TransferWise is a money transfer service with a host of banking related features which has led to it being labelled as a neobank akin to Monzo or Revolut (Khayrallah, Radia, Hickey, Singh & Xu, 2015). Initially founded in 2011, the Fintech start-up swiftly rose to prominence, attracting high profile investors such as Richard Branson (O’Hear, 2014) and Max Levchin whilst also receiving numerous accolades from relevant media outlets and authorities (Johnson, 2012). The described mission of the firm is to bring about ‘’money without borders’’ by providing a service which is instantaneous, convenient, transparent and affordable (TransferWise, 2017). As of 2019, the company has reported a profit of $12.7 million alongside a 53% growth in annual revenue at $230 million. Overall, the company has been valued at $3.5 billion and has seen its number of users double since last year to over 6 million people proving that the service is not only viable but successful (O’Hear, 2019). This level of successful growth from a primarily digital service represents a significant challenge to traditional banking and exchange services.
Traditionally, banks and currency exchange vendors charge an average rate of 5% in proportion to the amount of money being exchanged, on top of this a transfer fee is also in place (IBAN, 2020). Additionally, many banks have hidden fees in order to hike up the rate of exchange, increasing the price of an overseas transfer. The timeframe involved in wiring money overseas from one currency to another typically takes around 2 working days (TransferWise, 2020). TransferWise attempts to break this formula by utilising a digital approach. The service makes use of an innovative peer-to-peer exchange system. This effectively cuts out a middle broker and the subsequent fees involved. For example, when a user is transferring euros into dollars the software will match them with a counterpart who is doing the opposite, thus substituting both currencies at a rate that can be up to eight times cheaper than a traditional bank transfer (Einav, Farronato & Levin, 2016). For this service TransferWise charges only a transfer fee that, depending on currency, is nominally cheaper than traditional exchanges. As money in the digital age is kept mostly as data (Aladwani, 2001), TransferWise ensures that the exchange is nearly instantaneous with currency arriving in a user’s account in seconds. This unique selling-point which utilises digital technology to provide a solution to outdated financial mechanisms has served to compound TransferWise’s success, allowing them to provide a service which outclasses that provided by their more traditional and much larger competitors.
The service itself, is also streamlined via its presence on a digital app allowing a customer to manage all of their banking and transactions from their phone. Whilst traditional banks do provide mobile banking options, a normal bank account will generally only work to full effectiveness in one country and within one currency. In contrast the TransferWise app allows for one to have balances in nearly 50 currencies alongside the unrestricted usage of 6 major currencies which they can use for domestic transfer between normal bank accounts and also for currency exchange between both their own accounts and accounts belonging to others (TransferWise, 2019). Effectively, the application allows for a bank account that is truly borderless with a user being able to exchange currencies on the fly whilst also transferring locally at a speed unmatched by traditional services. A debit card can also be provided upon request which can be used to make payments and withdraw cash (TransferWise, 2018). This card is connected to the multiple balances of the TransferWise account, for example, if a user is withdrawing physical cash in France and has a balance of euros then they would be withdrawing euros free of charge whilst simultaneously if they wished to order something online from the United States using their dollar balance then this would all take place using the same account.
This has made the service an invaluable resource for those who live and work in multiple countries with it being easier than ever to pay remittances and manage different currencies. Consequently, the company has become one of the world’s leading remittance services (Ng, 2019). TransferWise has also brought about several business-oriented features such as allowing for third party payment processing. As someone who works seasonally in the United States, I have found TransferWise to be reliable and simple to use, allowing me to transfer the vast majority of the dollars I have earnt into pounds and euros with ease at a reasonable rate. The wide variety of currencies available also makes it ideal for travelling, with it being simple to create a balance for an upcoming holiday whilst also providing the option to exchange currency quickly without a physical brokerage. All one needs is an internet connection in order to manage their multi-currency account that, excluding the card, is entirely-software based.
Overall, one can see TransferWise as a company fully capitalising on the Digital Revolution by using new technologies in order to provide a business model that completely disrupts pre-established institutions in the financial sector. The service provided by TransferWise represents an attempt to establish a banking system that more accurately reflects the international realities of the modern world which has led to the firm enjoying a great degree of initial success.
Sources:
Aladwani, A. M. (2001). Online banking: a field study of drivers, development challenges, and expectations. International Journal of Information Management, 21(3), 213-225.
Einav, L., Farronato, C., & Levin, J. (2016). Peer-to-peer markets. Annual Review of Economics, 8, 615-635.
