Friends seize opportunities in borderless world

TransferWise, a peer to peer currency exchange, takes on banks by offering low rates

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Taavet Hinrikus and Kristo Käärmann, two Estonian friends, set out to solve a problem for themselves and ended up aiming to solve it for the world. In 2011 they created TransferWise, a peer-to-peer international money transfer company and one of Europe’s fastest-growing financial technology start-ups.

TransferWise, based in London’s Tech City, is among the biggest of a clutch of companies using digital technology to let customers transfer money between different currencies at cheaper rates — and more quickly — than services offered by banks and institutions such as Western Union and MoneyGram.

It moves more than £500m across the world every month, taking 2 per cent of the UK global remittance market, and is pushing into markets such as the US, Germany and Australia. TransferWise’s last investment round is thought to have valued it at nearly $1bn. Backers include Sir Richard Branson of Virgin and PayPal’s Peter Thiel and Max Levchin.

Taavet Hinrikus and Kristo Käärmann: problem-solving for all required a leap of faith

Mr Hinrikus was the first employee of Skype, the company that revolutionised long-distance calling by offering it free over the internet, in 2002. Later he moved from its Estonian base to London but, because he was still paid in euros, he lost 5 per cent in bank charges every time he changed money into pounds.

He met Mr Käärmann, who had the same problem in reverse: he was paid in sterling in London and had a mortgage in euros in Estonia. In 2007, they found a solution. Each month, using a mid-market rate, Mr Hinrikus put euros into his friend’s account while Mr Käärmann topped up Mr Hinrikus’s account with pounds. Both got the currency they wanted and neither paid hidden fees.

Four years later, they created TransferWise, which matches people transferring money in one direction with people sending it in the other — so called peer-to-peer transfers.

“It was a leap of faith from solving it for ourselves to ‘can we solve it for the entire world?’ What makes us proud is that we have earned the trust of so many people,” Mr Käärmann says.

TransferWise says it is up to 90 per cent cheaper than banks and brokers, which typically charge 5-8 per cent, often concealed within the exchange rate. That can mean a saving of more than £200 on a £5,000 transfer from pounds to euros.

Mr Hinrikus, who was Skype’s director of strategy, is executive chairman at TransferWise, looking after marketing and product development. Mr Käärmann is chief executive, in charge of operations, development and compliance. He was previously a management consultant at PwC and Deloitte, working with European banks and insurers to modernise their processes and systems.

“We are still very much at the beginning,” says Mr Käärmann. “We saved £22m for our customers in August. The banks worldwide still got to take more like £800m from their customers.”

TransferWise has 400 staff and covers 30 currencies or 400 currency routes. “I think we will accelerate the pace,” notes Mr Hinrikus. “This year we have only launched the business in one new country — the US. We expect to be launching in multiple new countries very soon.”

Mr Käärmann says: “We are really at the beginning of the borderless world of money, where you move seamlessly between the dollar and pound and euro — and you don’t even have to think about this.”

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