TransferWise: a closer look at the hottest financial startup

10 August 2016


Transferwise, one of the most promising online-only financial startups is rapidly becoming a leader in the sphere of international money transfers.  Established in 2011, this London-based company already transfers over £500 million per month. In the United States, more than $1 billion of user money has been moved through the platform in less than a year after its launch.

The new online money transfer service is currently available in 59 countries and attracts a lot of attention as a safe and legal solution to drop high bank fees for sending money overseas. What helps this tech company beat the competition and attract serious investors from Silicon Valley? Let’s have a closer look at the potential no.1 of the Fintech market.

Transferwise Explained: How it Works

Transferwise uses the peer-to-peer technology to charge significantly less fees than banks involved in international money transfers. The service matches participants basing on the currency pair that they send and require. The trick is that you don’t need to deal with this inner peer-to-peer kitchen yourself – the platform will match your payment automatically.

It works this way: for example, you want to send euros from Germany to your friend in England.  Instead of transferring your money directly to England, the service will find someone who wants to transfer money from the opposite direction and reroutes your funds to him/her. And vice versa, your British friend will receive a payment not from you, but from another participant who wants to send pounds to Europe.

As a result, your money won’t cross national borders, so the service can significantly reduce their commission because there is no need to convert your money from euros to pounds. Instead of receiving foreign transfers, the participants in each country can receive money from the relevant national account. The service is regulated by the Financial Conduct Authority (UK).

How Transferwise Works

Making International Transfers: Details

The company currently supports 504 currencies routes across the world, including the market’s largest pairings, and you can use their simple-to-use online calculator to check the conversion rate and fees for your chosen route. The platform is available not only on the Internet, but also through mobile apps for Android and iOS.

To get started, you’ll need to open an account and fill in some personal information. To speed up the sign up process, TransferWise allows creating an account using data from your PayPal, Google+ or Facebook account. There are no registration fees for new users – instead, you can find referral promo codes for new users allowing them to make their first transfer for free.

The next step is to fund your TransferWise account using your debit card, credit card or bank account. When you transfer money from your plastic card, the service may charge an additional fee – from 0.3% to 2% depending on the card issuer.  If you transfer money from your bank account, your bank may charge $15-$30 for domestic wire and SWIFT transfers.

You can send money directly to a recipient’s bank account, or, if you don’t know all necessary banking information, to an email address. The service sets the following limits on international money transfers in US dollars: for individual accounts – $49,999 per day and $200,000 per year, for business accounts – $49,999 per transfer, $199,999 per day and $1,000,000 per year.

TransferWise offers to complete the transaction within 1-4 working days depending on the route, but some security checks used to prevent fraud and money laundering may require more time and delay your transaction. The company might hold your funds and ask you to provide additional information to verify that everything is legitimate.

Fees, Rates & Charges

TransferWise charges a percentage of the amount you want to transfer, but this charge varies depending on the currencies involved. For example, if you want to send US dollars to euros, the commission is 1% per transaction (up to 5000 USD); the minimum fee is $3. Sending British pounds to euros is more beneficial – the commission is 0.5%; the minimum fee is 2 GBP.

For other countries, the rates are a bit less competitive, but still quite low – for example, for sending US dollars to China, Indonesia, Russia or Brazil, there will be a 1.5% charge. The highest commission is for sending money to Ukraine – 2%, even though the company has an office in the heart of that country.

Big banks usually offer less beneficial rates – you will need to pay from $10 to $25 for receiving an incoming international transfer. Western Union and the Money Shop typically charge around 5-8% for money transfers. PayPal charges 0.4%-3.3% for payments funded by PayPal balance or bank account, 3.8%- 3.8% for payments funded by plastic cards. Some additional fees may apply.

Then, TranferWise uses the mid-market currency conversion rate derived from the mid-point between the Buy and Sell price for a particular currency pair on the global currency markets. However, this rate is not constant and can rapidly change. So if your payment is not completed within 24 hours, your recipient can get a bit different amount than you expected.

In order to protect your money transfer from possible rate fluctuations, TransferWise applies a 3% rate limit – if the currency conversion rate drops more than 3% from the initial rate they offered, the conversion will be stopped and you’ll get an alert.  You can also set your personal lowest possible rate for converting money.

Who Benefits Most from the Service?

Sending money abroad is the thing that we all need to do from time to time. Low fees make TransferWise an ideal solution for small to mid-sized cross-border transfers, but the service may be quite costly if you make large and regular money transfers or mass payouts to overseas employees. If you just need an online wallet for making purchases in other countries, then PayPal might be a better choice.

The service is convenient for emigrants and expats who receive and spend money in different currencies, or who have a family and relatives to support back home. Plus, freelancers and small businesses working with foreign companies can save money using this money transfer service instead of traditional banks charging a hefty commission of 3-6%.

However, be careful if you need to transfer a fixed amount, for example to pay a fine from another country – because of possible rate fluctuations and fees, the final amount that the recipient will get may differ from the amount you saw on the online calculator. You need to specify the fixed amount you want to send and forward a bit higher amount in your local currency.

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