Fintech Startup Transferwise Moves Away From Banks
Transferwise Inc., the global money transfer startup, is getting ready to free itself from relying on banks.
The five-year-old London-based company is known for splashy ad campaigns. These feature nearly-nude employees as a way to show how much more “transparent” the company is than banks when it comes to fees for sending money across borders.
But, until recently, it quietly has relied on banks to handle the initial link between the customer and the company. In the U.K., it partners with banks including Barclays PLC, and in the U.S. with a small New York bank, Community Federal Savings Bank. Now, it is looking to move away from banks.
This is the latest example of the evolving and complex relationship between aspiring fintech disruptors and traditional banks. While many startups seek to displace banks, they also often rely on them for access to the financial backbones of payments, lending, or deposits.
Transferwise is one of the most valuable fintech startups, worth over $1 billion in its most recent fundraising round. It counts entrepreneur Richard Branson, venture-capital firm Andreessen Horowitz, PayPal founders Peter Thiel and Max Levchin, and asset manager Baillie Gifford among its investors.
Transferwise says it is “peer to peer,” pairing customers who are sending money to or receiving it across borders. It charges a small fee to make the match and exchanges money at the prevailing market rate.
Working with banks to do so enabled Transferwise to grow to billions of dollars worth of transfers annually. But it also created problems, especially in the U.S. where money transfers are overseen by each state.
Regulators in New Hampshire earlier this year sanctioned the company for not having its own local presence. The company consented to the order and repaid over $16,000 in customer fees in the state.
The company has been getting state licenses since last year. It also announced in August that it could directly access the U.K.’s real-time payment system, though for now it still requires a small bank partner to do so.
Such moves will allow the company to scale back its reliance on banks when moving money, except as back-ups. Taavet Hinrikus, CEO and co-founder, said Transferwise had always aimed to eventually seek its own licenses. This requires the firm to do things like check to make sure people sending money aren’t criminals and ensure senders have the money in their accounts. Transferwise said it already was doing such checks itself, and had viewed bank partnerships as a stepping stone.
Mr. Hinrikus said a major aim of operating under the company’s own state licenses was to cut complexity and cost, and enable it to potentially offer a wider array of features.
“The only way to offer the best global service is to act locally in every market,” said Mr. Hinrikus. “The cost per payment has to be dropping.”
Transferwise typically charges fees of 0.7% to 1.5%, and lower rates on some of the most popular routes, such as between euros and British pounds. Fees are smaller for larger transfers.
In the U.S., Transferwise now has licenses in 37 states, and can operate independently in three states that don’t require licenses. In other states it will continue to use its bank partner.
Source: WSJ
