{"id":16350,"date":"2016-11-18T16:39:06","date_gmt":"2016-11-18T21:39:06","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/transferwise-no-kiosks-needed\/"},"modified":"2016-11-18T16:39:06","modified_gmt":"2016-11-18T21:39:06","slug":"transferwise-no-kiosks-needed","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/transferwise-no-kiosks-needed\/","title":{"rendered":"Transferwise: No kiosks needed"},"content":{"rendered":"

Transferwise: No Kiosks needed!<\/strong><\/p>\n

Moving abroad has made the costs of transferring money very real. Add in the fx costs of Brexit and the likelihood of finishing business school with a shirt on my\u00a0back seems slim. Enter Transferwise. TransferWise is a peer to peer money transfer service allowing private individuals & businesses to send money abroad without hidden charges. It was started in January 2011 by Kristo Kaarman and Taavet Hinrikus, the company has attracted $116.37 in funding, with a $26m Series D round in May 2016. The company is valued at $1.1bn making it the UKs fastest growing peer to peer start-up part of the elusive unicorn club! The company, whose backers also include Andreessen Horowitz, Peter Thiel\u2019s Valar Ventures and Sir Richard Branson, now employs over 600 members of staff in offices in the U.K., Europe and the U.S. The company has \u2018transferred\u2019 over $5,000,000,000 in currency.[1\/2\/3]<\/p>\n

The problem: <\/strong><\/p>\n

There are over $3 trillion of consumer currency flows around the world each year. [9]<\/p>\n

Banks:<\/strong>\u00a0Over 80% of international currency\u00a0flows are still transferred through banks, mainly because consumers trust them and don’t know of the alternatives out there. Banks charge\u00a0flat rate transfer costs,\u00a0receipt\u00a0fees and even\u00a0Anti-Money Laundering costs – the total cost\u00a0that a bank can charge quickly adds up\u00a0depending on the size and complexity of the transaction\u00a0involved. Standard payment fees can go as high as \u00a350 and even those\u00a0who offer \u201ccommission-free\u201d transaction options charge up to\u00a05-7% margin due to the spreads on exchange rates. In totality, the value\u00a0of these hidden fees can reach\u00a0anywhere between 4% and 15%. [4]<\/p>\n

Credit Cards:<\/strong>\u00a0Major card providers (Visa etc)\u00a0handle the transactions between the merchant and your\u00a0bank, and\u00a0charge a 1 percent foreign transaction fee. However, bank\u00a0card providers\u00a0that use the Visa and MasterCard structure\u00a0add additional costs on top of that. For instance if you have an RBS Visa you will pay the 1 percent Visa\u00a0charge plus an additional 2 percent from\u00a0RBS, reaching a total of 3%. Next comes ATM withdrawal fees – \u00a0if you are an overseas user withdrawing funds overseas from a ATM, you could pay a 3% foreign transaction fee along with $1.50 per withdrawal. Personally, my bank charges up to \u00a330 per fx transfer and up to 3% on all transfers. [4]<\/p>\n

Money Unions:<\/strong>\u00a0Those who don’t have the luxury of time or who don’t have traditional banking structures set up or available may\u00a0turn to transfer operators such as MoneyGram and Western Union. These services have the benefit of allowing you to make a transfer that will reach its destination very quickly (and can be withdrawn in cash)\u00a0but at a very high cost. While there are no set fees (every transaction is calculated depending on factors such as the money\u2019s destination, country of origin, branch or online payment, etc), people can pay anywhere up to 12% for the service. [4]<\/p>\n

How does the service work?<\/strong><\/p>\n

 <\/p>\n

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TransferWise is an online money transfer service, which allows you to transfer money up to eight times cheaper than with the bank. The technology is based on a peer-to-peer system. Broadly if someone wants to convert GBP to USD the system will find someone who wishes to convert the same amount from USD to GBP and charges a small for the matching service. Clearly perfect matches are rarely found and so the beauty of the process is Transferwise efficiently allocating the supply and demand of different currency types across millions of fx transactions.<\/p>\n

The system automatically matches the money flows at the actual mid-market exchange rate rather than taking a spread and then pays out from the local dollar or sterling account. This means that currency never leaves borders incurring costly fees in the process. Doing things this way means customers can avoid traditional banking fees altogether and you don\u2019t lose money by transferring at an unfair rate.<\/p>\n

Transferwise\u00a0notes\u00a0that over\u00a0\u00a33 billion ($4.5 billion) has been transferred on its platform, with cost savings of more than \u00a3135 million compared to normal banking transfers; Transferwise fees are roughly 0.5% [5\/6\/7]<\/p>\n