Webit.Festival Europe 2017 presents Kristo Kaarmann

Thank you. The title of what I was asked to talk about is the future of fintech, but maybe more on the money angle than on the credit angle. So what I didn't tell the organizers is that I don't know what the future of fintech is. I don't know if it's going to be Bitcoin or is it going to be something different on blockchain. I don't really know if we're going to have banks in 10 years' time or are we all going to be banking with Google. There are now countries like India who have bypassed credit cards with mobile wallets. There's 1 billion people with digital identity and the volumes of money going through Paytm and other mobile wallets is larger than cards. They're just going to jump the evolution in some places. But everyone who says they know what the future of fintech is going to be for money is probably delirious. I don't know, I don't think anyone does. But I thought we could have a conversation so I can tell you a little bit about what I've learned over the last five, six years building TransferWise, and then I'd love to hear from you what you think, where this is going. So I'll leave less time for the talk and more for the discussion.

So, I was already introduced as this complaining guy, and I'll tell you what happened to me. I moved to London about 10 years ago and I still had a mortgage back at home, back in Estonia. What I thought is how this thing works is that I go to my bank and I transfer money to my Estonian bank so I can pay the mortgage. And I expected that—I don't know if you can see this—when I go to Google and check out what the exchange rate is, then that's the exchange rate. You know, Google doesn't lie. It says it's $1.25. What I painfully found out later on is that the truth is this. Again, you can't see this, but there's actually multiple rates for a currency and they're different to the one that Google tells you is the truth. So when I found out that a bit of my money goes missing every time I make a foreign transfer, I realized that what the bank does—it doesn't give you the real exchange rate, the Google exchange rate, the Reuters exchange rate. What they do is they take that rate and add a margin on top of it. So instead of 1.25, they will charge you 1.3. And the only way you find out is if you're wise enough and you go and check. If you're not, you'll experience what I did, which was losing roughly—I think about several thousand over the course of a few years before I came up with an idea. But before that, I checked this morning because I hate to make statements that there is an issue without verifying there is. So this is today morning. Raiffeisen in Bulgaria—any Raiffeisen bankers here? So this is just how it works. The spreads on US dollar, they're pretty good, just 4% of the money you lose. If you go to something more exotic like Turkish Lira, it's 12.2% this morning. But you're not alone. Take a random other one, Unicredit—it works the same way. It's not that these two banks are bad, all the banks work exactly the same way. And that was also my realization about five years ago. And that was how I felt. This is also one of our first ads. I think we paid dearly for this. It's very expensive to put a couple of things on a bus stop. I'm surprised that London allowed us to do it, but that's genuinely how I felt.

So the solution to this was—I found that I'm not alone with this problem. I had a friend who I met in Tartu, and he had the opposite problem. He had euros but he needed them in London as pounds because he was living in London and paying rent in pounds. So what we started doing is what like every normal person would do—I would just give him my pounds because he needed pounds and I didn't need them. And we looked at the Bank of England exchange rate, or the Google exchange rate, or the Reuters exchange rate, which you find out is exactly the same. So there is this one true exchange rate. And then he put the equivalent amount of euros onto my account in Estonia. And suddenly we realized that we're both saving the 12% that the bank wished to make on us. I was just keeping it. And what happened next was we figured out how to make this work not just for us but for other people, because years were fine and nothing was changing. So where we are now is—starting 2011 with just two bank accounts, founded in Estonia, we're now about 600 people in nine offices. We're moving $1.3 billion a month going through the systems. And the proudest number actually—and these are all kind of nice big numbers, a slightly smaller number—but the one that makes us quite proud is that our users save about $1 million every day. So $1 million that Raiffeisen, Unicredit, and the other banks aren't taking on the spread. Unfortunately, it's still a drop in the ocean of what they get to take. So this is the job for us. The reason why I'm talking about this isn't because the future of money is going to be TransferWise. That's not what I want to say. I want to inspire a little bit that the way TransferWise happened was looking for a solution to a problem.

So if you really want to change the future of how finance is going to work or how money is going to work, it's worth looking at the places that don't work today and looking for creative solutions for that. You know, at the time launching TransferWise didn't really need a lot of technology. It needed a bit of code, a web page, a couple of bank accounts, and launch it. You know, today putting a billion through the system requires a bit more. We have a team of 150 engineers who are trying to figure out how to trade in real time on FX markets around the world, and that's a lot of complexity. But it can start actually quite simple, like we did. It depends on the problem that you're trying to solve. The actually harder problem—when we talk about the tech, there are very few problems where the tech is the only solution. Very often the solution is not just technology, it's technology and things around it. The first speaker today was talking about blockchain and patents, and the question came, you know, would the governments enforce those patents. We're also quite clear that, you know, there was an enforced transparency—if the banks would tell you how much they charge, maybe you wouldn't even need TransferWise. Maybe there's an organizational solution that can solve the same problem.

