On TransferWise's growth and maturation with CEO and co-founder Kristo Kaarmann

I think it was sometime around 2014 when we added a small currency called Hungarian forint. It's a beautiful country in Eastern Europe, and we had some people who had demand for this, but not huge. So when the currency went live, it started growing a little bit, but then suddenly it spiked. A lot of users came from Hungary quite suddenly. When we started looking into this and asking those Hungarians how they heard about TransferWise, we found out that many of them said their bank recommended using TransferWise.

I'm Kristo Kaarmann. I'm 39. I'm Estonian. I grew up in Estonia but then moved to London about 12 years ago. That's where I started TransferWise. Now for the last eight and a half years, we've been growing this international money business. At this point, I'm visiting my office in New York, where we have a small team together with Tampa, Florida.

No, I moved to London for work. I used to work at PwC in Estonia as a management consultant, and then I started work at Deloitte in London. My job back then was to meet these big banks and help them modernize their systems and processes. This was 2007, 2008, when tech was already going but it was getting faster and faster. I think banks at the time were starting to realize they were falling a little bit behind. So I had a first-person view into how far behind they were compared to the pace and speed that the technology industry was moving at.

I think these consultant experiences gave it a little bit of inspiration, but really the idea for TransferWise started from a very personal challenge. The good thing about moving to London was that my income got massively bigger than in Estonia, so I had much more money to save. Once the Christmas bonus came in, I was determined to move my savings back to my account in Estonia. Back in the day, the only natural way of doing this was going to my bank, HSBC, and initiating an international wire back to my Estonian bank account. That was all cool. The bank told me it costs 15 pounds. Once the money arrived, I found out that about 500 euros was missing. I thought someone made a mistake, maybe fat-fingered a number. But then I called both banks and realized that it was me who had made a mistake. The realization was that HSBC used a completely different exchange rate to what I was expecting. If I called up a few more banks, I realized this is exactly how banks work. They see exchange rates on Bloomberg or Google, always the same real mid-market exchange rate you see on the internet. Once you go to your bank, they will use that plus 5%. That's how they really made money on cross-border currency flows.

Actually, I wasn't that interested in building a company behind this. It was more just solving the problem for myself. When I realized all the banks and brokers do the same way, just the percentage is different—someone charges 5%, somewhere it's 3% markup—I found out I have a friend who has the exact opposite challenge. She's moving money from Estonia to London because she was paid in euros and her living expenses were in pounds. She had just moved to London as well. We started swapping money with each other. I gave my friend pounds in the UK, we looked at the real exchange rate, and she gave me her euros in Estonia. It was just a bank-to-bank transfer and didn't cost us anything. Better yet, we both saved about 4,500 euros or pounds on both sides. That was a solution to our own problem. When I mentioned that Deloitte certainly gave me inspiration, we used this for ourselves for many years. But then three years in, in 2011, having tried to help banks modernize and realized this isn't going to happen very fast, and happily always using our own home-cooked method of moving money around whenever we needed it, we then realized it's perhaps worth trying out if this is just an Estonians in London problem or maybe it's a bit bigger, maybe it applies to other people and businesses as well. Because it seems there is no other solution than going to your bank or a broker, which is not much better.

First of all, businesses using TransferWise has been the case from the beginning. It just snowballs. When we look at small businesses—the ones who have maybe a couple of employees to a few dozen—they don't really get a great banking service anywhere in the world. In Europe, they get an even more expensive banking than individuals do. These days it's super hard to find a business that is local and not importing or exporting or servicing customers abroad. All the bigger businesses that are getting started and have a chance to become big are thinking global from the beginning. The internet is helping this immensely. Anyone that sells on the internet quickly realizes their customer base isn't just local to their town or country. We've seen lots of businesses snowball into using TransferWise. But what was interesting: when we started in 2011, we just operated in pound and euro. As we started getting all these emails from people who wanted to send money to Canada and Japan and pretty much every country in the world, we started adding currencies and connections onto TransferWise. I think it was sometime around 2014 when we added a small currency called Hungarian forint. It's a beautiful country, Eastern Europe. We had some people who had demand for this, but not huge. So when the currency went live, it started growing a little bit, but then suddenly spiked. A lot of users came from Hungary quite suddenly. When we started looking into this and asking those Hungarians how they heard about TransferWise, we found out that many of them said their bank recommended using TransferWise. That's wild. We started digging a little bit further and found out that there was a small bank called AXA Bank at the time—I think they've now merged or moved into something else. Their users were using them for a different reason, but occasionally they needed to make international wires. The bank was set up for this, but it was pretty terrible for them. It meant their customer had to come to the branch, fire up some old Windows 95 app on the terminals, the teller would type in some information, and it would be a whole effort to get it set up. Then money would go somewhere, people would be generally quite unhappy, and at the end of the day it would cost a lot for the bank to operate. They did do those international transfers, but it was really painful and expensive for them, and all they got was a frustrated customer at the end. I think the bank managers themselves used TransferWise—I don't know how they got to this—but basically they coached the front-end staff sitting in the branches that when someone comes in wanting an international wire, just show them how to download the TransferWise app, how to get going, how to fund it from the bank's account. They'd say, 'You'll have a much happier customer. The money would probably arrive—if you're lucky, the money would arrive before the person walks out of the bank branch—and everyone's happier.' That's how we first got wind of banks taking advantage of the network and infrastructure we built.

TransferWise wasn't just about moving money. It's not just a Hungarian bank problem; it's a challenge for a lot of small and large banks everywhere in the world. When we think about Citi, HSBC, and maybe a couple of others, there are very large, very global banks for whom this is bread and butter. But for most banks, doing cross-border transfers is a necessity. Some percentage of their users will want them to do this, but it's quite far down the priority list. So we saw that this challenge that the Hungarian bank had, and the solution they found in TransferWise, is actually quite applicable to lots of others. The other thing we saw was that in Europe, we now have a lot of new banks starting up—N26, yes exactly. N26 was the first one in Germany to launch and grow quite substantially. They also ran into the challenge at one point: 'We've got all these depositors now, and we're great at making transfers in the eurozone. They can get this basic banking service from us and they're generally super happy, but occasionally they need to make international wires. Then of course we recommend them to TransferWise, but could we perhaps offer TransferWise ourselves within our banking app?' That's where it really got started. We opened up our API, and N26 was first. They could build the experience within their banking app for people to connect their N26 account and the TransferWise account, and then just start making those transfers from within the bank app.