TransferWise’s Bold Move into Financial Services


May 24, 2017

TransferWise has announced it will be introducing a new foreign exchange account. The new ‘Borderless’ account will mark the fintech startup’s first step into financial services and showcases the divergence between disruptive fintech and traditional financial firms.


TransferWise has so far attracted over $116 million in venture capital funding and last May, the fintech startup received a valuation of $1.1 billion. According to the London-based startup’s records, it has been profitable since the start of the year, although co-founder and chief executive officer Taavet Hinrikus said it’s hard to know how much the startup is making. He told the Financial Post, “having a profit target is not something we want to concentrate on”.


The firm has been growing steadily, employing over 700 people around the world. Its current transfer service has around one million people registered and it expects to add one additional million registrations by the end of the year.


Venturing into financial services


TransferWise’s latest plan is to offer small businesses and individual freelancers the option to create a ‘Borderless’ account. The account will hold up to 15 different currencies and it can be linked with a local bank account for the UK, the US, and other European countries. For the customer, this means they can use the account to receive and make payments in these locations without having to pay international transfer and foreign exchange fees.


Hinrikus said in an interview the team believes it has “the opportunity to become a new kind of financial institution”. He also pointed the finger towards traditional banks and other online payment alternatives saying, “Business banking is notoriously expensive and difficult to set up and manage, even alternatives like PayPal are expensive for small business. It’s even worse when you’re doing business internationally.”


The new account will charge between 0.5% and 1% for moving money from one currency to another. The charge also applies when the customer wants to make an outbound payment in another currency.


It differs from traditional accounts in not having a monthly fee system and receiving money won’t cost anything. There are no interest payments on the account balances and the funds will be stored in TransferWise’s bank accounts in the US, the UK and Australia.


Hinrikus has already said the service will include additional features in the future, such as the ability to schedule regular payments. The account is going to first launch in the UK and Europe in the next couple of weeks. After that, it will be available to customers in the US, India, Pakistan and the Channel Islands. There are already plans for a global roll-out.


Heading for an IPO?


The London-based startup is most often mentioned in the talks of possible big future listings. However, Hinrikus told the Financial Times, “We are busy building the business, we are profitable, and generating plenty of capital. So I’m not sure there is an urgent need to list the company.”


TransferWise move into financial services is bold but not surprising. The startup has worked with traditional banks instead of fighting against them so it will be interesting to see what the reaction will be.

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