So that's why we're working with—and you know, we're trying to figure out how do you build something like TransferWise across 60 countries around the world. And you know, you work with the Japanese government the same way as you work with the Canadian government. It actually becomes quite tricky once you go global. But part of it is working. So there's a news article out a couple of weeks ago, and the news article was around one slide that somehow ended up on a Guardian journalist's desk. And that slide—I made a note on something there. The reason why I wanted to add this here, I don't know how much you can see, it's basically—I realized that if I ever need to explain TransferWise, I just need to show this slide. And I didn't even need to do this slide, it's just a copy of someone else's slide that did something there. And what they're doing is they're kind of explaining how much profit the bank is making. So this is something like 585 million, I think, out of this currency exchange business, and how much they might plan to make in the future. So I saw this slide, and the reason why they believe this is the future is a bit of a calculation of how TransferWise works and how they work. I kind of realized that this actually quite neatly explains the future that is becoming apparently a bigger and bigger problem for banks. And they're realizing that it's quite interesting that we've been around five years, it's only now that they're starting to realize that the bonanza is not quite going to last forever.

So kind of looping back again, what I started talking about is just this one problem. And the one problem is very, very simple: there's a UX problem with currencies. You have pounds in the UK, the euro—it's quite nice for central banks to have different currencies to manage their economies, but for a user it's a UX problem. So how do you get around this? We're not going to all join Europe, and the world—at least not short notice—isn't all going to move to Bitcoin. So our solution to that was just assuming that money will become digital: can we make it absolutely seamless to move between currencies? Can we make it instant? Can we make it really, really cheap? And thereby, by not actually removing currencies, can we just solve the UX problem around it? So this is just a couple of tweets from our users about the speed of transfers. We now got to under-minute transfers between currencies, which unsurprisingly is quite exciting. It's quite hard to do, but once you get to that stage, you don't really care anymore which currency you're sending and you don't care which currency you're buying, because it doesn't matter. The UX problem of switching between currencies gets solved. I mean, it doesn't really yet, but we're on the way there. So that's our story. I'd be now keen to hear if you have any questions—I can go and answer. But also if you have any thoughts of what are the big problems that you believe that tech will be solving in finance. Open floor.

How much... you make... we make money? Um, we don't make money, we charge our customers. So our customers give their money to us, but the difference is that we tell exactly how much we charge. So our promise to the users is that the money always exchanges at this true exchange rate. So we're recognizing that there is one exchange rate between any currency at every point of time. You can go to Reuters, it will tell you what this exchange rate is. So we're using that exchange rate always, and the users know that they're not going to be sneakily charged within that margin. But we do charge a fee. So in major currencies we charge about 0.5%. So if you send $1,000 to the US, we would charge—was it—$5.

Good question. I'm very interested in blockchain. I actually code on blockchain in my free time. I haven't yet found a good use of blockchain within TransferWise. In fact, the kind of old-school transactional technology can be faster and cheaper than using blockchain. Blockchain would be needed when you need to create trust between parties who don't trust each other. In our context, our nodes are our own nodes in every country where we operate. So at the moment we haven't really found a good use of a chain.

I've thought about it a lot. So I think your information isn't actually accurate. It's not 600 billion, it's somewhere around 20 to 30 trillion if you look at—when you kind of start looking at how much trade volume there is between countries. Most of the money isn't about sending money home to mom and pop. It's buying cars from another country, it's buying oil, buying fish. This is the normal life of us paying salaries in a different country. So this is where the real money moves, and actually this is where the real profit is made, or the real kind of extraction of profits. Your question—can we reach unbanked—is an interesting one. I don't see this as particularly our problem. I think it's rather a problem of how do we bring unbanked people into the banked world. How do we bring them directly into digital banking? And I think, again, referring back to India is a great example where they realized that banking isn't really about—isn't so much about money and banking as much as it is about identity. So as soon as they got all their people onto the Aadhaar identity system, suddenly every one of them has access to—whoever has access to a smartphone has also access to a wallet on the smartphone that they could use as their digital bank. So I think that's the journey that we're going to take. First of all, we need identity for those people who don't have bank accounts, and then they're going to move on to a banking platform, and then they're almost automatically on TransferWise as well.