think the banks do a fairly dismal job in so many areas – there are services that can be done so much better.
There are so many things happening in the new banking world world at the moment, with more and more specialist companies taking on the jobs traditionally performed by banks and doing it better.
Look at Wonga.com, FundingCircle and CrowdCube. There is an increasing amount of disruption in the banking world and I think this will continue and a lot of it will happen in London.
That’s exciting, let’s hope more London start-ups take up the challenge!