TransferWise is one of those companies where you can just sniff groundbreaking success. TransferWise is a London-based peer-to-peer money transfer service which was started in January 2011. Earlier this week, the company was in the news because of rumoured discussions with well known Silicon Valley venture capital firm Sequoia Capital, which could result in a valuation of nearly $1bn.

Transferwise is looking to disrupt the current status quo in banking land whereby premium (hidden) fees are charged when transferring money abroad. TransferWise was created to solve a problem that its Estonian co-founders Taavet Hinrikus and Kristo Käärmann had experienced personally.

As Estonians working between their native country and the UK, they felt the “pain of international money transfer” due to bank charges on the amounts they needed to convert from euros to pounds and vice versa. With TransferWise, Taavet and Kristo are looking to remove the often felt frustration around transferring money abroad by significantly reducing the fees that one has to pay when transferring money. Banks charge up to 5% in (hidden) fees whereas TransferWise users pay 0.5%.

I’ve only just started using TransferWise myself, so I’ve start to look into how TransferWise works more closely:

1. Peer-to-peer – When looking at the steps involved in transferring money through TransferWise (see Fig. 1 below), the component that helps in keeping Transferwise’s rates low is the fact that one’s outgoing money transfer is matched with people sending money in the opposite direction. This is different to how traditional banks tend to route payments abroad. Instead of transferring the sender’s money directly to the recipient, it is redirected to the recipient of an equivalent transfer going in the opposite direction. Likewise, the recipient of the transfer receives a payment not from the sender initiating the transfer, but from the sender of the equivalent transfer. This process avoids costly currency conversion and transfers crossing borders (see Fig. 2 below).
2. Word of mouth – Given that Transferwise is peer-to-peer, growing its user base is critical to its success. TransferWise has a friend referral programme which incentivises users to invite their friends to TransferWise (see Fig. 3 below). I’m curious to find out more about how effective this programme has been in spreading the word and growing TransferWise’s user community. Currently, referrers are rewarded with cash incentives; it will be interesting to see whether TransferWise will – in the true spirit of gamification – motivate with the use of data instead of or as well as money. Businesses like Dropbox, Fab and Evernote have all created very successful referral programmes, using a number of gamification mechanics. I can imagine TransferWise have a solid group of customer advocates, who’ve derived tangible value from using its services. I wonder if these user champions are utilized by TransferWise in some sort of capacity, whether they have a formal customer advocate programme, engaging these users into campaigns or product improvements.
3. What do users say? – Just to get a sense of how successful TransferWise is in delivering on its mission and its differentiators, I had a quick look at some of the user reviews on TransferWise’s page on Trustpilot. A quick scan of some of the comments on there shows a lot of happy customers. If there is a negative point, it’s the lack of speed with which the money transfers are completed. Some users feel that TransferWise is slower at transferring money than some of the other money transfer services but they seem to offset this against the money they save in transfer fees.

Main learning point: TransferWise is one of those businesses that is truly exciting. Firstly, their whole mission is about shaking up an industry by introducing a new way of doing things. Secondly, they are delivering tangible value (i.e. less money spent on money transfer fees) to their customers. I’ll definitely continue to use their services and I’ll keep a close eye on how they grow their user base over the coming years.

Fig. 1 – How does TransferWise work? Explained in 4 key steps – Taken from: https://transferwise.com/en

1. Get started – Enter how much you’re transferring and where to. You can send to your own account abroad or another person or business.
2. Upload money – Pay TransferWise in your local currency. Use your debit card, just like shopping online, or make a normal bank transfer.
3. Conversion – TransferWise converts your money at the mid-market rate and matches you with people sending in the other direction.
4. Money sent – The converted money is sent to the target bank account. Everyone gets notified by email, so you always know where the money is.

Fig. 2 – Comparing the usual concept of money transfer vs the peer-to-peer concept of money transfer – Taken from: http://commons.wikimedia.org/wiki/File:Transferwise.jpg and created by Shaviraghu – Own work. Licensed under Creative Commons Attribution-Share Alike 4.0 via Wikimedia Commons

Fig. 3 – Screenshots of Transferwise’s online referral functionality

Fig. 4 – Some excerpts from user reviews on TransferWise’s TrustPilot page – Taken from: https://www.trustpilot.co.uk/review/transferwise.com

1. “Transferwise was very easy and emailed me every step of the way to tell me where my money was. As I’d never used a service like this, I called customer service several times and they were very helpful and assuring. It’s not as fast as a wire transfer between banks, but if you don’t need the money straight away, it’s worth it. The conversion rates are way better than what your bank will offer you, and you can avoid any international currency fees banks add on top of that. Would recommend to friends in the future.” “Kelly” on 13 November ’14
2. “If you used a main UK bank the minimum charge is around £25 and can take a while to complete, the exchange rate is usually fairly poor too. No such problems with Transferwise, small charge of £4.98 to send £1,000 and got €1,270.92 (1,277.3 less fee). We should all be using TransferWise.”  “John Clive Williams” on 13 November ’14
3. “I hate hidden fees. Transferwise is even faster than they claim. And they did everything they promised. Perfect.” “Mark” on 13 November ’14
4. “I was trying to send money using my debit card and I received a misleading e-mail stating that I should contact my bank and transfer the money to Transferwise’s bank account. I didn’t want to do that so I tried again with my debit card and it worked. But the transfer was made twice… Lucky it was a small amount.” “Catherine” on 12 November ’14
5. “over the moon with TransferWise, the ease of transferring my money, the rates offered and the fantastic minimum charge is the best around. Saved a lot of money with this service. Thank you” “Gerard” on 12 November ’14
6. “Not quite as fast as the competing “more commercial” services, but the best rates we have ever achieved by some way.” “Simon” on 13 November ’14

Related links for further learning:

1. http://www.londonlovesbusiness.com/entrepreneurs/start-ups/qa-taavet-hinrikus-co-founder-of-transferwise-which-has-landed-13-million-funding/2158.article
2. http://www.barclays.co.uk/Helpsupport/Internationalpayments/P1242593395280
3. http://www.businessinsider.com/explosive-growth-in-peer-to-peer-payment-apps-2014-8?IR=T
4. http://justlandedbcn.com/blog/transferring-money-overseas-cheaply/
5. http://blog.rise.global/2014/11/13/ive-seen-the-future-of-customer-centric-marketing-and-its-gamified/
6. http://www.maximizingmoney.com/money-service-offers/transferwise/
7. https://www.trustpilot.co.uk/review/transferwise.com
8. http://www.referralsaasquatch.com/dropbox-customer-referral-program-by-the-numbers/
9. http://builtvisible.com/ways-to-integrate-gamification-into-your-seo-strategy/