In 2003, both were working internationally – Hinrikus at Skype, Kaarmann at Deloitte – and they quickly discovered that tranferring money was expensive. Kaarmann was paid in sterling but owned property in Estonia; Hinrikus was paid in euros but needed living expenses in sterling. So they started a two-man currency transaction service (later expanded to the “Skype club” – a handful of friends that grouped together to save on exchange rates).
Simply put, banks “don’t use the mid-market rate when transferring your money, meaning that customers pay far more than the transaction fee”. But people don’t necessarily understand that banks make their money on the spread, not the transaction fee. “We see ourselves as missionaries, educating people on the true cost of going through a bank”. Because, they say, “no more effort is required by the bank to send money abroad than is needed to send an email abroad”, says Hinrikus. TransferWise charges £1 for transactions up to £300, and above that they will charge a small fee – typically 0.5 per cent. A bank will “usually end up taking 4.5 per cent”.
You get the impression that the pair genuinely want to make transferring money as cheap as possible for their customers. They want increased transparency in the industry, because “it is very unlikely the government will force banks to be transparent in the near future”. And they’re undercutting their competitors by a significant margin. “I think my greatest achievement”, grins Kaarmann, “was making a transfer for the chief executive of a bank yesterday – because he wanted to save money on the transaction”.
TransferWise is growing at 20 to 30 per cent per month. At the start of this year, it had eight members of staff. It now has 21. In their first year of operation, they had £10m in transaction volume. But it’s a huge market that they are eager to dominate: banks make “somewhere in the tens of billions of dollars per year just on the spread”.
I ask how they went about getting investor support and get an unusual response. “It isn’t hard to start up a website or build an online business to the first proof of concept stage. Too many entrepreneurs focus on pitching 10,000 word business plans to investors”, says Hinrikus. But by the time TransferWise started fundraising, it was busy serving customers. It launched in January 2011, and 15 minutes later its first customer made a transaction of £2,000.
The biggest challenge was taking the rough with the smooth. It is a “roller coaster. And that’s where a lot of people fail, they take it too emotionally”, warns Hinrikus.
So what advice would they give future entrepreneurs? “If you look around us now, everyone has the potential to get a great job. So you are not risking anything by trying to be an entrepreneur. Even if you fail, you will have learnt so much that you’ll be a better employee afterwards”, says Hinrikus. “I knew many people at Deloitte who dreamed of starting their own business. And I know that they’re still dreaming of it now,” adds Kaarmann. Their goal for TransferWise is simple: to see the company grow (as fast as possible) into a global sustainable business. And a business that is helping people along the way.
CV TAAVET HINRIKUS
Company Name: TransferWise
Job Title: Co-founder
Studied: MBA from Insead
Previous job: Director of strategy at Skype
Motto: “Never say that it can’t be done”
Drinking: Anything from fermented grapes
Heroes: Niklas Zennstrom, founder of Skype and Kazaa
CV KRISTO KAARMANN
Job Title: Co-founder
Previous job: Consulting at Deloitte and PwC
Reading: Narrating People by Svend Age Madsen
Talents: Iron Man triathlons
Motto: “Just do it”
Drinking: Anything from fermented tea leaves
Heroes: “Er, Taavet Hinrikus?”