You do not have to follow the financial technology industry or work with developers in remote countries to get to know TransferWise, probably the world's leading peer-to-peer money transfer startup. Thanks to its presence in over 70 countries, low prices for international money transport and, of course, the famous PR campaign in which half-naked employees ran through the streets of London and New York, TransferWise has become one of the world's most famous fintech Developed brands. In this way, the company helped usher in the era of rebel fintech adolescent growth that has been able to assert itself and win against dusty, established companies based on transparency, value, technology and above all Moxy.
The macroeconomic, business and political conditions that served as co-founders to Kristo Käärman and Taavet Hinrikus when they launched TransferWise are ancient history. Can it continue to grow in the face of increased trade tensions, the unfortunate increase in xenophobia and capital controls? Will it continue to make profits in the face of competition from other well-funded fintech start-ups and established companies that look less dusty? Has the company, which has recently entered into major partnerships, a redesigned "limitless" business offer and a Mastercard debit card seeking to provide other financial services? And why is not TransferWise public? In the following interview, CEO Käärman addresses these questions directly. Born in Estonia, he pleads for the future of his company as a reliable partner for his dedicated (and growing) customer base.
Gregg Schoenberg: It's good to connect, Kristo. I recently looked at your financial data, which shows you are still growing very fast, despite its relatively large size.
Kristo Käärman: Yes, things are going very well. When we looked back to the beginning when we started, our hypothesis was that we could serve customers about ten times cheaper than banks. This was really proven about two years ago when we reached break even. This is an important piece of evidence: technology that pays off. It is not paid with investors.
GS: That's the way it works.
KK: Yes, this thing actually works. In our original hypothesis we thought that we could probably run our largest trade routes for 0.5% of the fees. We have now revised this and are now on our biggest routes with 0.3% on the way.
GS: I assume that everything is fine. Because TransferWise always uses the middle class or the spot rate.
KK: Yes, and from the beginning, we have taken the approach that we never hide anything in the spread.
GS: Before we leave the subject of your finances, is there a color that would interest you, how things behave after you reported your numbers? [1
GS: Taavet said he knows that the moment when TransactionWise transacts more than Western Union's transactional volume. When is it?
KK: We are slightly behind Western Union, but give us a few years.
What is more powerful? Anti-trade factions or the natural forces that make us more global?
GS: It will not be like that in 2019? KK: It might be, but I doubt it. Actually, you can sort this out, because Western Union is a public company and its volume is not growing very much. Today, our volumes are still smaller than those of Western Union. On the other hand, the volumes of Western Union are not very large compared to Citibank or HSBC.
GS: When you speak of volume, do you post your largest FX (FX) crosses? I could not find her on your website.
KK: It is not known, but we do not make any secret of it either. Let me anticipate this by saying that as soon as we are in the US, every brain goes to Mexico immediately in the United States. But it is not by far the largest channel.
GS: Is the dollar peso high on the list?
KK: In any case, crowds there are much smaller. Our largest volumes are between the major industrialized countries. So you have pound-euro, euro-pound, euro-dollar, pound-dollar, dollar-euro. That's the biggest triangle. Then you have Australia, Canada, Switzerland, Japan, Singapore, Hong Kong etc.
. GS: In that sense, how important is it when you see a weakening of relations between the US, Mexico and China as well as the Brexit saga? For me, TransferWise has always been characterized by smoother cross-border trade. As you know, geopolitical forces are reversing these trends.
KK: If everyone had decided that they would not trade in other currencies, it would not be necessary for us. And I appreciate what you describe in terms of the public narrative that is the intention of some factions. Whenever I'm asked about trading voltages, I wonder, what's more powerful? Anti-trade factions or the natural forces that make us more global? Technology is one of those forces. Because it's very hard to be a local tech company nowadays. While not every future business will be a tech business, most will either be tech or have many more tech elements, which of course are more global.
GS: You have to say that the global game of group hens and the general decline in immigration between certain key countries are not on your headache list for CEOs and that they did not affect the rivers?
KK: No and no. Here is a practical example: China has introduced capital controls that prevent its residents from withdrawing more than $ 50,000 annually from the land. As a result, they have already shut down the country from some aspects of the monetary movement. I can not agree with that, but it is their right.
GS: That sounds like it could cause a headache for you.
