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The open economy

Building trust – TransferWise is just getting started

Dr. Andrew Fletcher  Director, Thomson Reuters Labs™ – London

Dr. Andrew Fletcher  Director, Thomson Reuters Labs™ – London

Trust and international money transfers

Trust plays a key role in TransferWise. If you just picked someone at random you wouldn’t trust them to take your money and then pay you in another country. So why would you trust a start-up to do it?

TransferWise works by matching money flows. Money doesn’t move between countries every time someone wants to make a transfer. Instead, the system relies on someone wanting to move money from, say, London to Paris at about the same time as someone else wants to move money from Paris to London. So, overall the sums balance out and you can just make the two transfers within each country. The result is a process which is faster, cheaper and easier than the banks – a strong incentive to those thinking of trying out the service.

It all started after Taavet Hinrikus moved to London from Estonia. He was still working for Skype and had to do the ‘walk of shame’ to stand in the long queue at the bank in Estonia and get his wages transferred to the UK. When his money eventually arrived it was much less than he expected from looking at the mid-point exchange rate. Instead, he was able to find a friend who wanted to transfer money from the UK to Estonia and they could just ‘swap’ the money. The leap to TransferWise was the realization that this was a problem faced by millions of people, with trillions being transferred every year.

Watch the full EntrepreneursTalk@Cass (26:02)

How pensioners took the leap of faith with TransferWise

So he just got started. He built a prototype, applied to the FCA for a license and then just launched it with the minimum viable product, a not very professional looking website only offering up to £2,000 transfer between euros and pounds and with no fixed guarantees that they could actually transfer the money. They managed to get an article published in TechCrunch and 15 minutes later had their first customer. Taavet fully admits that person “deserves a medal” for their leap of faith!

Which brings us back to the question of trust. The service TransferWise offers is compelling – who doesn’t want something faster, cheaper and easier than they can get from the banks. And many of the early adopters didn’t fit the traditional profile for a tech company. They included retired British people in Spain who wanted to get their pension transferred from pounds to euros. For them, the fees they were being charged represented a big portion of their total, so they had a strong incentive to take the same leap of faith. Now that TransferWise has grown and picked up influential backers, like Peter Thiel and Richard Branson, the trust that TransferWise has built on its own has been reinforced.  Peter Thiel famously said Europe is a slacker with low expectations, but he invested in TransferWise and that provides a really strong statement to the outside world.

Creating mischief: To disrupt, and to be disrupted

Taavet was employee number 1 at Skype. He joined them just after they had sold Kazaa, so he was effectively joining a “band of pirates.” Today Skype is seen as one of Europe’s biggest success stories, but what excited him about joining was that they had built something disruptive. They were still creating mischief and they weren’t done yet.

Now he see TransferWise as disrupting the banks, admittedly only in one area. Banks are being disrupted in about “12 different ways.” Inevitably they will respond to that disruption, but in the meantime it is providing a great opportunity to TransferWise

Does he see himself as a moral agent, providing an alternative to the banks? He leaves that to us to decide. They are just focused on building a product that people want to use. They are focused on a small aspect of what banks do, and for the moment they are not looking beyond that because money transfer is still such a big opportunity. TransferWise have so far handled over £1 billion in total and they have a realistic plan to get to 100 billion. Only then can they really start thinking about other opportunities. Taavet sees this focus as critical to their success.

Inevitably as they get bigger others will seek to disrupt them. Taavet finds it difficult to imagine how anyone could be faster or cheaper than them, so he is bullish about their chances. When the time comes, he feels confident that as the incumbent then will have enough of the spirit left from the early days to disrupt themselves.

Regulation and success in the sharing economy

As Chris Brew pointed out in the Q&A, regulatory risk is a big issue which companies like airbnb and Uber are beginning to face, effectively being told that their business model is not allowed. Taavet saw an interesting contrast between his time at Skype, where they presented themselves as a software company rather than a telecommunications company because of the regulation that would entail, and TransferWise, where they have embraced the regulators right from the start. In FinTech this approach makes sense, working with the regulators to understand what the regulation is and who it is there to protect.

Is TransferWise successful? Not yet. Taavet is clear that if everything stopped today then he wouldn’t count it as a success. It’s going well, but they’re only at the tip of the iceberg. For the next year they’re focused on becoming global – increasing their marketing efforts from two countries today to many more. He knows that they won’t succeed everywhere, but sees that failure as part of the journey. He is not focusing on an exit, but on building a large, sustainable company

In the early days, when they couldn’t match the flow of money between two locations, Taavet would have to personally go and make a transfer via a bank to be able to complete the customer request – otherwise there would be an imbalance. Now they do this in bulk, negotiating fees with the banks. So, rather than feeling disrupted, the banks are actually pretty happy with the new business they are getting. But Taavet made TransferWise’s ambition for global domination clear, “when all the money flows through TransferWise in the future, everything will be perfectly balanced!”

Learn more

Visit Innovation @ to learn more about how we are pairing smart data with human expertise and how you can get involved.

Watch Taavet being interviewed as part of Reuters on the Road by Axel Threlfall.

About the series

Thomson Reuters Labs™ partners with Cass Business School to bring you EntrepreneursTalk@Cass in London. These interview-based evening events feature founders of successful start-ups from London and take place at Cass Business School. EntrepreneursTalk@Cass are designed to inspire students, entrepreneurs and anyone interested in tech.

The talks are hosted by Axel Threlfall, Editor-at-Large, Reuters. Prior correspondent experiences include: Reuters TV, Wired UK, CTV News, and CBC Undercurrents.

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