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@TransferWise did £302m in revenue (up 80% YoY) and has been profitable since 2017.
Everyone credits their incredible product and growth loops for the success.
But there's something else: it's position relative to incumbents.
(Thread)
Everyone credits their incredible product and growth loops for the success.
But there's something else: it's position relative to incumbents.
(Thread)
In 2007, @kaarmann moved from Estonia to London to work for Deloitte.
He still had a mortgage back home and every month had to send money from a British bank to his Estonian account to cover the payments.
And every month, the bank charged him ~5% in foreign transfer fees.
He still had a mortgage back home and every month had to send money from a British bank to his Estonian account to cover the payments.
And every month, the bank charged him ~5% in foreign transfer fees.
Luckily for Kristo, there was another Estonian living in London with the same high-commissions problem, but in reverse.
@taavet (Skype's 1st employee) needed to transfer money from his Estonian bank to the UK to pay the bills.
@taavet (Skype's 1st employee) needed to transfer money from his Estonian bank to the UK to pay the bills.
They figured out that Käärmann could use his UK account to send payments to Hinrikus while the latter could pay off Käärmann’s mortgage with his Estonian account.
By transferring money locally between each other they were able to save THOUSANDS.
By transferring money locally between each other they were able to save THOUSANDS.
This is an age-old problem.
Every year, people from all across the world transfer $10 trillion. But bank networks are local, which makes international transfers slow, expensive and obscure.
Over $200 billion annually is lost in fees (and earned by banks) every year.
Every year, people from all across the world transfer $10 trillion. But bank networks are local, which makes international transfers slow, expensive and obscure.
Over $200 billion annually is lost in fees (and earned by banks) every year.
TransferWise does what Taavet and Kristo did a 10yrs ago but at scale:
When sending $ from Australia to Canada, the user will transfer $ to TransferWise’s account in Australia.
TransferWise then transfers the $ from Australia to Canada and from there to the user in Canada.
When sending $ from Australia to Canada, the user will transfer $ to TransferWise’s account in Australia.
TransferWise then transfers the $ from Australia to Canada and from there to the user in Canada.
For that, TransferWise charges (on average) 0.68% of the transfer value.
And contrary to traditional banks, their pricing is always transparent, with the full cost of the transaction shown upfront.
In the 2020 fiscal year they processed £67 billion. https://twitter.com/kaarmann/status/1308687256643829760?s=20
And contrary to traditional banks, their pricing is always transparent, with the full cost of the transaction shown upfront.
In the 2020 fiscal year they processed £67 billion. https://twitter.com/kaarmann/status/1308687256643829760?s=20
The TransferWise business model is superior so they've been cannibalizing the banks' customer base for years.
But TransferWise's business isn't rocket science. Banks always had the capabilities to do it:
1/ bank licenses
2/ a technical team
3/ public trust
But TransferWise's business isn't rocket science. Banks always had the capabilities to do it:
1/ bank licenses
2/ a technical team
3/ public trust
So why didn't banks build a TransferWise clone yet?
The key is that TransferWise is counter-positioned relative to incumbents, the banks. https://twitter.com/gonsanchezs/status/1309445173542350849?s=20
The key is that TransferWise is counter-positioned relative to incumbents, the banks. https://twitter.com/gonsanchezs/status/1309445173542350849?s=20
International transfers are a BIG source of revenue for banks. They charge hidden fees, take the spread on the exchange rates and use that to finance other stuff.
This puts incumbent banks in a position where, no matter what they do, they'll end up losing to TransferWise.
This puts incumbent banks in a position where, no matter what they do, they'll end up losing to TransferWise.
If a bank adopts the new superior business model, it will see collateral damage from immediately losing a considerable % of revenue.
If they don't do it, they'll see TransferWise slowly eat out their customer base.
It's Netflix vs. Blockbuster. https://twitter.com/Carnage4Life/status/1198305675232735237?s=20
If they don't do it, they'll see TransferWise slowly eat out their customer base.
It's Netflix vs. Blockbuster. https://twitter.com/Carnage4Life/status/1198305675232735237?s=20
Now, bank executives are not stupid. It's not like they didn't see this coming.
They just, rationally, decide to milk the existing business model as much as possible until the opportunity disappears, even though the new model is what customers want.
They just, rationally, decide to milk the existing business model as much as possible until the opportunity disappears, even though the new model is what customers want.
TransferWise put banks in a position where the logical decision was to not compete against them, and let them take their customers because the other alternative is even worst.
That is why TransferWise's winning. Damned if you do, damned if you don't.
That is why TransferWise's winning. Damned if you do, damned if you don't.
This info comes from today's Seedtable edition. Go subscribe! https://editions.seedtable.com/transferwise/
