New remittance providers aim to disrupt the market

A number of new entrants are focusing on the ease and low cost of mobile technology, providing a big headache for traditional players.

Prominent among the new start-ups are TransferWise and Remitly, as EPI reports.

Banks and brokers charge a lot for international money transfers – even when claiming there are ‘no fees’. However, their grip on this lucrative market may soon slip after the arrival of new entrants such as TransferWise and Remitly who say they offer the same service at a much reduced cost.

TransferWise uses technology developed by the people who built Skype and PayPal to help customers access the mid-market exchange rate and claims “every other rate has been invented by a company that seeks to hide its true fee”. TransferWise charges only £1 ($1.6) for every transfer under £200, and 0.5% for everything above that. The platform has already transferred more than £125m worth of customer money, which the company says has saved its customers in excess of £5m.

Estonian friends Taavet Hinrikus and Kristo Kaarmann came up with the idea for building the TransferWise platform when they first became expatriates in London and were confronted by the high fees banks charge to transfer money abroad.

Hinrikus had worked for Skype in Estonia, so was paid in euros, but lived in London. Kaarmann worked in London, but had a mortgage in euros back in Estonia.

They realised they each needed the currency the other had, so they devised a simple plan: every month Kaarmann put pounds in Hinrikus’s UK bank account and Hinrikus put euros in Kaarmann’s euro account. They used the official mid-market rate exchange rate (“That’s the one in the papers, not the one invented by the bank,” says Hinrikus). They both received the right amount of money, and neither paid any bank fees.

Within a few months they’d saved thousands of pounds and realised there were probably millions of others that needed a system just like theirs. So they set to work.

TransferWise supports currency transfers between euro, pound, sterling, Polish zloty, Georgian lari, Hungarian forint, Danish, Swedish and Norwegian krone. In it also transfers these currencies to US dollars. “Transfers from US dollars to European currencies and many other routes are coming soon,” adds Kaarmann.

And in the two years since it launched, TravelWise has attracted $7.35m from investors such as Peter Thiel and Max Levchin, co-founders of PayPal.

Founder’s backgrounds

Prior to starting TransferWise, Hinrikus was Skype’s director of strategy until 2008, starting as the firm’s first-ever employee. He also helps the start-up community as an advisor and angel investor, with investments including Tweetdeck, Mendeley, OMGPOP, Betaworks, Farmeron and Teleportd. At TransferWise, Hinrikus has responsibility for the company’s marketing and product development.

Before setting up TransferWise, Kaarmann was a management consultant with Deloitte Consulting and PricewaterhouseCoopers and worked with European banks and insurers to modernise their processes and systems. Saying he was “stunned by their inefficiency”, he teamed up with Hinrikus to develop an entirely new system for moving money across borders. He has responsibility for TransferWise’s operations, development, and compliance.

Hinrikus says the company doesn’t have a “typical customer”, adding that anyone who lives, works, studies or does business abroad will find significant savings.

“That said, there are several broad groups we are particularly popular with at the moment,” he adds, “incuding people like Kristo and I, expats who are paid in one currency, but spend their money in another.

“Also, British pensioners who have retired to Spain and want to see their retirement funds go further; and freelancers who get a rotten deal from the banks and brokers alike. Susan, an Irish freelance writer customer of ours, has worked out that she was losing hundreds a year when her British clients paid her through PayPal.

“And small and medium-sized businesses are a further broad group. Every small business needs to make their cash go as far as possible.”

Since TransferWise started in early 2011 it has added a further 38 members of staff. It has been backed with $7.35m from some of the world’s most sought after investors. Most recently this includes Facebook’s first outside investor and co-founder of PayPal, Peter Thiel.

Other investors include SV Angel, fellow PayPal founder, Max Levchin, IA Ventures, Index Ventures, TAG (Robin Klein and Saul Klein), Seedcamp, Betfair’s former CEO David Yu, and the owner of Le Monde, Xavier Niel (via Kima Ventures).


A similar story of dissatisfaction with the cost of transferring money led to the setting up of Remitly, based in Westlake, just north of Seattle in Washington State.

Founder Matt Oppenheimer explains: “In 2011, I was living in Nairobi, Kenya, running mobile and internet banking initiatives, for Barclays, which is the second-largest bank out there. Living abroad I just saw how painful, expensive and inconvenient it was for me and my friends to send money internationally

“We used M-pesa, the global wallet used by lots of people in Kenya and the largest global wallet in the world. The basic tenet that a mobile phone could be used for financial services was abundantly clear in Kenya. For people wanting to send money internationally there was an opportunity to disrupt the international remittances business. So I moved back to the US and joined the tech accelerator programme Techstars, a three-month accelerator and incubator.

