The Skype Of Money Transfers – Innovations in Finance
Immigrants and émigrés are always sending money “back home” for any number of personal and work reasons. Entire economies around the world are heavily dependent on “remittances” (in Mexico’s case, for example, those count for 2.1% of the GDP).
Each time they do that though banks, Western Union and whoever else, a small but non-insignificant slice is taken out. These slices are in the form of a % of each transaction and a slightly less favorable exchange rate.
In the aggregate, this adds up to billions or even hundreds of billions of dollars.
Now, a startup, TransferWise, that bills itself as the “Skype of Money Transfers” wants to change that by “matching people” in two countries that each want to send money to the other side for a very small fee. As an article in The Economist says,
If someone in Britain, say, wants to transfer money to his relative in Spain, he will put the cash in Transferwise’s British account. The algorithm then spots someone in Spain who wants to make a transfer in the other direction, and who deposits funds in the firm’s Spanish account…
In 2011, its first year of operation, Transferwise transferred £10m ($16m); it breached the £50m mark in December. It charges a miserly fee of £1 for making transfers up to £300, and a variable charge for transferring larger amounts.
Admittedly, this model works very well for pairs of countries that send roughly equal amounts of money to each other.
For other countries (the article uses the example of India and the UK) where the amounts on both sides don’t match, the appeal may be limited. And that, in turn, could prevent this idea from causing serious damage to either Western Union or its brethren in this business.
Still, kudos to the idea and the people behind the idea who explain why they got started:
TransferWise was born out of frustration
Taavet Hinrikus and Kristo Käärmann are two friends who believe that money, like water, is meant to flow freely. But in the absence of a global currency, it doesn’t. Besides, water can toggle elegantly between its various guises: ice, liquid and steam. Money can’t. Transforming pounds into euros or dollars, and sending them across borders, is expensive. And frustrating.
I wish them luck…either in being able to grow or in terms of getting a nice exit deal from one of the larger players in this business.
Some more recent data on remittances:
http://www.guardian.co.uk/global-development/2013/jan/30/migrants-billions-overshadow-aid