A mistake that led to a £1.2bn business | Hacker News Reader

A mistake that led to a £1.2bn business

bbc.com

64 pointseigenvector33 comments

I love TransferWise:

- separate business and personal accounts with the same login details

- own account details for US, UK and Germany (6 unique account numbers in total: 3 for personal, 3 for business)

- low transaction fees (e.g. 1 USD for domestic US transfers vs. the 25 USD that most US banks charge for wire transfers)

- low and transparent exchange costs for moving money between USD/GBP/etc. accounts

- very simple and easy UX

- instant push notifications for transactions

People have complained for years about the fat and hidden margins charged by banks for sending money abroad, or receiving money from abroad. People have observed how simple it would be to fix, except for the regulatory difficulties of getting set up.

I'm sure others have tried. These guys actually did it and made something that works well for large groups of people.

TransferWise is a great business. It's the rare case where it clearly saves money for both parties without sacrificing convenience, ease of use or security. In fact it's probably much easier to use than the often clunky and semi-broken bank web interfaces. The pricing model is transparent - you know what you're going to pay and there's no ongoing fees or lock-in.

Sometimes I compare TransferWise to the 'original' WhatsApp and how disruptive it was to SMS messaging. Hopefully it doesn't go the same route and get acquired by a big bank!

I send only about 1 [domestic] wire transfer per year, but I don't recall ever paying a fee (USAA, Vanguard, or ETrade). It could be that I just ignored it, but I am generally pretty fee-sensitive and feel like they were all either $0 published or courtesy waived.

The fees are usually hidden in the exchange rate that favors the bank

I would risk saying "always".

Not in a domestic (USD) transfer...

Yeah of course, but we are talking about international transfer here (that's where transferwise is useful)

Are we? I replied to ggggp’s comment on fees “low transaction fees (e.g. 1 USD for domestic US transfers” with my own experience specifically on domestic wires.

You're right, sorry about this. My bank doesn't charge me either for domestic wire transfers (under a certain amount)

Vanguard didn’t charge a wire fee for a while, but recently they have on my transfers. Retail banks have though.

Looks like it depends on your assets under management with them:

"Vanguard Brokerage charges a $10 wire fee for each holding you’re redeeming from. The fee isn’t charged to Flagship and Flagship Select clients...We don’t charge a fee for electronic bank transfers."

[0]-https://personal.vanguard.com/pdf/v414.pdf?2210079054

I used to work in the same co-working space as them in London in 2012 when it was just 3 of them and 3 interns. If I remember correctly, they managed the whole thing on excel sheets balancing out their EUR and GBP accounts with the frantic interns settling transactions manually.

Always interesting to see tech companies that going on little to no tech! Congrats to them!

I'm not quite sure I buy this founders' "myth" of experiencing a transformational mistake - why can't we just be satisfied with them looking for an opportunity and executing well?

It's getting really tiring to read the same PR tropes, to be honest, and we need to start calling them out. The BBC, particularly, loves peddling them.

Having worked in multiple startups as a very early employee, I have seen the story evolve and change over the years as the startup becomes successful. So I agree with you that this story is probably exaggerated, if not outright false.

The origin story is great because it is relatable and communicates the benefit to customers of using the service. I doubt that the story is false, if anything it has probably been simplified.

The founding story does sound a little bit concocted but the reason I submitted this was some of the other details - two founders outside the US, bootstrapping and struggling to get funded in their early days. Yet the product itself is great and has been immensely successful. It highlights to me the shortcomings of our existing funding model for startups. What if TransferWise had died for lack of funding? It's an immensely useful product that saves consumers millions in bank fees on a daily basis. It would be a real shame.

They haven't changed their story since the outset. In this case it isn't a founder myth, or if it is, it's was a well constructed one from the start.

(I signed up early on - I've had a support rep confused by the lack of digits in my customer number. I'm also a big fan of Revolut, and use the two services in combination to eliminate costly international transfer fees.)

1400 employees seems like a lot for what the article describes they do. I'd be curious what the breakdown is, are a lot of them customer service agents?

I sense a little bit of political correctness on his part. I bet his reaction was a few cuss words towards the bank rather than saying it was his fault.

