Founder Stories with Taavet Hinrikus (Transferwise)

TL;DR

TransferWise cuts foreign exchange costs by matching people sending money in opposite directions, so cash never crosses borders. Founders Taavet Hinrikus and Kristo Käärmann tested this by swapping local transfers between their Estonian and London accounts at the Reuters mid-market rate. In four years it grew from two people to 450 employees, reaching about 5% UK market share.

Transcript

hello ladies and gentlemen uh my name is Mike Butcher I'm the editor at large for Tech Crunch and I'm delighted to welcome T henricus henricus I apologize if my pronunciation is not uh not good um and uh transfer wise as many of you know has become uh one of the first uh e unicorns shall we say um out of uh Europe uh in the financial technology spa... Read More

Key Insights

• TransferWise avoids moving money across borders by matching two people sending in opposite directions, so each transfer stays domestic. Taavet paid Kristo inside Estonia while Kristo paid Taavet inside London, settling at the Reuters mid-market exchange rate.
• The founding problem came from Taavet staying on Estonia's payroll after moving to London. Bank transfers took four to five days and a chunk of the money went missing to hidden fees, which sparked the idea for a fairer service.
• Both founders were Estonian and connected to Skype's early days. Taavet was Skype's first employee, building the company in 2003 in a back alley of Tallinn, before spotting the currency problem during his own cross-border salary transfers.
• The banking sector's reaction followed a classic pattern, moving from 'this will never work' and 'people will never trust you' to eventually paying notice as the startup grew and smart bankers recognized wide-scale disruption.
• Every vertical in banking is being disrupted by tech players doing it cheaper, faster, and better, according to Taavet. He cites peer-to-peer lending like Funding Circle and asset management like Wealthfront alongside money transfer.
• TransferWise's defensibility rests on brand, trust, and technology rather than the model itself. Taavet points to 5% UK market share reached quickly and infrastructure moving tens of millions daily as barriers rivals cannot easily copy.
• The company scaled from two people to 450 employees in four years and grew from a European business to a global one within a single year, sending money to about 52 countries at the time of the interview.
• TransferWise built a consumer brand through edgy in-house marketing, including team members removing some clothing and waving placards outside banks. Taavet says the stunts push a point about transparency and fairness without anyone actually going naked.

Questions & Answers

Q: How does TransferWise avoid international transfer fees?

TransferWise avoids moving money across country borders by matching people sending in opposite directions. When Taavet needed to move money from Estonia to London and Kristo needed to send from London to Estonia, Taavet paid Kristo's Estonian account and Kristo paid Taavet's London account. Each transfer stayed domestic, and they settled at the Reuters mid-market exchange rate, cutting out the bank costs and hidden losses of a traditional cross-border transfer.

Q: Why did Taavet Hinrikus start TransferWise?

During his time at Skype, Taavet moved from Tallinn to London but stayed on Estonia's payroll, so he transferred his salary every month. He had to walk to a bank branch, stand in line, and wait four to five days for the money to arrive. Reviewing his statement, he realized a chunk of the money had gone missing to fees. That frustration, shared with fellow Estonian Kristo Käärmann who was also sending money home, sparked the idea.

Q: What was Taavet Hinrikus's role at Skype?

Taavet Hinrikus was the first employee at Skype. He describes building the company in 2003 in a back alley of Tallinn, Estonia, at a time when the word startup did not really exist in the vocabulary yet. He calls it a profound experience to realize you could be in the back streets of Tallinn and build a company that changes the world. His Skype journey later exposed him to the cross-border salary problem that led to TransferWise.

Q: How defensible is TransferWise's business model?

Taavet argues the business is highly defensible despite the model being easy to copy. He says building a brand and trust online is very hard, pointing to TransferWise reaching about 5% UK market share in a short time, which he challenges others to match in financial services. The technology to move tens of millions daily and a network delivering money quickly worldwide are further barriers. He believes no one can build these faster as long as the company keeps investing.

Q: How fast did TransferWise grow?

TransferWise grew dramatically in a short time. Four years before the interview it was just two people, Taavet and Kristo, and by the time of the interview it had 450 employees. Within a single year it went from being a European company serving customers across Europe to a truly global player. It reached about 5% market share in the UK and was sending money to roughly 52 countries, expanding as quickly as it could.

Q: Which countries did TransferWise expand into?

TransferWise launched in the US at the beginning of that year and in Australia the week before the interview. Taavet mentions plans to launch in New Zealand next, bring Hong Kong online, and consider Singapore and Japan the following year. The company also started sending money to China that day. At the time it was sending money to about 52 countries, having transformed from a European company into a global business within one year.

Q: Why does TransferWise use edgy advertising like taking off clothes?