KK: It's a bit of a headache for us. But we are not worried about compliance requirements. The Chinese market will hardly bother us. I mean, we work in so many countries around the world. For us it is as usual.
GS: Is there a global recession and / or a global shock on your list?
KK: I answer this question by telling you about the month of the Brexit vote, which for us was an oversized month in terms of volume.
GS: High Edition 19659002] KK: Yes, incredibly high volume, but we did not market anything and did nothing. In fact, we have closed the service. You will appreciate this as a Wall Street type –
GS: – Ex.
KK: Ha, I apologize. So a few days before the vote took place, we knew volatility would definitely be right that night, and when volatility occurs, the price goes up and the smarter banks make a lot of money, which is not usually the case for consumers the case.
GS: Of course.
KK: A few days ago we told our customers that a storm was coming and if they had to move money between pounds and euros or pounds and something else, do it the next 24 Hours, because we will shut things down.
GS: You have given people a proper warning.
KK: Yes, on the day we made the announcement, we were actually very stressed. Would people blame us for crippling the ministry? Instead, people thought about how the exchange rates would develop. It ended really well and brought us kudos as things calmed down.
GS: What you are saying is that you are in a recession that will likely accompany you with global freaks Protect your customers. But they also say that volatility can be a good thing from the point of view of higher trade flows.
KK: Yes, but I do not like a recession. 19659075] There are cases where people who can do business internationally can switch from Paypal to us. If they can, they are jubilant.
GS: Of course not. However, some of the criticisms of TransferWise are that it is an excellent service when the weather is nice. And while big institutions charge too much for foreign exchange in good times, in times of volatility they have more tools to control risk and mitigate volatility.
KK: In financial services, risk is expensive and if we develop a product where margins are getting thinner – and we think they can get close to zero – it means that we see a zero risk. Therefore, everything we do is designed to take as little risk as possible. And I think you are mainly referring to FX exposures. This is one of the types of risk that arises when you have no balance on both sides.
KK: Then, let some people either wait a bit until you can somehow put them on the market, or you're ready to occupy that position until you're able to
KK: KK: So your assumption is correct, and it may be worthwhile making payments right away perform by a tiny bit of position. We did that comfortably. I can not disclose the numbers, but you'll be surprised how small this position is in comparison to our volumes. In the early days when we ran the business with my money and Taavet, we had no way to provide capital to facilitate transfers. However, we had a trick that we used at that time because we often get more transfers from, say, pounds to euros than from euros to pounds.
GS: A big mismatch.
KK: Essentially, we've set a very big limit on the Euro side – I think you could transfer $ 50,000 once – and a lower limit on the pound side so you can only transfer 3,000 pounds.
GS: Would you still do that if a mismatch was bad enough?
KK: That's not what we've done for five or six years, but it's an idea to synthesize an equilibrium.
GS: Let's talk about where the business leads to. I have seen a number of announcements that you have made. On the one hand, you have partnered with BCPE and have entered into deals with some Challenger banks to help them facilitate foreign exchange transactions. These partnerships can increase your volume and you'll be one step closer to becoming Amazon of FX for retailers. They now also offer a "limitless" multi-currency account for individuals and companies that can be linked to a Mastercard debit card, which is an extension of your relationship with some customers.
KK: When integrating with our banking partners' clients, they now see how much they actually pay for a referral. They also receive the same prices as TransferWise, but with greater transparency.
GS: You trade in margins for dollars, right? Because you have to share the fees with partners like BPCE, but that's fine, because they bring you a lot of customers.
KK: Yes, but they also bear the costs. In terms of the debit card, it comes from two ideas. Think of a single customer who often sends money to his own account abroad or to his family. Why are you doing that? The answer is that they probably have a student loan or a mortgage to repay or pay home.
GS: Just like you.
KK:  Correct. So we wondered why we do not make it easier for our customers to do this directly. Avoid this leap from their bank in the US to TransferWise, then TransferWise to their bank in the UK and then their bank in the UK to pay the mortgage. Why do not we let that be done from TransferWise? Because we have the payment infrastructure in 70 countries.
GS: Let's talk about your small business customers.
KK: From the beginning, we have always accepted companies as users. Over time, the small business may have become more focused because it's a bit more complicated and needs more features. While freelancers and businesses have always enjoyed using TransferWise to pay their suppliers, they still have a problem when they get paid or when they bill their customers.
