Can TransferWise transform money transfers
- 19 April 2012
The service was set up by two Estonians, Taveet Hinrikus, the first employee at Skype, and finance man Kristo Kaarman. The pair felt penalised by the bank transactions they had to pay to move money between the UK and their home country. The charges could reach as high as five per cent. They decided to set up what could be called a crowd sourced service offering transfers between sterling and euros at a hugely reduced rate by finding and matching bill payers in both currency areas who needed to pay bills in the other currency.
TransferWise holds accounts in the UK and in the euro area. Someone in the UK who wishes to pay a bill in France deposits money here in sterling. Someone in France may do the reverse, thus avoiding all manner of transfer charges with TransferWise levying a much reduced fee.
The simple idea has attracted huge interest.
As the Wall Street Journal writes: "Although it's only a small funding round, TransferWise has attracted an impressive array of investors, including New York-based IA Ventures, London's Index Ventures, and Kima, a French microventure capital fund by Xavier Niel, the founder of Internet services provider Free."
"In addition, the company's angel investors include a veritable who's who of online banking, including PayPal co-founder Max Levchin, Errol Damelin, the chief executive and co-founder of Wonga, former Betfair chief David Yu, and Simple.com co-founder Shamir Karkal."
To date, the service has transferred around £10m but has much bigger ambitions.
Certainly Hinrikus is talking the language of disruption. Website Gigaom quotes him saying: "The disruption in airlines happened about 20 years ago, with Easyjet and Ryanair and the like, and Telecom disruption happened about 10 years ago with Skype. It hasn't happened in finance yet: we're seeing it in different verticals, with Wonga doing lending, we're seeing Lending Club do peer to peer lending, now we're doing payments. But this is at the very beginning."
It is clear that the small funding round may have to become a much larger one at a later date. However, even if you were convinced of the business's disruptive power, it might prove difficult to get a share of it unless you were a business angel yourself. Of course, within a portfolio you may have to watch out for the impact a new way of doing something can have on existing players when their product or service faces obsolescence – just ask Eastman Kodak.
Here technology, culture and business bloggers Brian Solis discusses the issue of disruption on his blog.
More from Mindful Money:
Sign up for our free email newsletter here, for your chance to win an Amazon Kindle Touch.
- The UK economy combines both house price inflation and goods price disinflationary pressure
- With the strong UK employment market is it time for Forward Guidance mark three?
- Why is Janet Yellen talking the US Dollar down?
- The Bank of England finds that its own Quantitative Easing worked superbly!
- Are the oil majors having to come to terms with the dawning of solar power and what should investors do?
- Challenger banks Shawbrook and Close Brothers launch market leading fixed-rate bonds
- Are you an Expat with investment property in the UK? - You could be liable for UK Capital Gains Tax
- Where to find an inflation beating savings account
- Budget pension revolution: Just 5% of pension investors planning to blow all the money and rely on state pension
- Cost of living eases as inflation drops to 1.6% in March - its lowest level since October 2009