UK startup chips away at banking transfer fees
The online service TransferWise undercuts banks international wire
transfer rates by connecting people to currencies. The company's
founders call current banking exchange practices a rip-off it wants to
put an end to.
British
startup TransferWise, founded by two Estonians, announced that it had
achieved $1 million worth of currency transactions since it began
operations in January 2011. Unlike banks, which charge a percentage of
the amount transferred when internationally wiring money, the online
company takes a flat fee of one euro or one British pound for each
transfer.
Taavet
Hinrikus, one of TransferWise's cofounders and one of the original
employees at Skype, told Deutsche Welle that TransferWise aims to
"disrupt" the currency exchange market beyond the pound-euro, euro-pound
exchanges it currently makes and by executing transfers for private as
well as business customers.
Deutsche
Welle: Tell me how TransferWise differs from a bank. I have a bank in
Germany, and I want to send money to the UK, what do I do normally?
 Taavet Hinrikus, a co-founder at TransferWise, previously worked at Skype
Taavet Hinrikus:
Normally you would go to your bank, and you would tell them: "I have
1,000 euros and I need to change it into British pounds and send it to
the UK." And your bank would be happy to do it for you. However, what
you might not know is that they would end up charging you 3 percent to 6
percent. That's 60 euros. The way they do it is to charge a hidden fee
on the exchange rate and by charging you a one-time service fee for it.
Essentially they're not
doing that much [work]. Charging up to 6 percent for this, is what I
would call a rip-off. We've found a much better way of doing this. Say
you want to change 1,000 euros into British pounds. There are certainly
people in the UK who want to change their pounds into euros, and who
have the same problem of wanting to avoid getting ripped off by the
banks. What we're doing is matching up people in the UK with people in
the eurozone and allowing them to exchange with each other, using the
best rate on the market, and we charge a flat fee of one pound or one
euro for it.
Where exactly does the money go? If I use the service am I sending my money to the UK, or to your eurozone account?
You would send your
money to our account. We are a trusted third-party. There is this thing
called the Single European Payment Area, where payments inside the
European Union are essentially free.
How does TransferWise compare with a traditional transfer in terms of speed?
It may take slightly longer, but we feel that given the savings you get - that's a compromise people are willing to make.
 Hinrikus said TransferWise aims to be just as 'disruptive' as Skype
If
banks have historically been profiting from the currency fees, and
one-time fees you mentioned, and you're just charging a euro or a pound
flat per transaction, how can you possibly make any money?
If you think about what
we're doing, it actually does not cost that much to operate. Our cost
structure is much more aligned with the requirements for providing this
service. There's no need for us to have a 30-story building with desks
made of marble and mahogany, which a usual bank would have. We've just
come up with a leaner bank structure.
You
have a history with the Internet telephony company Skype, which was
founded on disrupting the telecommunications infrastructure and lowering
prices for consumers. Do you feel like some of that has rubbed off on
you, in terms of currency exchanges?
Definitely. We've
already been called the Skype of currency exchange. And sure, we have
learned a few things from the Skype [playbooks]. I think the biggest
thing that we've learned is that there's no need to be afraid of big
challenges and disrupting large markets. The way Skype disrupted the
phone market, we're looking in the same way at disrupting currency
exchange. There are also other financial services that we can look at
once we've been successful with currency exchange. But currency exchange
in and of itself is a very large market and banks are completely
unfairly profiting from this. They're offering this service that is very
non-transparent to the user, and there's a lot we can do to make this
more transparent and to give people better deals.
Have you had any reaction from within the banking industry?
Nothing that has
reached our ears yet. But we do know that they are following and
watching, worriedly, to see how far we can go. The banks do know what
they're offering as currency exchanges is essentially a big rip-off, and
if you were to dissect the profits that they're getting from currency
exchange, they would see that it's a big part of it.
online service TransferWise
Interview: Cyrus Farivar
Editor: Sean Sinico
http://www.dw-world.de/dw/article/0,,15083257,00.htm
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