Posted on Monday, Oct 2nd 2017
According to a World Bank report, an estimated $582 billion was sent by migrants to relatives in their home countries in 2015. The remittance market is dominated by Western Union, MoneyGram, and Ria, but there is increasing competition from startups like Billion Dollar Unicorn TransferWise.
London-based TransferWise was founded in 2010 by Taavet Hinrikus and Kristo Käärmann. The two friends were from Estonia and worked in the UK. They had experienced first hand the problems in transferring money across countries and knew of the exorbitant fees charged by banks to convert funds from one currency to another. At that time Kristo was earning in GBPs, but needed to make some mortgage payments in Euros. Each time he converted his money, he lost money. To help him out, Taavet put Euros into Kristo’s Estonian account and got GBPs from him in return. They thus realized the need to create a currency exchange service that could offer a cheaper alternative to others.
TransferWise came up with a simpler way to make international money transfers. It is built around peer-to-peer technology that ensures the mid-market exchange rate seen on Google or XE.com. Instead of getting money to flow out from one country to the other, it uses its bank accounts in multiple countries to process the transactions. For instance, if a consumer wanted to send USDs to a UK-based GBP account, TransferWise would transfer the USDs from the customer’s US bank account to TransferWise’s USD bank account, convert it at the mid exchange rate provided by Reuters.com and pay out the resulting amount from its local UK account to the recipient’s UK account.
To begin transacting, all customers need to sign up on their website and set up a transfer mandate. The recipient of the funds need not have a TransferWise account. The transaction takes anywhere from 1-4 business days depending on the method of money transfer, the verification time, and the limitations in banking hours for both the sender’s and the recipient’s country. Businesses can also set up their accounts with TransferWise to transfer money to different countries.
TransferWise moves over £1 billion across its platform each month and has over 1 million customers. The company expects to add another 1 million customers this year. It claims to be moving over £500 million every month globally, saving its consumers £22 million in hidden charges.
TransferWise currently has 700 employees in 9 global offices. It has recently launched an Asian hub in Singapore. The company claims to have a 10% share of the international money transfer market in the UK and lets customers send money on over 750 routes.
TransferWise earns money by charging a transaction fee. For individuals, the fee varies based on the currencies and the volume involved. For sending USDs to the UK, the company charges up to 1% of the amount for the initial $5,000 and then 0.7% on anything over that. It levies a minimum fee of $3 per transaction. Compare their fee to PayPal’s Xoom which charges $4.99 for transferring up to $2,999 to the UK and uses a locked in currency rate for foreign currency conversions. WesternUnion’s fee is more comparable to TransferWise as it charges $5.00 for sending any amount up to $5,000 to a bank account in the UK, but it also uses a locked in exchange rate.
For the year ending March 2016, TransferWise recorded revenue of £27.8 million ($37 million) in revenue and made a pre-tax loss of £17.4 million ($23 million). The company claims to be on track for revenue of £8 million ($11 million) per month, which translates to nearly a £100 million ($134 million) revenue run-rate and a growth rate of 150% y-o-y. This would indicate revenue of about £69 million ($92.5 million) in the year ending March 2017. It claims to be profitable on an operational basis.
Competition is, however, heating up for TransferWise with London-based foreign exchange startup Revolut offering free international transfers of up to £5,000 a month. The Brexit vote also raises questions about visa restrictions and implications on foreign exchange.
It has been venture funded so far with $116.4 million from investors including Andreessen Horowitz, Baillie Gifford, Firestartr, IA Ventures, Index Ventures, Kima Ventures, Richard Branson, Seedcamp, SV Angel, and Valar Ventures. It raised $26 million in funding from Baillie Gifford in May 2016 at a valuation of $1.1 billion. The founders are expected to sell a small part of their stakes in the company as part of a funding round that values it at $1.6bn. Together, the founders control 40% of the company.
More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.
This segment is a part in the series : Billion Dollar Unicorns
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