transferwise Business Model – How does transferwise make money

When was the last time you transferred money to someone? Probably not long ago. Transferring money to people is quite easy these days. Thanks to the advancements in technology banking transactions have become easier than ever before. But have you ever transferred money to someone who is living in other countries? Some of you may have transferred it and some of you might not have. But the ones who did this know how difficult it is. People most commonly use two ways to transfer money. One is to transfer money through a worldwide financial service like western or they do it through online banking. Unlike the previous generations transferring money in the current world is very simple. All you need is a mobile phone with an internet connection, an application that allows money transfers, and the bank details of the recipient. If you have these then it takes only a few seconds to transfer money. 

But the problem with international transfers is that the services charge too much transfer fees. So depending on the count you want to transfer money to the fees are decided. There is no way in which you can decrease this transfer fee. Because of this transferring money to some countries becomes difficult. Not everyone is willing to pay that fee. Many people don’t even know why the transfer fee is so high. It depends on many factors. The first is the minimum fee, it doesn’t matter how much money you are transferring you have to pay a fixed amount on every transaction. After this comes handling charges. If the banking service you are using to send money is not associated with the other bank then the recipient bank charges handling fees. Apart from these, there are some other factors that influence the transaction fee. But there is one service that makes international money transfers cheap. Many people who make international transfers use this service. But no one knows much about the company or its business model. This article is completely about that but before knowing about the business model let’s know a little more about the company. 

What is Transferwise?

As you already mentioned, Transferwise is an online money transfer service. It is a UK based company which was founded in the year 2011. It was founded by Kristo Käärman and Taavet Hinrikus. Kristo Käärman was a financial consultant and Taavet was one of the first employees of Skype when it was founded. The idea for the company was inspired by their personal struggle. Both the founders were from Estonia, a country in northern Europe. When they were working in the UK they saw how much of a pain it was to transfer money. They had to convert the money from pounds to euros and vice versa. Due to this, they were losing a lot of money. In Taavet’s own words he said that he was losing nearly five percent of the money every time he moved it. This was the same time when Kristo was also losing money for the same reason. 

The duo thought that instead of relying on a traditional system they should make a private arrangement. So Taavet started transferring euros to Kristo’s Estonian account and Kristo started to send pounds to Taavet. Because of this both of them didn’t have any conversion fee. This idea led them to develop a crowdsourced currency exchange service that offered international money transfers at a cheaper rate compared to the already existing services. When the company started offering its services it facilitated €10 million transactions in the first year. In 2016 the company claimed that it can save upto 90% of the transaction fee compared to other companies. By 2017 the company claimed that its users are transferring over €1 billion each month. It launched a multi-currency MasterCard for the people living in the European Union in 2018. This private company offers its services in 12 languages.

Business model of Transferwise

Now that you have learned about the company learn about the business model of Transferwise. There are only a few things that make the business model of Transferwise work. Let’s take a look at them. 

Offering cheap international transactions

This is the main reason why online money transfer is such a hit among the people. It has done what needed to be done. Transferwise offers money transfers for such cheap rates that you don’t want to use any other service to transfer money to other countries. Not only that but the efficiency with it does this process is another reason why people like it so much. While traditional institutions charge anywhere between 3% to 5% on each transaction Transferwise charges way less. On average, it only charges 0.6% on each transaction made by the users. It saves the customers upto 90% of the transaction fee compared to other services. If a service offers you transactions for this cheap then why would you use another service that charges way more? 

Money without any borders

Transferwise allows you to send money anywhere in the world. It would not even feel like you are transferring money to another country. The transaction fee is so low that you won’t mind it. This service allows people to transfer money without any second thoughts. It is a great thing because people in the past were very cautious about sending money as the transaction fee was so high. They would feel sad looking at the amount of money they are losing on every transaction they make. But Transferwise gave them a platform that would allow them to send money from anywhere at any time as if people were living in their own country. This platform definitely feels like a wish come true for the people who transfer money to or from third world countries. The people who are from there or living there cannot afford to lose too much money on transaction fees. 

Customer service 

Transferwise has over 1 million customers. This means that they have to make sure that there is no problem for all these people while making transactions. Anyone who uses a money transfer system or any banking service will expect great customer service. After all, the matter is related to money. Fortunately, Transferwise offers great customer service. No one seems to complain about the customer service offered by the company. The company almost always gets a five-star rating for its customer service. Transferwise offers real-time customer support to its customers. You can call them if you have any questions or need any assistance. 

How does Transferwise make money?

Now that you have learned about the business model of Transferwise let’s look at the ways in which it makes. All of these are similar but let’s go through them one by one.

Transaction fee

This is probably the most obvious way in which it makes money. After all, it is an online money transfer service. Transferwise charges anywhere between 0.6% to 0.7% on each transaction. If you have any questions about that you can use the compare tool of Transferwise to check out the price. If the amount is less than £200 then it charges £1. But if the amount is more than that it charges at least 0.5% of the total amount that is being transferred. 

Borderless account

It is a bank account provided by Transferwise. You will also get a free debit card for this account. Using this card you can make payments in multiple currencies. A small conversion fee is charged every time you make a payment using a different currency. The amount that is going to be deducted is already mentioned in advance so that users don’t get confused. 

Transferwise for banks

This service allows banks to plug into the API of Transferwise and offer money transfers at low prices. When a customer uses the bank to make a transaction it pays a small amount to Transferwise. 

Transferwise for business

This service is also similar to the borderless account but it is for businesses. The businesses can create an account and get a MasterCard. They can use this card to make payments in multiple currencies. Apart from this, it provides them an API that they can use to manage invoices and balances. It charges a small amount every time a cross-currency payment occurs. Transferwise shares some of this fee with MasterCard. 

Conclusion

This is the business model of Transferwise. It is one of the best services to make international money transfers. One can make money transfers in more than 50 different currencies. You can learn about other interesting business models on Zeen. Click here if you want to know about the business model of SoundCloud.

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