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London currency exchange Transferwise has taken a big step forward today by bringing in a team of heavy hitting investors — including PayPal co-founder Max Levchin.
The company, which makes it radically cheaper to transfer money from one country or currency to another, is announcing a small seed round today of just €1 million, or $1.3 million. While that’s not a lot for a financial startup, the money is really a secondary concern compared to where it comes from, since the list of investors reads like a who’s who of financial startup entrepreneurs.
Alongside Levchin, who earned his chops a decade ago with PayPal (s EBAY) and later sold Slide to Google (s GOOG), comes an array of talented angels, including Shamir Karkal of banking startup Simple, Errol Damelin of British loans service Wonga and former Betfair CEO David Yu (s BET), and others.
It’s not just angels either. From the institutional side comes money from IA Ventures in New York, Index Ventures in Europe, as well as France’s Kima Ventures, Seedcamp and The Accelerator Group.
“We were self-funded and we figured: let’s go out and get the best group of people together,” Transferwise co-founder Taavet Hinrikus told me. “It’s fairly small but it didn’t take us too much time to do… we said ‘who do we want to help build this up as a global business?’.”
Sounds like they got who they wanted.
But what, exactly, is this collection of big hitters putting their money into?
Transferwise’s business is simple: it basically cuts out the fat from currency exchange and passes the savings on to customers.
It does this by bypassing traditional ways of wiring money and instead making the process transparent and consumer friendly. The service’s engine essentially matches transfers in one currency to those in another, and sends the money locally, from a bank account in the host country to the target account, instead of transferring it across borders — a P2P-styled approach that has led some (including me) to call it the “Skype of currency exchange.”
Users don’t necessarily see the matching process, but they do see what it produces: savings. The approach the company takes means that it can offer consumers a competitive exchange rate — at the rates banks use themselves, not the rate they charge you — and minimize fees too.
As an example, says Hinrikus, a typical transfer of £1,000 into a Euro account through Western Union will cost you more than €120: with Transferwise it will cost €5.46.
I think the idea has got a lot going for it, but given the size of the market — conservative estimates suggest around $150 billion flows through currency exchanges each day — things are still very, very small right now: the company saw €10 million of payments go through its systems in the first year, for example.
Hinrikus says that is partly because there is only one currency pairing available on the site — from pounds to Euros and vice versa — and because marketing is nothing more than word of mouth. However, the numbers are growing, he says, and businesses are even starting to use the site for their payroll in foreign countries.
There are plans to expand the currency slate (though the US dollar remains unlikely due to regulatory constraints) and try to speed up the process. It currently takes 1-3 days for a payment to arrive, because that’s the minimum speed required to be competitive — but the team says they’d love to make wiring instantaneous in the future. And there are other possibilities, too: there may even be a long-term business product for heavy users, for example.
But right now the small team of 10 is focused on improving the service full stop and be as disruptive to traditional banking as possible.
“The disruption in airlines happened about 20 years ago, with Easyjet and Ryanair and the like, and Telecom disruption happened about 10 years ago with Skype,” he said. “It hasn’t happened in finance yet: we’re seeing it in different verticals, with Wonga do lending, we’re seeing Lending Club do peer to peer lending, now we’re doing payments. But this is at the very beginning.”
But how easy would it be to disrupt the disruptors? Is this idea easily copied? Could the banks and simply drop their prices?
“I’m not worried about that part,” says Hinrikus. “The business we’re in there is technical complexity, regulatory complexity, business complexity, so it needs a very specific group of people. What we have, with my background as the first employee at Skype and growing an idea from the back of a napkin, and [co-founder] Kristo Kaarman’s financial background, we have really complementary skillsets — and now we’re being supported by the smartest investor group.”
Which, it seems, is probably a useful point to lay out the remaining list of investors. As well as IA, Index, Kima, Seedcamp, TAG, Levchin, Karkal, Damelin and Yu come some less familiar — but equally experienced — names: Denise Aptakar of PayPal, early Skype employee Sten Tamkivi, and Meyer Malka, the founder of South American trading platform Patagon.
This brains trust, the company hopes, can help launch it from a regional concern to a global player, which may mean more funding is necessary sooner rather than later.
“It is, in the end, a scale business,” says Hinrikus. “The goals we have are much further ahead — and we know we have to invest to get there.”