IBAN. (2020). Exchange Rates. Retrieved February 2020, from https://www.iban.com/exchange-rates
Johnson, Bobbie. (2012). TransferWise unveils Levchin, other superstar backers. Retrieved February 2020, from https://gigaom.com/2012/04/17/currency-startup-transferwise-unveils-superstar-backers/
Khayrallah, A., Radia, N., Hickey, J., Singh, J., & Xu, V. (2015). Technology & Banking. Applied Innovation Review, 23(1). 23-38.
Ng, Ben. (2019). How TransferWise is taking over the world of remittances. Retrieved February 2020, from http://www.ejinsight.com/20190902-how-transferwise-is-taking-over-the-world-of-remittances/
O’Hear, Steve. (2014). Now backed by Sir Richard Branson, TransferWise raises $25M for cheaper money transfers. Retrieved February 2020, from https://techcrunch.com/2014/06/09/cheeky-transferwise/
O’Hear, Steve. (2019). TransferWise now valued at $3.5B following a new $292M secondary round. Retrieved February 2020, from https://techcrunch.com/2019/05/21/three-point-five-unicorns/
TransferWise. (2017). The TransferWise Mission. Retrieved February 2020, from https://transferwise.com/gb/blog/the-transferwise-mission
TransferWise. (2018). TransferWise Debit Mastercard. Retrieved February 2020, from https://transferwise.com/help/18/transferwise-debit-mastercard
TransferWise. (2019). Currencies. Retrieved February 2020, from https://transferwise.com/help/17/borderless-account/2897238/which-currencies-does-my-borderless-account-work-with
TransferWise. (2020). Mission and Philosophy. Retrieved February 2020, from https://transferwise.com/community/mission-and-philosophy
The Digital Hub 
Really interesting work, Jonah.
After reading your piece I did some of my own research on TransferWise and discovered a website, Monito, that reviews banking and finance applications (linked below). They awarded TransferWise a score of 8.8/10 and wrote that TransferWise ‘is often dubbed the ‘Robin Hood’ of the money transfer industry’ (Oberholzer, 2019). I was skeptical of this at first, but after appraising the company’s business practices more thoroughly I have to say I’m blown away by the efficacy, honesty and reliability of the app and by the designers’ commitment to providing a user-friendly banking experience. As Oberholzer writes, it all seems ‘too good to be true’ (2019). I’m really excited to see this business continue to grow and move with the times, as I can’t see any reason why it shouldn’t entirely outcompete old-fashioned banking services that are often confusing and stiflingly bureaucratic if not flat out malevolent.
– Felix
https://www.monito.com/en/send-money-with/transferwise
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Great article Jonah! As rightly mentioned, TransferWise has been disruptive due to its competitive pricing model and user experience. However, with the coming of PagoFx – a fintech spinout by Europe’s largest traditional bank Santander, TransferWise will face new competition in the international payments market. PagoFx aims to disrupt disruptors such as TransferWise. It seeks to fill up the current “trust” gap among users who are nervous or unfamiliar with fintech companies. With a combination of price, transparency, user experience and a solid foundation in trust and security from Santander, PagoFx will tap in digitally savvy customers who are generally disloyal and less likely to stick to a fintech company if they gain better value elsewhere. As such, how do you think the emerging fintech companies backed by traditional banks will affect fintech disruptors such as TransferWise?
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Great comment Antish. Only time will tell if these disruptors are in fact a bubble waiting to be rolled over by their much larger and more established competitors. However I feel that the smaller size of these apps when compared to any fintech service provided by a larger bank may allow for them to display a much greater degree of flexibility and focus in terms of upgrading and expanding their services to offer new features in a bid to remain commercially competitive.
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Hi Jonah, thank you for the useful post. As found by Transferwise, there are many more firms who have already been into this space like Azimo, Paypal and Payoneer where each of these firms has been already differentiating themselves to compete with each of them. For example, it is the However, Transferwise, have been utilising this space, with a different business model which has made them competitive in the market. This can be essentially seen with the Payoneer where they have recently launched FIRC which is Foreign Inward Remittances Certificates, where the detailed receipt will be given to the Paoneer account holders without any cost being imposed. This firm has access to about more than 200 countries and therefore, putting forward a hefty competitive advantage to the other firms. Hence, it is necessary for Transferwise, to constantly upgrade their business model to survive successfully in this intense level of competition.
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Hi Jonah, great post. From your article that Transferwise wins customers by its amazing transaction speed and far lower service fees than competitors. As an international student, it would be nice if I knew this software earlier. This will help me to pay a lot fewer fees and exchange rate differences. This is undoubtedly a very attractive service. As a money-related service, Transferwise has received a large number of customers and positive reviews, but is it reliable? Is there sufficient security?
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I can personally attest that the service has never let me down. I am no expert on cyber security but I believe that the core encryptions present within the software are sufficient.
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