Founder Stories with Taavet Hinrikus (Transferwise)

TL;DR

TransferWise bypasses costly cross-border bank transfers by matching people sending money in opposite directions, allowing each payment to remain domestic. Founders Taavet Hinrikus and Kristo Käärmann first tested the model between Estonia and London using the Reuters mid-market exchange rate. The company later grew from two people to 450 employees in four years, making the founding story worth reading in full.

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 bypass banks on international money transfers?

TransferWise matches customers who need to send money in opposite directions, so their payments can remain within their respective countries. Taavet Hinrikus sent money from his Estonian account to Kristo Käärmann’s Estonian account, while Kristo transferred money from his London account to Taavet’s London account. They used the Reuters mid-market exchange rate, eliminating the need to move their money across borders.

Q: Why did Taavet Hinrikus and Kristo Käärmann start TransferWise?

Taavet remained on an Estonian payroll after moving from Tallinn to London, while Kristo was sending money from London back to Estonia. Taavet’s transfers required a bank visit, sometimes took four or five days, and lost money through fees. Their shared frustration led them to test a direct exchange between their local accounts.

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

Taavet Hinrikus was Skype’s first employee. He helped build the company in 2003 in a back alley of Tallinn, Estonia, and described the experience of creating a world-changing company there as profound.

Q: How did the founders test the original TransferWise idea?

Taavet transferred money within Estonia to Kristo, and Kristo transferred money within London to Taavet. They calculated the exchange using the Reuters mid-market rate. The arrangement worked without either payment crossing a national border.

Q: How quickly did TransferWise grow?

TransferWise expanded from its two founders to 450 employees in four years. It also reached about 5% market share in the UK and was sending money to roughly 52 countries at the time described.

Q: Which markets did TransferWise expand into?

TransferWise began as a European company and then launched in the US and Australia. Taavet also discussed New Zealand, Hong Kong, Singapore, and Japan as prospective markets, while the service had started sending money to China. At the time, it was sending money to about 52 countries.

Q: What makes TransferWise difficult for competitors to copy?

Taavet said its defensibility comes from brand, customer trust, and technology rather than from the transfer model alone. He pointed to its roughly 5% UK market share, infrastructure moving tens of millions daily, and worldwide delivery network as barriers that take time to build.

Q: How did traditional banks react to TransferWise?

Taavet described an initial reaction that the model would never work and that customers would not trust it. As TransferWise grew, banks began paying attention. He argued that technology companies were disrupting banking services by making them cheaper, faster, and better.

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.