“As part of Techstars you give a big demo and we actually closed finance after the demo. At the very beginning we raised $550,000 from a Seattle-based investment fund and then raised $5.1m from investors like Expeditions.

Remitly’s $2.4m seed round in April 2012 was led by Founder’s Co-op, with participation from Bezos Expeditions (the personal investment company of Jeff Bezos, who recently bought the Washington Post), Tomorrow Ventures (the investment vehicle for Eric Schmidt), and a small group of angel investors, including Geoff Entress, Sujal Patel, Chase Franklin and others. “We’re really happy with all our investors,” says Oppenheimer.

Oppenheimer started up the company in May 2011 under the name Beamit, “We changed the name to Remitly as the word ‘remit’ is pretty commonly used and Remitly is a derivative of that and we’ve been operating under the brand since April 2012. Money transition is regulated by state so there were there were a few months where we were kind of building out a regulatory footprint before we could market on a national basis, but we got our first licence in late 2011 and we’ve been going since then.”

Oppenheimer co-founded the business with Josh Hug, who today is its chief product officer. Hug was formerly CEO and co-founder of which he built and sold to in August 2008.

The business

Remitly allows its customers to send money internationally, after downloading the Remitly app, from mobile phones, tablets and digital devises, with the main focus on mobile.

“We’re focused specifically on the Philippines right now but we’ll expand to other countries in the future,” continues Oppenheimer. “Our Philippino-American customers usually have a professional services job, such as a nurse, and want to send their paycheck back to the Philippines. They give the information necessary for compliance reasons and link it either to their bank account or debit card and they can send money to 2,000 cash pick-up locations or any major bank in the Philippines, all in 10 minutes.

“We had conversations with several banks in the Philippines and have good opportunities because we’ve broken through a lot of the barriers by setting up our banking partnerships. There are a lot of regulatory barriers in a business like this.”

So which markets is Remitly looking to break into next? Oppenheimer says: “If you look at the World Bank numbers for remittances, it’s about $500bn annually, so there are plenty of opportunities in the corridor from the US, and in Asia and Latin America, but we haven’t decided where to go next.”

When asked if the company plans to develop different products in the future Oppenheimer says: “We’re not opposed to it, if there’s a big opportunity to provide financial services to folks that have generally been under-served, but we haven’t decided a road map for other financial services to offer. We’re focused on building up and disrupting the remittances business right now.”

The company is reticent about the details of its volumes and targets. “We don’t disclose volumes,” Oppenheimer says, “but we will probably at some point disclose information in a formal press release. But, at this point, we’re sending millions of dollars; we’ve got thousands of active customers and we grew 200% in the first quarter this year and 100% in the second, so we’re growing very quickly.”

“We’ve also got a great team. I’ve already mentioned Josh. In addition, our compliance officer used to run compliance for Amazon, and before that ran compliance for ADP and before that he was a regulator. Our CFO has taken a company public in Canada and worked in a variety of tech start-ups and our v-p of marketing used be director of branding for Windows and also worked for several start-ups. We also have an office in Manila to help us.

“We use a variety of traditional as well as online channels, although I won’t get into the details of our marketing approach. But it’s really focused on the Philippino-American community.

When asked about how his costs compare Oppenheimer says if one looks at the global cost of remittances from the World Bank, reported quarterly, the costs are 8-9% globally, and he is focused on bringing down those costs, adding that the savings depend on whether customers use a bank account or a debit card

“Our costs average around 2%, which is dramatically lower than any other option out there and that’s what we’re really proud of, providing a much better option both from the fee perspective and the amount we take on the foreign exchange.”

He adds that the average commission the Philippines is “north of 5 or 6%”.

Remitly’s competitors include the traditional “big guys” such as Western Union and Moneygram and the majority of remittances are still conducted offline. The company also competes with “local specific US to Philippines corridor players that most folks won’t have heard of” adding that “you’ve got a few entrants trying to emerge in the digital space, such as Xoom”.

He concludes by making two main points. “The first is that we are offering folks a much better alternative at a much lower cost very specifically focused around mobile, so people can have it at their fingertips wherever they may be. The savings are dramatic; we are growing rapidly and we are really disrupting the traditional remittance business. We are going to expand globally in the near future and will be offering our services to a lot of additional individuals in the future.”

The second is that Remitly will be making “a big announcement about version two of our mobile product at the Money2020 conference in Las Vegas in the first week of October. We’re really excited about that because we’re going to add some really new and innovative features leveraging mobile phones.”