If you’ve travelled on the London Underground recently, you’ve probably noticed a few adverts imploring you ‘to beat the banks’. The company behind these adverts - TransferWise - a peer to peer money transfer service founded by two Estonians, Kristo Käärmann and Taavet Hinrikus, hit ‘Unicorn status’ after its recent round of funding.
TransferWise is a service which drastically reduces the cost of transferring money abroad. There are no hidden fees and the service is accessible through an app, making it a simple process, not requiring any technology expertise.
The project, which came about due to the frustration both the company’s founders experienced when they were trying to send money between Estonia and the United Kingdom, raised $58 million in venture capital this January. This led the Financial Times to report that the London-based startup was nearing a valuation of $1 billion.
For European startups, reaching the $1 billion mark used to grant you access to an elite group of innovative companies. That group has since expanded - Shazam, BlaBlaCar and FanDuel are now notable inclusions - highlighting the increasing confidence investors have in the region.
Many see banks as an untouchable force, a necessary evil which doesn’t sit comfortably with anyone. To add to this, the industry has, barring a few companies like PayPal, been relatively untouched by new technologies. This is in stark contrast to the music industry, for example, where a number of companies have taken it upon themselves to disrupt the space.
Sending money abroad is expensive. Most banks in the United Kingdom charge £20 to send money abroad, and it’s a similar story in most other nations. Whilst this isn’t particularly alarming if you’re transferring thousands of pounds, if the amount is closer to £100, it’s a real financial burden. In effect, it’s like going to an ATM which charges for withdrawals, but a lot more expensive.
As we live in a globalized economy, it’s remarkable that this fee hasn’t been reduced, or even abolished. Yet with banks seemingly undeterred, the presence of a company like TransferWise takes on heightened importance. The company’s success also shows that technology is finally having an impact on the banking sector and could be the push that it needs.
TransferWise’s cash injection could be the catalyst for a number of new technology-focused financial services, which could, in time, have the banks sweating.