When Taveet Hinrikus moved from Estonia to London, he was still paid in kroons and had to transfer the money to his new bank account in the UK.The bank fees weren’t pretty — a 2% transaction fee was charged on top of a 3% bank commission fee. Hinrikus felt robbed.
He met Kristo Kaarman who was in a similar situation — Kaarman had to transfer pounds from the UK back to Estonia. To spare themselves the bank fees, Kaarman and Hinrikus transferred money to each others’ accounts. The peer-to-peer transfer sparked a business idea.
In January 2011, the pair launched TransferWise, a way to move money internationally using accounts set up by TransferWise in multiple countries. TransferWise acts as the trusted middle man, moving money for users and charging a much smaller fee for the service. TransferWise charges 1 GBP on transfers up to 300 GBT.
With TransferWise, a pound never has to leave London, and the aggravating bank fee is avoided. The business is perfectly legal, says Hinrikus. It’s licensed by the FFA in England and it’s fully authorised.
Today the London-based startup is announcing a $1.3 million round of financing led by IA Ventures with participation from Index Ventures, PayPal co-founder Max Levchin, and other angel investors.
Currently TransferWise is only moving a few currencies, but it will expand to others if those are successful.
Hinrikus was Skype’s first employee; he hopes TransferWise can become the Skype — or global connector — of money transfers.
Here’s how much banks charge for a £1,000 transfer into Euros, and how much TransferWise costs for the same transaction (Rates and fees correct at 10 April 2012, am):
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