Taavet says TransferWise needs to stand for something, choosing transparency and fairness as its values. Simply putting out an ad saying 'we're fair' would not get attention, so the team pushes it a little to make a point and get noticed. Campaigns included team members removing some clothing and waving placards outside banks, though he clarifies nobody was actually naked. Most of the marketing was built in-house, and the tactics sparked heated internal debate about how far to go.

Q: What is TransferWise's view on the future of traditional banks?

Taavet believes banking is being disrupted vertical by vertical by tech players who do things cheaper, faster, and better. He cites peer-to-peer lenders like Funding Circle, asset managers like Wealthfront, and money transfer where he says TransferWise is clearly winning. He suggests not much is left for the banks. However, he avoids calling TransferWise anti-bank, saying it is unclear what a bank will even mean in ten years, and frames the goal as building a brand consumers trust with their money.

Summary

In this interview, Taavet Hinrikus, the founder of TransferWise and former employee of Skype, discusses the founding story of TransferWise and its disruptive role in the fintech industry. He also touches on the reaction from traditional banks, the growth of the company, and its future plans.

Questions & Answers

Q: What were the early days of Skype like?

In 2003, we were building Skype in the back alleys of Tallinn, Estonia. The concept of a startup was still new, and it was amazing to realize that we could build a company that would change the world from such a location.

Q: How did you come up with the idea for TransferWise?

During my time at Skype, I had to deal with the frustration and high costs of transferring money between different currencies. When I met my co-founder, Christo, we realized that there was a need for a better solution in the foreign exchange space, and TransferWise was born.

Q: What has been the reaction from traditional banks towards your model?

Initially, there was skepticism and dismissal of our model. However, as more and more fintech companies disrupt various areas of banking, banks are starting to take notice. They understand that the traditional banking model is being challenged, and they need to innovate to stay competitive.

Q: How are you using the internet to disrupt the fintech and foreign exchange space?

TransferWise leverages the internet to provide a faster and cheaper way for people to transfer money across borders. By using peer-to-peer transfers and mid-market exchange rates, we eliminate the need for traditional banks to facilitate these transactions.

Q: Is London still the leader in fintech compared to other cities?

Yes, London still has the edge in terms of fintech ecosystems. Other cities, like Sydney, are a few years behind in terms of developing their fintech industries. London has seen incredible growth in the past decade and continues to be a global leader in this space.

Q: Are you planning to expand into other countries?

Yes, TransferWise is looking to become a truly global player. We have already launched in the US and Australia, and we have plans to expand into New Zealand, Hong Kong, Singapore, Japan, and China. Our goal is to provide fair financial services to consumers worldwide.

Q: Do people take TransferWise seriously as a brand?

Yes, we believe people take us seriously. While we may push the boundaries with our advertising campaigns, it is important for us to stand for something and make a point. We balance transparency and fairness with the need to grab people's attention.

Q: Is your business defensible against competitors?

TransferWise is highly defensible. Building a brand and trust in the online space is challenging, and our technology and network allow us to move money quickly and securely. We continue to invest in our business to maintain our competitive edge.

Q: Do you think there is still a lot of growth left in the market?

Absolutely. While we have achieved a 5% market share in the UK, globally, there is still significant room for growth. The market for consumer and small to medium business money transfers across borders is estimated to be between 5 and 10 trillion dollars annually.

Q: Have there been any obstacles or bumps in the road for TransferWise?

There have been some bumps along the way. We had to make changes to our advertising campaigns based on concerns raised by the Advertising Standards Authority. We are committed to being transparent and ensuring that everything we say is factual.

Takeaways

TransferWise, founded by Taavet Hinrikus, has disrupted the financial technology space by providing a cheaper and faster alternative for transferring money across borders. The company has faced initial skepticism from traditional banks, but as fintech continues to disrupt the banking industry, banks are starting to pay attention. TransferWise has successfully expanded its services to different countries, and there is still ample room for growth in the market. The company aims to maintain its innovative edge by investing in technology and building a strong brand. While they have faced some obstacles, TransferWise remains committed to providing fair financial services to consumers worldwide.

Summary & Key Takeaways

• TransferWise was founded by Taavet Hinrikus, Skype's first employee, and Kristo Käärmann after both grew frustrated with cross-border bank transfers. Taavet stayed on Estonia's payroll after moving to London, and noticed transfers took four to five days while money vanished to hidden fees.

• Their breakthrough was avoiding international money movement entirely. Taavet transferred money within Estonia to Kristo, while Kristo transferred within London to Taavet, using the Reuters mid-market exchange rate. This peer-matching approach worked immediately and became the core of the business model.

• The company scaled from two founders to 450 employees in four years, reached about 5% UK market share, and sends money to roughly 52 countries. It expanded from Europe to the US, Australia, and beyond, building a trusted consumer brand through deliberately edgy in-house advertising.