You may not have heard of TransferWise, but the technology startup c0-founded by the first employee at Skype just got a leg-up on its path to disrupting the money-transfer industry. The company uses a crowd-sourced model to facilitate money transfers between customers in euro-member countries and those who use the pound-sterling in Britain. Since its founding in January 2011, it's clocked in about 6,000 transactions, says co-founder Taavet Hinrikus, formally of Skype. He's tight-lipped about active users, hinting only that the number who used its service is in the thousands. It is still "a ways away from being profitable," says Hinrikus.
But TransferWise has just managed to get $1.3 million in seed funding from a range of venture capital firm, along with a few high-profile peers. Backers alongside New York's IA Ventures and London-based Index Ventures, include PayPa-co-founder Max Levchina and Errol Damelin, the CEO of short-term lender Wonga, recently billed as the fastest growing tech company in the U.K.
TransferWise still needs to scale up if it wants to be profitable, but Hinrikus and his co-founder, Kristo Kaarmann emphasized when fundraising that they at least had a pool of customers who'd been paying from day one. That's in contrast to other tech start ups with big user bases, "but no users open their wallet," says Hinrikus.
TransferWise's attraction is that its users pay very little for the service. It uses the daily interbank rate to determine each exchange and charges a relatively low service fee: 5 euros for a transfer of £1,000 from Britain to a Eurozone country. A bank like HSBC, by contrast, will charge roughly 55 euros, while Royal Bank of Scotland subsidiary NatWest charges 40 euros.
TransferWise is able to charge so little because it uses a peer-to-peer transaction model. The model evolved out of a system the founders created between themselves, when one needed to send money back home to Estonia, and the other was being paid in euros but living in London. Now Hinrikus and Kaarmann claim to have processed more than 10 million euros in customer transactions, and saved people around 500,000 euros.
The challenge now is to grow those revenues. Skype faced a similar challenge when it disrupted the telecommunications industry, says Hinrikus, taking something that was once expensive (long-distance calling) and making it free.
The upside is that TransferWise has managed to show its crowd-sourced business model works, and spent almost nothing on marketing or advertising. It is also chasing a big market: Hinrikus cites a recent World Bank report as saying that the remittance market, which refers to migrant workers sending money back home, is worth $325 billion. Assuming his customer base grows thanks to word-of-mouth, Hinrikus hopes to take advantage of cross-border trade flows between emerging market economies like India, China and Russia with Europe.
And what of the greenback? "We're not exactly sure the U.S. dollar is the most important thing for us to do," he says, noting that "about a month from now" the company will be adding more European currencies. "We'll be tackling them one by one."
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