Why TransferWise's $1 Billion Valuation Will Terrify The Banks

TransferWise co-founder Taavet HinrikusAnthony Harvey/Getty ImagesTransferWise co-founder Taavet Hinrikus speaks at TechCrunch Disrupt in London in 2014.

London-based finance startup TransferWise has just raised $US58 million in venture capital funding, with the Financial Times reporting that the company is now valuated at almost $US1 billion.

Even in Silicon Valley, the $US1 billion mark is significant. But in the UK, it’s a huge vote of confidence in the European technology scene (especially as the last $US1 billion European valuation came less than a week ago).

It’s not just a sign of the burgeoning technology sector on the continent. The new funding round — led by venture capital firm Andreessen Horowitz — is also a demonstration of the existing financial sector’s vulnerability, and the coming FinTech revolution.

Compared to other sectors, the financial industry has remained relatively untouched by technology. The media has been turned on its head; the transportation industry is currently being wracked by Uber; the mobile app economy didn’t exist just a few short years ago — and it’s now bigger than the film industry. In contrast, the major players in finance — with the exception of PayPal — are largely the same as they were 20 years ago.

But TransferWise is the perfect example of how the tech sector is starting to move onto the banks’ turf, and to great success. Launched in 2011, the company aims to eliminate the high transfer fees associated with sending money overseas. And it’s working — the company is growing 15 to 20% month-on-month, and has transferred more than $US3 billion using the platform, saving its customers money in the process.

To recognise what a threat TransferWise poses to established banking, it’s worth looking at another highly-publicised FinTech development that doesn’t — Apple Pay. Apple’s cardless payment system is, fundamentally, a conservative technology. It stores your bank details in your phone, making it easier to pay for goods. It doesn’t disrupt the existing banking structure — it reinforces it.

TransferWise’s success, meanwhile, directly translates into a hit against the banks’ bottom line. Every TransferWise payment is a payment not transacted by the banks.

London is a particular hub for European FinTech innovation (it’s telling that despite being considered a “British” company and being based here, TransferWise’s founders are actually Estonian). TransferWise may be the most prominent, but it’s far from the only one, and its ongoing success and growth shows that as tech continues to turn its attentions to the problems posed by finance, its the traditional actors that will be losing out.

The involvement of Andreessen Horowitz is also significant to this. It’s one of the biggest and most respected Venture Capital firms in the world. (Disclosure: It’s also an investor in Business Insider.) Its involvement shows that not only are these new financial technologies working, but that some of the biggest players in the industry have noticed.

Ben Horowitz, one of the founding partners at the firm, is to join TransferWise’s board. He’s written on his blog that the company “could not have come at a better time … we see little to no innovation from the traditional banking sector, which creates a massive opportunity for new financial institutions like TransferWise.”

The injection of American-style venture capital and expertise into TransferWise will accelerate the company’s development and the threat it poses to the banks. But it’s also a sign that more funding is almost certainly coming for the broader FinTech industry. And with that funding will come unprecedented growth of new and innovative financial services — at the established financial industry’s expense.

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