Alternative, cheaper, and more convenient financial services are booming. So Investors keep pouring money into the fintech revolution (Financial Technology), raising the valuations of startups like TransferWise.
Founded in 2011 by Estonians living in London, TransferWise is an international money transfer platform based on peer-to-peer technology. This disrupts the traditional banking system by providing cheaper international money transfers.
The company has not yet gone public and raised $26 million in its fourth round of private funding from Scottish asset manager Baillie Gifford on May 25. According to market estimates, this values the startup at $1.1 billion.
To date, the company raised $117 million in total from notable investors like Richard Branson, PayPal co-founder Peter Thiel, and a Silicon Valley venture capital firm Andreessen Horowitz.
“After just five years, we’ve seen how much TransferWise can help people who need to move money internationally. People are now moving £500 million ($731 million) every month on TransferWise. That means they’re saving themselves over £22 million ($32 million). We want to bring TransferWise to everyone in the world who needs it. It’s great to have Baillie Gifford on board to help us grow even faster,” said Taavet Hinrikus, CEO and co-founder of TransferWise in a press release.
How It All Started
The company is headquartered in London but the co-founders Taavet Hinrikus and Kristo Käärmann are originally from Estonia, which is considered the new Silicon Valley of Europe. It is the birthplace of many tech companies like TransferWise, Playtech, and GrabCad. Skype’s software was also created by Estonians a decade ago.
Hinrikus, who was the first ever employee of Skype and the director of strategy until 2008, used the same peer-to-peer networking principle in creating TransferWise.
Hinrikus together with his friend Käärmann, former manager at Deloitte, founded TransferWise out of frustration:
Hinrikus was working for Skype and was paid in euros but lived in London. Whereas, Käärmann was working in London and had a mortgage in Euros back in Estonia. They devised a simple scheme. Käärmann put pounds into Hinrikus’ UK bank account, and Hinrikus topped up his friend’s euro account with euros in Estonia. Both got the currency they needed and neither paid a cent in (often hidden) bank charges.
Both said: “There must be others like us.” And that is how they started the TransferWise.
The platform facilitates the transaction by matching people who want to send money one way with the ones who want to send it the other way. Thus, people can save on fees by avoiding the actual international exchange:the monies stay in their respective country and change owner there.
In February 2015, the company launched its platform in the United States. Since then it more than doubled its headcount and now employs over 600 people in the U.K., Europe, and the United States.
The company competes with banks and various money transfer businesses, such as Western Union, Moneygram, and Xoom owned by PayPal, and startups like WorldRemit and Remitly.
Some critics think TransferWise is not that different from competition in disrupting the banking system. However, it has become an expensive unicorn (a term used for a start-up company valued at over $1 billion) thanks to its successful PR and advertising campaigns.
In the #nothing2hide ad campaigns, the founders and the employees of TransferWise ran naked through the financial district in NYC in the freezing cold to protest hidden bank fees.
The company also uses acquisition and marketing techniques including a paid referral program and affiliate marketing. They are very effective in acquiring new customers.
The company, like many other tech firms, has joined the billion-dollar club but it generates little revenue let alone profits.
According to the latest annual report filed with the UK registrar Companies House, TransferWise had revenues of £9.7 million ($14 million) and a net loss of £11.4 million ($16.5 million) in the year ending March 2015.
Global investments in fintech rose to $19.1 billion in 2015, with $13.8 billion invested into VC-backed fintech companies, a 106 percent jump compared to 2014, according to a report by KPMG and CB Insights.
There are 19 fintech unicorn companies globally and 14 of them provide technologies and services falling into either payments or lending, said the report.
