London money transfer startup TransferWise is now worth nearly $US1 billion, a huge milestone for any tech startup — especially in Europe.
It’s actually pretty difficult to explain what TranferWise does. Put simply, it lets people transfer money between different countries and currencies for a lower cost than a standard bank transfer. But the way it does that is the clever part.
TransferWise’s founders, Kristo Käärmann and Taavet Hinrikus, stumbled upon the idea for their company when they were trying to transfer money between countries.
Hinrikus moved from Estonia to the UK in 2006, and often needed to transfer money from his account in Estonia to his account in the UK. The trouble was, every time that he transferred money, he’d be hit by transfer fees, often as much as 5%. At the same time, Käärmann was also working in the UK, but needed to continually send money to Estonia to pay his mortgage.
The idea for TransferWise surfaced when its two founders realised that they could cut down on money transfer costs by paying each other’s expenses. Hinrikus used his money in Estonia to pay for Käärmann’s mortgage, and Käärmann used his money in the UK to send payment to Hinrikus.
TransferWise avoids international bank transfer fees by keeping the money transfers inside the country, using domestic accounts to minimise the distance that money has to travel.
The two founders realised in 2010 that they had saved thousands of pounds using their method of transferring money. After that, they made the decision to start a company to roll out that ability to residents of many different European countries. TransferWise says it’s going to use its $US58 million in new funding to expand to the US, Germany, and Australia.
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