If you’ve ever had to transfer money from one currency to another, you know that it can be a frustratingly pricey business. Now a new company, TransferWise, has raised seed funding totaling $1.3 million to tackle that problem.
TransferWise describes itself as the “Skype of money transfer” because it allows consumers to send money between UK and European accounts for a fraction of the price that banks charge, using a peer-to-peer, “crowdsourced” model to get the best rate on the exchange.
(And, also like Skype, it is banking on scaling up the business quickly in order to make some money back on the margin that it loses in individual transactions. So far the service is only available in two currencies, euros and pounds, but there may be more added soon.)
“Charging a small amount is clearly a scale business but we’ve now proven this model works between Pounds and Euros, so now the question is to expand, adding more users and more currencies and markets,” says Taavet Hinrikus, TransferWise’s founder and CEO. He says dollar expansion is “definitely” something the company is planning but equally is considering transfers to India and China, partly as a result of this funding. “There is so much to do,” he says.
Hinrikus is no stranger to growing along the Skype model: he was the Internet calling giant’s first employee.
And similarly, the company’s new investors also lend the startup strong e-commerce cred: In addition to lead investors IA Ventures and Index Ventures (which only weeks ago put $16 million into another crowdsourced money-exchanging startup, Funding Circle), other backers include PayPal co-founder Max Levchin, and an unnamed group of strategic angel investors that the company says have been behind a number of other disruptive e-payment plays like Wonga, Betfair and PayPal. Kima Ventures, Seedcamp and The Accelerator Group also participated.
The financials behind TransferWise make the service a very compelling option for individuals sending money from one currency to the other: A typical transfer of £1,000 into euros using Western Union can cost over £100 once you add in exchange rates and other fees. Hinrikus says the same transfer with a bank is slightly better but still expensive at £50. TranferWise’s cut on the same deal? £4.50, he says.
That kind of cost savings appeals exactly to the kind of people that TransferWise is seeing already using the service: expats, retirees, overseas workers and (increasingly) small businesses. These categories of users collectively transfer a significant amount of money every year: TransferWise notes that expatriate retirees alone transfer £400 million annually transferring money through banks.
So how does it work, exactly? Hinrikus explains that TransferWise uses the same mid-market exchange rates that big banks get on the interbank market. However, banks will often play around with that exchange rate and then factor in their own fees into the process. In contrast, TransferWise takes a fee of £1 on transfers up to £300. The basic transfer works much in the same way that it does when you transfer money through banks: you visit the site, enter your bank and the receiving bank’s details and the amount of money you want to transfer, and the process is completed by TransferWise.
The funding news also comes on the heels of TransferWise turning one year-old and reporting a milestone in its growth in February: €10 million ($13 million) in funds transferred, with €500,000 saved for users in the process. Those are small sums in the greater world of money transfers, which sees upwards of $4 trillion in funds transferred every day. Still, that is also a sign that the service is seeing some activity, and that the market holds a lot of potential, too.
Roger Ehrenberg, managing partner at IA Ventures,will join TransferWise’s board of directors.
[photo: Images of Money, Flickr]
TransferWise lets expats, foreign students and businesses move money globally. The firm’s pricing and operating model are a substantial departure from standard practice in the money transfer sector, providing customers with a lower-cost alternative to traditional means of moving money internationally. TransferWise was founded in London in March 2010 by Taavet Hinrikus and Kristo Kaarmann. Taavet was part of the small team that started Skype in 2003 and has recently worked with a number of startups as an angel investor...
Index Ventures is a leading venture capital firm specializing in investments in information technology and life sciences companies. The firm invests in seed, early and growth stage start-ups across US and Europe. Since its inception in 1996, Index Ventures has backed visionary entrepreneurs who have taken on incumbents and built seminal companies in a number of growth sectors including: open source software companies such as MySQL, Trolltech, Zend and Pentaho; broadband and VOIP companies such as Virata, Skype, FON and...
IA Venture invests in early-stage companies developing breakthrough tools and technologies for managing and extracting value from Big Data. IA Ventures was founded on the belief that managing and extracting value from massive, occasionally unstructured, often real-time data sets is a competitive advantage. Most data generated today is simply treated as exhaust “lost forever” along with the valuable insights held in it. This is purely because all but the most sophisticated organizations are overwhelmed by the massive datasets that are now...
Max Levchin the founder and CEO of Slide, which creates and distributes popular Web applications on Facebook, as desktop widgets, and elsewhere. He is also the chairman of local review site Yelp. Prior to Slide he was the co-founder and CTO of PayPal, which was sold to eBay for $1.5 billion in 2002.