Transferwise – The money transfer revolution

Technology, borderless operations and innovative thinking is bringing light to the obscure market of retail currency exchange market. Let the banking revolution begin!


Having raised over 90M$ in venture capital from Andreessen Horowitz, Valar ventures (Peter Thiel’s fund) and Sir Richard Brandson, Transferwise is the leading fintech start-up disrupting the money transfer markets. The company was founded in 2011 by Taavet Hinrikus, Skype’s first employee, and Kristo Käärmann, a financial consultant, under the premise that a 5% fee on international money transfers was simply outrageous.

Since the company was founded, over $8Bn have been transferred through the platform at 1/10th of the cost of a Brick and Mortar bank, saving customers over 350M$ in fees.


How can they charge only 1/10 of the price that Banks charge? THEIR OPERATING MODEL!!!

Transferwise uses a marketplace model that is extremely different compared to the traditional banking model. Let’s revise both

Traditional Banking model

Banks, who tend to operate usually in one country and in one unique currency, have small amounts of reserves of different currencies in their balance sheet. When one customer wants to transfer money to another currency, they go to the FX market and exchange the money for him. Then, they send the money to the destination account in the foreign country.

The cost banks charge the customer tend to be the FX cost they had to exchange the money + a big margin (~80% of the cost). Currency exchange is a profit pool used to compensate for other loosing products like checking account services.

Peer-2-Peer Currency exchange model


Transferwise has a double sided model. The company has bank accounts in each country they operate in and don’t actually transfer money, they just match customers that are willing to exchange the same currencies but in opposite directions. For example, if a German person (Euros holder) wants to transfer money to a British account in Pounds, the german transfers the money from their own bank account to the Transferwise German bank account. On the other side, Transferwise transfers money from their own British bank account (in pounds), to the customers’ British bank account. On the flip side, if an British person wants to transfer money to a german bank account, it works the other way round. Through this model, the actual money never gets transferred in the market, saving the FX fees necessary to operate in the market.

Provocative Marketing campaigns

Together with a different operational model that sustains a value creation business model, Transferwise has made a case to “vilify” banks, accusing them of hidden fees and unfaithful practices. Several youtube campaigns have become notorious in Europe for their originality and aggressiveness, deserving them free publicity in the media and capitalizing on the current distrust the general public has on the banking system.

Transferwise has to date a valuation of over $1Bn and it has an ambition of revolutionize not only the currecny exchange market but also the entire banking industry leveraging an already well-known brand. Let the disruption begin.


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Student comments on Transferwise – The money transfer revolution

  1. I really enjoyed reading this article. Businesses have been dealing with FX issues for a very long time but they can often better protect themselves against adverse FX effects by “swapping” currency instead of transferring it. This isn’t exactly accessible or financially feasible for an individual consumer, so it’s interesting to see a company step up and offer a new way to “transfer” money. However, this money is probably not transferred very equally. There may be more dollars coming out, than coming in. How do they balance these risks agains the 0.5% they charge their customers? Could there be a situation where they don’t have enough of a strong customer base in a country to offer this service and still make a profit?

  2. cool post on a fascinating company. Interesting model for sure. I wonder if Bitcoin will ever make this kind of thing obsolete… not sure…

  3. Loved the marketing #NothingtoHide marketing campaign. Their model definitely seems to strike a cord with customers who are sick and tired of the lack of transparency in the financial services institution. Totally agree that it’s about time for some major disruption. Excited to see how this all plays out. Check out my post on Azimo that is operating a similar model focused on serving immigrants send remittances abroad.

  4. Thanks for the post Xavi. I always expected that the margins banks take on international transfers was high but didn’t realize it was around 80%. It’s interesting how they have gotten around even having to make any currency exchanges by setting up the pools. I agree with Rina’s point that you would need a way to deal with imbalances between currency accounts. Any idea how they fix that issue currently?

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