According to a Sifted study, TransferWise has minted 33 fresh millionaires, raising the complete amount of staff or shareholders in the payment business with six-figure stocks to over 150.
This came out as the London-based company that was priced at $3.5bn revealed an agreement where hundreds of staff and initial backers sold stocks to new shareholders and current stakeholders.
The change increased the valuation from just 18 months earlier, rendering it Europe's most precious fintech company. Fintech star Revolut, by contrast, is worth only $1.7bn.
The broader spread of wealth to employees and investors will be a shot in the arm of a broader European ecosystem, as the money generally gets poured into other startups from a successful startup.
Over a dozen Transferweise staff, including Victor Troukoudes, CEO of AI's Personal Savings Assistant Plum, have already set up their own companies.
Like many start-ups, TransferWise began with a straightforward concept, motivated by one of its creators ' frustrating experiences.
Kristo Käärmann arrived a decade ago to join Skype in London, but still had his savings in his home country of Estonia. He was amazed by the transaction costs when he wired cash back through his account. He felt punished not only by the exchange rate used by the bank to convert his pounds into euros but also by the bank's premium. Taavet Hinrikus a fellow Estonian colleague in London was compensated in euros and he needed his salary to be converted into pounds so they struck a bargain to use mid-market exchange rates. Käärmann’s fellow Estonian in London Taavet Hinrikus was paid in euros and needed to convert his pay into pounds, so they worked out a deal using mid-market foreign exchange rates. Pretty soon a group of friends had an informal money exchange network..
“We realized it was a problem not just for Estonians in London but for everyone who’s moving money internationally,” said Käärmann, now TransferWise CEO.
Take two individuals together who have need of one another's currency and you get to prevent bank charges and unnecessary expenses of converting foreign currency. The concept extended to their group of friends, which caused Käärmann and Hinrikus in 2011 to establish the business.
Eight years on, TransferWise listed No 23 in the 2019 Disruptor 50 list, which many start-ups have failed to do with a revision of their business model.
“Our peer-to-peer model was an innovative solution at the time, but as we scaled, the original model wasn’t scaling with us,” said Käärmann. “It took us five, six years to get to break-even,” Käärmann said.
The company has increased to 1500 employees and handles $5billion a month for smartphone transactions across 71 countries. TransferWise was justified in abandoning the original system and in refocusing on costs.
“Our mission is money without borders – instant, convenient, transparent, and low-cost,” Käärmann said.
In contrast to many start-ups, TransferWise makes money. The London-based firm recorded gross revenues worth $8 million (current exchange rate) in the fiscal year that ended in March 2018, amounting to revenue of approximately $151 million.
A major stream of cash all around the world
The rapid growth of TransferWise has been driven by one of the most important and yet often overlooked money markets worldwide. The term ' transfers ' doesn't seem exciting, but last year, according to the World Bank, the flows between individuals across country borders amounted to $689 billion, up 8.8% from 2017.Remittances – mostly from people working in rich countries to families back home – pay for schooling, marriages and funerals, food, and buying those concrete bricks for that renovation.
Remittances in much of the globe are becoming increasingly important for economic operations. With the exception of China, transfers to low- and medium-income nations ($462 billion) were much greater ($344 billion) than foreign direct investment in 2018. The costs of these transfers like for example to certain African nations are, on median, 7% but can get up to 10%.
Western Union, which operates in 200 nations and last year shifted $300 billion ($88 billion of which internationally), has little appetite regarding competition.
“It’s a race and we are running very fast,” said Odilon Almeida, president of Western Union Global Money Transfer.
He pointed out that his company, once almost all cash business, is now 12 percent electronic, thanks to smartphones, portable wallets, or bank accounts.
“We think mobile first,” said Almeida. “You can choose the way you pay.”
A mobile app is available in 35 nations and operations are managed through its website.
Head of Recruitment at TransferWise, Ben Craig, stated that the business continually promotes staff to translate "entrepreneurial thinking" into other projects, using initiatives like a six-week paid sabbatical, after four years with the business.
“Our old employees are totally advocates of our brand and we’re advocates of their companies as well,” he says, referencing formal partnerships between TransferWise and Plum, and another potential partnership with Dataminer.
“They’ve used our offices, we use their offices, we’re all in constant communication,” Craig adds. “We encourage employees who go out and start their own companies to lean on the skills of the two entrepreneurs who founded TransferWise, and to use the expertise of everyone who has worked with us over the last seven years to TransferWise to where it is today.”
This week, the creators of Transferwise, Taavet Hinrikus and Kristo Kaarmann, said they sold "much less than 20%" of their own holdings, of a company valued 1.3 billion dollars currently. Andreessen Horowitz, has a 65 million dollars value and IA Ventures with 267 million dollars, as some of the notable large shareholders.
Hinrikus said the 292 million dollars sale would enable the company's oldest supporters to make significant investment profits without requiring it to get 'distracted' with an IPO.
Unlike a lot of its Fintech competitors, TransferWise has recorded two straight years of profit, earning £ 6.2 million in post-tax earnings for its 2018 fiscal year on the revenue of £ 117 million.
This is done by considerably undercutting the charges incurred by the major financial institutions. The TransferWise charge for many currency transactions is less than 1 percent, opposed to an sector median of over 7 percent estimated by the World Bank.