I live in Poland but make money in EUR. Finding out what percentage my bank used to STEAL from transactions left me pissed off for a few hours (and led me to eventually find out about TransferWise--which is what I now use, actually).

Even if you ignore the fact that for every 1 EUR I give my bank they're able to loan other customers 10 EUR--which should make it more than enough to give me a free account and wave all fees for any transaction I wish to make--these are a few bits exchanged via computers. They hold all currencies, and move records between 2 accounts in different currencies. There is absolutely no reason to charge 5% for this operation. If you DON'T ignore the fact that 1 EUR I give my bank they're able to loan other customers 10 EUR, they're complete criminals and they're in business only because most people don't care about finding out how banking works.

The multiplicative effect of fractional reserve doesn't work like that. Assuming a 10% reserve:

You give your bank 1 EUR, they can loan out 0.9 EUR. The person receiving the loan spends the 0.9 EUR, which is then placed in the merchant's bank account, and this bank can then loan out 0.81 EUR, etc.

A total of 1/0.1 = 10 EUR is the theoretical maximum amount of deposits created by the existence of the original 1 EUR (with 9 EUR in matching liabilities).

But your bank doesn't get to lend all of that out and collect interest on it, and they actually can benefit less from lending your money than you could, e.g. on a P2P lending site, where you'd be free to not keep a reserve.

That's not to say that the spread between the interest rate the bank pays you and the interest rate they charge for loans isn't extremely large (an order of magnitude in many cases), and overall a great business to be in.

I mean, thanks for the more detailed explanation, but it doesn't make it sound any less unethical (to not say "criminal" in a colloquial way).

Do you believe loaning money in the first place to be unethical? Or just banks loaning out money that has been deposited with them.

I believe charging premium to lend what you don't have to be unethical.

Think about loans that ruin people's lives (student loans, for instance), and compound interest on those loans that make them basically unpayable: the fact that they didn't even have that money to lend out in the first place is what I think is unethical.

"They hold all currencies, and move records between 2 accounts in different currencies."

When a bank 'converts' money for a customer, the bank ends up owning more of one currency (and less of another) than before. They may not want the larger exposure and will try to do other transactions in the FX market in order to even things out. This is not costless, but for most currency pairs can be done for less than 0.03% (worst case).

So it costs the bank _something_, but much less than the 2%-5% it chsrges. I'm OK with banks making a margin, but not with these charges being hidden or deliberately obfuscated to confuse customers.

> When a bank 'converts' money for a customer, the bank ends up owning more of one currency (and less of another) than before.

I mean, I guess. The might also even out and I'm sure the popularity of currencies is somewhat predictable.

However yes--I agree with you that a fee is fine. I still think fractional banking should be enough for them to want to wave that fee, but 0.05% is fine. 5% hidden as unfavorable exchange rate that few people pay attention to is what's not fine.

>The TransferWise program in the United States is sponsored by Community Federal Savings Bank, to which TransferWise is a service provider, except in certain states in which TransferWise Inc. is a licensed money transmitter.

What is the difference between states using an intermediary bank and ones with TransferWise Inc?

I can only speculate but based on what you quoted, I would guess that TransferWise Inc. is only a licensed money transmitter in some states, and so must partner with a bank in the other states in order to function.

It’s interesting that we keep reinventing this method of moving money by actually not moving it. It existed between merchants in the middle-age[1] and most probably earlier (Mesopotamia?)

I suppose this is a cycle of centralization/decentralization.

[1] https://www.economics.utoronto.ca/munro5/BILLEXCH.htm

Not about TransferWise, but if anyone wants to know how banks ( and economies) work.

I seriously recommend https://newworldeconomics.com/category/how-banks-work/ as a required reading.

Transferwise enables me to be successful working in Asia. The only downside is that they don't do CNY yet, otherwise I'd use them exclusively. Using banks internationally is incredibly painful and ripe for disruption.

If you're not transferring very large amounts, https://theswapsy.com/ is a pretty good P2P alternative specializing in USD <==> CNY exchanges.

Ah sadly it's $10K plus. At this point I'm just opening an account in Hong Kong. They do CNY conversion and wires now which is amazing.

thanks.. we need to get our red pocket wedding money home

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