Transfer Wise's Kaarmann: "Banks haven't really treated their users transparently"

Yes, exactly. When I moved to London about ten years ago, I had a nice problem — too much salary. I started working at Deloitte, the Christmas bonus came in, and I had nowhere to put the money. I was 26, so I decided I'd put it in a savings account earning maybe 1% a year. When I went to HSBC to make an international payment to my Estonian bank account, I found about 500 euros were missing on the way. I contacted HSBC asking if they'd made a mistake, and then I realized that happens on every single cross-border transfer — the bank uses a pretty random exchange rate, though it's not really random. It's the real exchange rate you see on Reuters, plus another 5% on top. That's how banks make money on international payments. I didn't like this, so I had a friend living in London whose salary was still in euros — paid by Skype in Estonia. Whenever I needed to send money to Estonia, I looked at the real exchange rate, put the pounds into his UK account via a UK-to-UK transfer, and then he'd move the equivalent euros from his Estonian account to mine. We never actually moved money across borders — just a peer-to-peer transaction. He's now my co-founder, Taavet. We had a small group of friends doing this, and then in 2011 we figured it's not just our problem — it's a global problem. We launched with a simple blog post on TechCrunch: here's a website live by invitation, you can send money to the UK or eurozone. Fifteen minutes later, someone sent 2,000 pounds on our account. Then people in Europe sent euros to England. We had a boom in our heads because we needed to find liquidity on the other side. The liquidity was provided by our users — we were just matching them, not moving money across borders. It was very simple and robust, and we got licensed before we started. We had so much demand — people writing saying they were students doing crazy schemes, buying stock on the US exchange and selling on the Canadian exchange just to get the other currency. We saw there were so many different uses.

Not really. We just had it on the first day — people trusting us from day one. There was so much demand driven by real need. Next week people were asking: can I send money to the US, from Canada, to Singapore? The rest of the story for seven years has been adding more countries and working on the demand.

Almost every corridor in every currency is big enough. I think we figured out what users really want: they want money to get there fast, they want transparency, they want to know exactly how much they're paying. They don't want random exchange rates. I think we were the only ones, and still are very few, pioneering this. Our money transfers always exchange at the same rate you see on Reuters, and we charge a very transparent fee. Users really appreciate that — moving money nearly instantly, seeing what they're paying, and it's not much compared to incumbents who were just grabbing money.

That's a very good question. Let me put some context. Payments compared to remittance is quite small — cross-border payments with payments is huge on its own, but the cross-border payments piece isn't as big as cross-border money movement for trade. But our users get the same frustration when dynamic currency conversion shows up on the POS terminal. What we're launching in Europe and rolling out globally is a borderless account that holds 28 different currencies, with local account numbers in the US and UK.

Nothing to do with crypto — normal currencies we're used to. It's a multi-currency account where you can actually hold US dollars, hold multiple currencies. The beauty for businesses: if you're a company in Singapore, you get local account numbers in the US, UK, Australia, Germany. When you charge customers in the US, you put the US account number on your invoice and receive dollars directly into your borderless account. You go through KYC once and get local accounts anywhere. This is live with amazing demand — accounts in eurozone, UK, Australia, and the US, with more being added. Money arriving in your US accounts shows up as US dollars. We don't charge anything for receiving. If you want to pay bills in dollars, you pay from that account. If you need Singapore dollars for salaries, you convert and transfer. All the conversion uses the Reuters exchange rate with the same transparent fee.

Volume is what matters. We can lower our fees gradually as we grow. We've been profitable for a year already. Even though fees are tiny, there's so much volume that we can cover the customers easily.

They know the opportunity is enormous, and they know our strategy is very independent. We're already profitable, we can grow and actually reduce prices as we grow. We just did that in Singapore. Last year in Japan we dropped prices by about 30% on most routes, and we can keep doing that because of scale economies. As long as you do the right thing for the user, you get more scale.

We have small businesses and corporates using TransferWise. People paying payroll in 27 different currencies, people connecting through the API, even banks using TransferWise. We're moving one and a half billion pounds per month through the rails. We have people buying expensive properties in millions of dollars in one transaction, and people paying back five dollars they owe a friend. It's complete variety — anything you'd use your bank for where the bank lets you down on foreign exchange, you try TransferWise.

Very good question. The World Bank has found the most expensive currencies to use are ones that are closed or managed by the central bank. We were offering transfers to Nigeria in naira about a year and a half ago and closed that route because there was a real banking system with fixed exchange rates, but then a shadow economy that we, as a legitimate business, couldn't be involved in. Everyone else in Nigeria was in the shadow exchange business. The official naira price was 20% off, so we moved out. Over time, the Nigerian central bank opened up the currency, and we re-entered about three months ago — it's gone amazingly without complications.

