Skype’s first employee, Taavet Hinrikus, is on a mission to shake up international money transfers. His new venture, TransferWise, aims to slash the costs of currency exchange, as Skype did with telephone calls. The service forgoes the hefty charges that banks add to the real, interbank exchange rate, instead charging a small flat fee for each transaction.
I enter the TransferWise offices, which are part of an edgy Shoreditch warehouse-cum-office block, and located within the Silicon Valley-modelled TechCity. An open-plan, glass walled and Apple Macs affair, it is a cool setup that suits their image: a rapidly rising start-up that will change the way people exchange money. Taavet himself greets me, casual in a grey t-shirt; he explains “What we are doing is very simple. We do money transfers, in a low-cost way, online.”
“If you go to a bank here, the bank will charge you £20 to make the transaction, and then in addition to this will charge you 3 per cent as a hidden fee on the exchange rate. So typically, if you transfer £1000, you will end up losing about £50. With us, we will charge you £5 for this; typically, we are about 85 per cent cheaper than a bank.”
Hinrikus stresses how the younger population, in particular students and start-up entrepreneurs, are a demographic particularly close to his heart. Recent TransferWise initiatives include pledging $10 million in cost-free transfers to European start-ups, and a competition for international students to fly a friend from home over for the weekend. “I think education is a worthy cause,” explains Taavet, a philosophy further reflected in the free currency transfers to universities that TransferWise offers. “We realised international students are in an especially bad situation: you have to pay fees to the schools, living expenses, and as a student you generally don’t have too much money.”
In fact, the idea for TransferWise sprung from Taavet’s personal experience as a young start-up entrepreneur in a foreign country. “At one point when working for Skype, I moved from Estonia to London. I was still getting paid in Estonia, but had to get my living expenses transferred to London … I would compare the exchange rate I got in the newspaper with the one the bank gave me, and it was much less.”
Fellow Estonian Kristo Kaarmann, now co-founder of TransferWise, was in a similar situation: getting paid money in the UK, but having to transfer it back to Estonia. The two devised a clever system: “I transferred money from my Estonian account to his Estonian account, a local transfer … and he transferred money from his account in London to my account in London. We just looked at the exchange rate on Reuters or Bloomberg, and used that.”
“It worked well … pretty soon we had saved thousands of pounds in bank fees. This was something that affected us a lot, and there was no proper alternative for people on the street. That was when I figured that we needed to launch this service.”
Banks have so far given little response to this rival financial service. Such scanty reactions to TransferWise beg comparison to Skype’s early years: Taavet confirms that at first, “nothing happened from the telecoms companies. You can now go look at comments, for example from AT&T, that Skype video calling would never work. But now, ten years later, Skype accounts for about 30 per cent of international calling traffic. All these guys were wrong. It took them about five years to start paying attention, and I think the same will happen with banks now.”
TransferWise is indeed a company to watch. It has been marked by the Guardian, Wired UK, Startups.co.uk, and TechCrunch as one of the hottest start-ups around. A host of accolades can be counted to its name, including recently the best European tech company under three years old, at the prestigious Europas awards. By last December, TransferWise had hit £50 million in total transfers, and its team has grown from 25, to a projected 40 by the end of this year. Big names are backing the venture, too: a total $1.3 million investment was made by ‘strategic’ investors, some also behind PayPal, Betfair, Wonga.
With so much successful enterprise under his belt, I ask Taavet for any tips he might share with the budding entrepreneur. “A lot has changed over the past ten years: entrepreneurship has become much more popular. But there are a couple of fundamentals that I think everyone needs to realise. One of the first is that it is actually really hard to build a company. You should not let yourself be fooled by the likes of Facebook or Skype, these are anomolies, once in a century. You need to be prepared for a long and hard journey, though a very rewarding one … The key word is persistance and being able to deal with unknowns.”
Yet unknowns are just what make this company so exciting: expansion to different countries and currencies is on the horizon. Hinrikus refers to Skype, sold in 2011 to Microsoft for $8.5 billion, as an anomoly; TransferWise is on the cusp of something similarly huge.