GS: Can you give me an example?
KK: Let's take a Swedish furniture manufacturer when they sell their beautiful tables in the US like the ones we sit at. This company would put their Swedish bank account number on the bill and, depending on how brave they are, they would pay you either in Swedish kronor or in US dollars. In any case, one of the banks will make this conversion while the customer has to pay three or four percent of the invoice value. With the borderless account, the furniture manufacturer can now hold the balance in different currencies.
GS: That's helpful, but not unique.
KK: It's not exciting. HSBC has been able to do that for decades. But what they get is a local account number in many countries, eventually in 40 countries. Now they are billing their TransferWise account number and they are being paid as a local business in the US.
GS: So you're not trying to compete against domestically oriented banks or even PayPal. It is just a offspring of your customers that you offer this.
KK: That's fair, but I think we'll overlap with PayPal a bit. There are cases in which people who can do business internationally can switch from Paypal to us. If they can, they are jubilant.
I think the journey of the money might look like an email.
GS: Well, you like your fees, right?
KK: Yes, exactly. In a related point, the card is a way to give people access to the money they have on the unlimited account. The idea was not to bank and start with a card. The thought process should facilitate facilitating the facilitation of international life and international processes within the boundless account.
GS: You can not even pay interest on this money because you are not a bank.
GS: Taavet likes to make interesting quotes. One was: "One day, we want to be as cheap as emails." As we all know, email is free. We all know that if something is free, you are the customer. This applies to the search and trading of shares. Were you still approached before selling your data?
KK: Nobody ever approached me about dates, and yes, we want to be as cheap as an email tag. Actually, I think that the journey of the money could be something like e-mail. But to be honest, my visibility ranges from 0.5% to 0.3%. I also think that I know how to get from 0.3% to 0.2%. But going from 0.2% to 0.1% will be very difficult, I can tell you that now. And from 0.1% to 0, for which I have no answer.
GS: If you want to stay transparent, it will be difficult. I mean, you guys walked around London without clothes to point out that there's no secret on how to make money.
KK: Well, I do not know if we have to come to zero cost. maybe 0.1% is perfectly fine. However, if some people want zero for some reason, we could also transparently subsidize them for something else they are willing to pay for, or maybe someone else is willing to pay for it.
GS: Let's talk about the future. Why are you not public?
KK: But why?
GS: In order to make acquisitions, you motivate employees to raise funds. There are several reasons why this could be useful to a growing, diversified company like TransferWise. I suppose, on the debt side, you have plunged into these waters a little and I realize that it is not a walk in the park when you are in the public eye. However, I'm sure you know that one day a megafund VC may pump a pile of equity into a competitor.
KK: This is a fair and relevant question, and we want to be pragmatic in this regard. The first question we asked ourselves is this: do our customers care about whether or not we are a stock corporation? The answer is that they are not too interested. Then we asked ourselves if we could do more. Of course, public trading will probably make our capital cheaper, but we are not really capital intensive. You are right that we might need this currency for acquisitions.
Everyone had to do something to live.
GS: -But I understand that this severely limits your flexibility and long-term planning.
KK: Looking at a fund that would bring a lot of money to a competitor For example, say half a billion dollars. I think if it were important, I would have done it, but we do not have it . In addition, to provide £ 500 million, our customers may pay interest. So we'd have to have a damn good place to use that kind of capital.
GS: Finally, I would like to ask you about Estonia, because I have never asked one Estonian this question: Your small nation hatched next to TransferWise and Skype, Pipedrive and Taxify. What is in your home country in the water? Not all former Soviet republics had Estonia's success. And although Israel may be known as a founding nation, I think that Estonia could claim that title as well.
KK: This is a three-hour discussion for itself. I say this: When I was a child, the economy did not matter to people. Independence was important. After 50 years of choosing another country against you, you really do not care how you will eat next month.
GS: Then the Soviet Union collapsed.
KK: Half of the population became unemployed. Besides, we did not have an industry where food could be made or made a living at the time. Everyone had to do something to live.
GS: They say that this was a combination of this fierce independent line embedded in Estonia's DNA, combined with the lack of industry one can rely on.
KK: Yes. It's called entrepreneurship.
GS: Ha, in your case it might have been a gift. Thanks for your time, Kristo, and good luck.
KK: Thank you, Gregg.