Neither of us, really. We really don't take positions in FX. We don't use it for trading or speculation. We don't want to carry FX risk, and we don't want our users to carry FX risk. We don't support currency speculation — the goal is to make it cheap and easy for people to move currencies across borders.

They definitely interest me intellectually, and I spend time building in crypto myself. But we haven't found anything for our users that would make sense. Crypto doesn't help payments go faster or cheaper than we already can. People say crypto solves the liquidity problem on either side, but it's just adding another intermediary.

Absolutely — banks love us. Some have gone really smart. About three years ago in Hungary, customers were coming to us and we asked how they heard about us. They said their bank suggested it. We were surprised because we usually point out banks' flaws on foreign currency. We learned there's a small bank in Hungary who realized every time they did a cross-border transfer, it was a terrible experience and costly for themselves. It made sense to train branch staff to set up TransferWise accounts for customers. They just routed all their users to us. Banks aren't saying this publicly yet because of KYC and other issues.

Not really, because that's also a matter of scale. We have enormous compliance operations — over 900 people in nine countries. There's a lot of transaction monitoring and KYC verification, but we also have plenty left for development. As we add more currencies, this is what we do.

You'll always need to do a few things manually for transaction monitoring and compliance, but a lot of those things you can do smartly with algorithms, machine learning. You bring your compliance costs down by using technology and doing things much smarter than institutions that set up 20-30 years ago.

The regulators are saying the way we do things actually works better than putting armies of people on the same tasks. They watch closely, come and audit us regularly. We're licensed in about 42 countries, so we have to please Japanese regulators and Ohio regulators in the US simultaneously. The remittance players' business is very different — they deal with cash that's harder to track and has to be physically delivered. As long as cash is needed, especially in developing countries, it's a hard business. I completely understand why Western Union and MoneyGram charge those margins. At the same time, they look at us and see a more customer-friendly business. It's a matter of time before those differences start closing.

Yes — if you send money to Kenya, it goes straight into your M-Pesa account. We're account-agnostic. We don't differentiate between a bank account and M-Pesa — both hold money. We can deliver to both.

We use cards wherever appropriate. People often use debit cards in Europe for smaller transactions under 2,000 euros to fund transfers. If you're in Poland or Italy sending money to the UK and funding with a card, your payment can arrive in 20 seconds. In the UK, we're directly connected to the Faster Payments system, making things really fast. For someone moving money between countries and seeing it happen in 20 seconds — that's amazing. But debit cards carry interchange fees that are expensive for users, so people don't use cards for large amounts. For smaller amounts, fees are around 20 basis points in Europe.

Mission Zero is our way of talking about why we're doing what we're doing. Going back to the story — Tom and I found it outrageous that moving money across borders is not much more complicated than moving an email from Singapore to Hong Kong, yet money becomes prohibitively expensive and really slow. The origin of Mission Zero is that we should be able to move money nearly at zero cost between any two countries and currencies, nearly instantly — no time, no cost.

Absolutely. Any intermediaries in the process are likely to slow it down and charge a fee. The question is: can we replace these intermediaries with technology? Quoting my investor Marc Andreessen — software is eating the world, and it's definitely eating banking. If you can replace things with software at scale, it becomes really cost-efficient. Moving money really is moving information, and the idea that you can replace people and intermediaries with software will eventually drive costs down and speed up.

We already trade with market makers on the foreign exchange. Banks are starting to use us too. N26, a European bank similar to the Hungary story, had a choice when starting up — integrate with SWIFT or integrate TransferWise. Guess who they chose? It'd be crazy to integrate SWIFT if you're starting up. It's a beautiful experience: you connect the TransferWise app inside the N26 banking app, create a transfer in N26, and it appears in TransferWise. It doesn't matter where you use the service from — it just appears and processes as normal.

More than technology — technology is getting there. Local infrastructures need to improve for moving money between banks and other players. In the UK, the old batch system got replaced with Faster Payments, making any money movement between banks instantaneous 24/7. Australia is launching NPP, their version. Singapore is quite advanced. The US is quite behind — they have a lot of work to move from daily ACH to real-time. A lot of work needs to happen in parts of the world to get local infrastructure in place. The UK government and regulator learned that lesson well — opening infrastructure not just to big banks but to others who can bring customer benefit through immediate, low-cost connections.

We're really focused on cross-border. This is an enormous problem to solve, and we're just at the beginning. Moving 1.5 billion a month is just the very beginning.

I wish we had more. Banks have had this market for a long time and haven't treated their users transparently. The more transparent competition, the better. If someone does certain routes better than we do, we'd recommend them wholeheartedly. Users deserve the best option available.

Thank you very much.