By Jules Maltz, Roseanne Wincek, and Michael Miao
Imagine that if every time you needed change for a dollar, you only got 95 cents back. Or your bank gives you $19 when you ask them to break a twenty. You’d be pissed! Yet when we send money abroad from one currency to another, we often get short-changed. The cost to transfer money internationally through a bank is nearly as high as the currency counter at the airport – with unfair exchange rates and other fees costing consumers as much as 5% of the transaction value and resulting in billions of dollars, euros, and pounds of profit for banks. The worst part is that consumers are left in the dark about how much they are being charged because fees are often hidden in the exchange rates.
TransferWise changes this. Since launching in 2011, TransferWise has been on a mission to revolutionize sending money abroad. The company only uses real exchange rates (the same as you see on Google) and low, transparent fees. And consumers have responded. Six years later, TransferWise sends more than £1 billion around the world every month!
So, why did we invest?
O Say Currency
We’re living in an increasingly global world. There are now more than 230 million people (over 3% of the world’s population) living outside of their home country, up 3x since 1960. Over 45 million expats live in the United States alone. If the expat population were a single country, it would be the fifth largest nation in the world. Living outside of your home country creates a huge need for international money transfer. The expat population sends over $440 billion in cross-border transfers each year and the total market for consumer international money transfer is well into the trillions of dollars, generating hundreds of billions in revenue. We look for massive opportunities at IVP, and it’s hard to find anything close to the scale of this market.
Although the market for international money transfers is huge, the technology for sending money hasn’t evolved. Banks transfer money through the same channels and pipes that they used last century. Like driving on the New Jersey Turnpike, the traditional money transfer system requires money to go from city to city (or bank to correspondent bank) with a series of “tolls” along the way. TransferWise took a fresh approach to create a new infrastructure to send payments globally. It built direct connections between banks so that money could skip over the “roads” and “fly” from a bank in one country to a bank in another. This new infrastructure allows for both cheaper and faster money transfers. TransferWise often charges 80-90% less than traditional banks and most transfers arrive within one day. As a matter of fact, TransferWise prices its services more than 3x lower than the internal cost structure of most banks! The company’s product is also evolving rapidly, offering services for businesses and multi-currency borderless accounts for frequent travelers.
In 2013, IVP was looking at investing in a sub 100-person gaming company in Helsinki, Finland with less than a one-year-old mobile game called Clash of Clans. Many of our team members questioned whether we should invest in Supercell, a company half-way across the world. Ultimately, Sandy Miller, Eric Liaw, and Parsa Saljoughian were so excited about it that we flew to Helsinki (in the winter) to meet the team and eventually close the investment. Now, after becoming one of our most successful investments ever, we joke about using the “Helsinki Test” for all our investments – asking each other whether the company is so good that you’d be willing to fly to Helsinki for it. Started in Tallinn, Estonia, less than 100km from Helsinki, TransferWise clearly passes our test! Less than 10% of our investments are outside of the US, and we only back the most promising, globally disruptive businesses. We traveled to visit the hundreds of passionate TransferWise employees in both Tallinn and London over the last few months and came away energized about what they are building. Seeing it in person made it clear that TransferWise is a special company with an incredible, mission-driven team. Supercell is a high bar, but we hope TransferWise is so successful that we can replace Helsinki with the “Tallinn Test.”
Keep the Change
Consumers and businesses should keep more of the money they send abroad and use it right away. They shouldn’t face hidden fees through unfair exchange rates. Fees should be low and transparent, allowing money to travel fast and free. We’re proud of TransferWise’s mission and look forward to helping Kristo, Taavet, and the entire team along the way. Come join us!
Jules Maltz is a General Partner at IVP, a later-stage venture capital firm based in Menlo Park, CA. Roseanne Wincek is a Principal and Michael Miao is an Associate at IVP.