Transferwise

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| The European | 15 January 2019

Undoubtedly the most contentious political issue of recent years, Brexit has made life miserable for lawmakers and businesses alike. The consultants have made a habit of publishing financial estimates of the effects of Brexit on Britain’s economy. A recent EY report says financial services companies will transfer out UK Pound 800 Billion of assets to Europe. The early movers have been high tech businesses whose business models are totally dependent on the use of technology.

Tech companies, especially Fintech companies, usually have an international customer base and therefore the lack of legal clarity in dealing with international customers while based in the UK is the prime reason behind their swift decision to leave for destinations that have easy rules for and promote international businesses. Analysis of the post-Brexit preparation strategy of Fintech companies tells us that the majority of these companies have adopted a hybrid approach which is to keep the UK as a base for operations while also registering and establishing their businesses in European Union member countries.

At present Estonia and Lithuania are the leading destinations accepting new entrants in Fintech sector. However, established Fintech companies are finding their second homes in popular business hubs of the European Union like Dublin (Ireland), Brussels (Belgium), Amsterdam (Netherlands), Frankfurt (Germany) and Paris (France).

The facts and numbers given below tell a lot about the significance of the UK as the financial capital of the world.

  • The new investments made in the UK Fintech sector during the first six months of 2018 are US $16 Billion. (Source: KPMG)
  • The UK has (estimated) 1600 Fintech companies out of which 80 percent of them are located in London. (Source: EY)

Transferwise

Transferwise is a British Fintech company. It was co-founded by two Estonian friends Taavet Hinrikus and Kaarmann in 2011. It is one of the latest Fintech companies to announce its business strategy to deal with Brexit. It is applying for a “money transfer license” in Belgium and is planning to open an office in Brussels.

Reuters (10 January 2019) reported;

“London-based financial technology startup TransferWise is applying for a money-transfer license in Brussels, in a bid to ensure its business is not disrupted if Britain crashes out of the European Union without a divorce deal”.

The news report also published Kaarmann’s statement;

“A Belgian license ensures we can continue to provide a great service globally to our customers, whatever happens with the Brexit deal”.

Initially, the company plans to hire a small team for its Brussels office which will look after the “compliance” function of the money transfer business.

Business of Transferwise

In today’s world of Blockchain where peer-to-peer payment method has taken over the traditional bank transfers, Transferwise is still posing a challenge to Blockchain companies by offering low-cost traditional international bank transfers which get settled in a short time. One of the core reasons for the survival of its business model is that businesses, as well as individuals, still prefer to move money through SWIFT payment model which uses International Bank Account Number (IBAN).

How Transferwise moves money

  • Transferwise provides unique bank account numbers (in most of the cases it is IBAN) to its users. These unique account numbers are attached to the users’ IDs.
  • One of the popular features of Transferwise is its “Borderless Account”. Borderless Accounts can be opened online in less than a minute. There are 40 plus currencies to choose from. Through these accounts, users can send and receive money in different currencies worldwide. (For service conditions, limits and restrictions, please refer FAQ section of Transferwise website)
  • There is no paperwork involved when transferring funds. The exchange rates offered are competitive. Transferwise also offers protection (optional) against exchange rate fluctuations by charging an extra (nominal) amount.
  • Funds get transferred in 24 to 48 hours, though the company gives a higher time estimate.
  • The commissions that Transferwise charges for fund transfers are very cheap as compared to traditional banks.
  • Transferwise user registration is simple, but the company adheres to a strict Know-Your-Customer (KYC) policy.

Transferwise-Financials

Monthly volume of worldwide payment (approximate) UK Pounds 3 Billion (US $3.82 billion)

Number of Employees 1400 (globally)

Revenue (12 month period ending March 2018) UK Pounds 117 Million

Operating Profit (12 month period ending March 2018) UK Pounds 9.5 Million

(Source: Reuters-10 January 2019)

Fintech and Britain: What lies ahead?

The general trend witnessed so far in the Fintech sector is that companies are registering their separate business units in the EU countries as a contingency plan to insulate themselves from post-Brexit business disruption. Fintech companies due to their smaller sizes are more susceptible to business losses in case of business disruption.

The Fintech companies are not abandoning the Queen. In fact, Transferwise has announced to increase its team in the UK. Last year Transferwise also partnered with a British Fintech startup-Monzo-to help them launch low-cost international money transfers by integrating “Transferwise API”. This shows that the UK is also benefitting from local business synergy. There’s no denying that Britain will carry on with its dominance in the world of finance.

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