According to a World Bank report, the global remittance market is expected to grow 3.75% annually over the period 2015 through 2017. Another report from LTP estimates that the US is the leader in the global remittance market with a 22% market share of the global remittance volume. The remittance market is dominated by three key players – Western Union, MoneyGram, and Ria. But these established players are facing increasing competition from startups that are able to offer lower fee structures and innovative technologies to provide online and mobile money transfer capabilities. One such new player is UK-based TransferWise, which recently joined the Billion Dollar Unicorn Club.
TransferWise’s Offerings
London-based TransferWise was founded in 2010 by Taavet Hinrikus and Kristo Käärmann. The two friends believed in the concept of allowing money to flow freely. Kristo was already a part of the finance world through his experience at Deloitte and PricewaterhouseCoopers. He helped the banking and insurance companies align their processes to new technologies. Taavet, on the other hand, brought in the technology expertise. He was the first employee at Skype and since then had worked at various companies as an angel investor and advisor.
The two friends were from Estonia and worked in the UK. They had themselves experienced the problems that arose out of transferring money across countries and knew of the exorbitant fee that some banks charged when it came to converting funds from one currency to another. At that time Kristo was earning in Pounds, but needed to make some mortgage payments in Euros. Each time he converted funds, he lost money. To help him out, Taavet put Euros into Kristo’s Estonian account and got Pounds from him in return. The arrangement helped them realize the need to create a currency exchange service that could offer a cheaper alternative to others.
It came up with a simpler way to make international money transfers. Instead of getting money to flow out from one country to the other, TransferWise uses its bank accounts in multiple countries to process the transactions. For instance, if a consumer wanted to send US Dollars to a UK-based Pounds account, TransferWise would transfer the US Dollars from the customer’s US bank account to TransferWise’s USD bank account, convert it at the mid exchange rate shown on Reuters.com and pay out the resulting amount from its local UK account to the recipient’s UK account.
