TransferWise Raises $1.3M for Cross-Border Money Transfers

Today, UK-based TransferWise announced a seed funding round of $1.3 million, from investors including IA Ventures, Index Ventures and PayPal co-founder Max Levchin among others. The international money transfer startup plans to use the funds to help grow its team and expand its business, which currently handles foreign-currency conversion only between British pounds and euros, but plans to expand to additional European currencies in about a month, company co-founder Taavet Hinrikus told BetaKit in an interview.

TransferWise is based on a simple premise: the company believes that the current way that currency exchanges are handled are overly complicated, and are opaque to a degree that can confuse and frustrate customers. In a press release, the company noted that “established banks often hide the exchange rate from their customers and add hidden fees,” whereas TranserWise uses the real mid-market rank that only banks had direct access to previously, and charges a low flat fee on small sum transfers.

When asked whether he believes TransferWise might still be at a disadvantage to banks, which bring not only the ability to conduct these transactions to consumers, but also often have a long-standing relationship of trust with them, Hinrikus admitted that it’s a challenge, but not for the reasons one might think.

“We’re as safe as a bank and I don’t think customers are worried about that,” Hinrikus said. “The problem is rather that changing habits is hard. We have to get the message about the true cost of transfer across, that will make it easier.”

TransferWise, which launched in January 2011 and was founded by Hinrikus (part of the Skype founding team) and Kristo Käärman, notes that using major services like Western Union and HSBC incurs significant losses for the customer, by marking up the real mid-market exchange rate and adding fees on top of that number. TransferWise, as a much leaner, online-focused solution, can offer a better deal through decreased operating expenses. In its first year alone, $13.4 million passed through the site’s service via peer-to-peer transactions, so the value prospect clearly isn’t lost on users.

Other startups like Beamit are tackling currency conversion and money transfer from a different angle, approaching international remittance specifically in less-developed areas, but Hinrikus said that even with competition from established players and other startups, there’s plenty of room in the market for multiple successful models.

“An interesting thing about the market we’re in is the fact that it’s the biggest market in the world – $150 billion per day,” he said. “What that means is that there is room for many companies to build large businesses.”

TransferWise’s biggest challenges won’t come from competitors, but from overcoming the tendency of customers to stick with services that they already use. But if it can hammer home the value gap between itself and established firms, and expand its available currencies and therefore potential customer pool, it stands a good chance of shaking up an industry ripe for change.

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