Wise Up: How One Fintech Startup Is Taking on the Big Banks in International Money Transfers

Does anyone love international money transfers?

Allow me to explain based on my own experience and using better informed sources (such as James Revell – see End Notes).

Given that more than half of non-governmental international money transfers is done by banks, they are not a bad starting point. But have you tried it? I have, on multiple occasions.

It usually starts with a befuddled bank employee. (Yes, you have to physically go to the branch to set it up). Next a manager is called to get the paperwork going, and it’s not a simple process. Then you have to wait for a week or so, followed by another in-person visit to the bank to enact the first transaction. Following that, online transfers can be done.

If you have a new recipient, well, the whole process needs to be repeated (at least at my national bank).

Next come the fees.

Sometimes there’s a stated fee, and sometimes there’s a fee that works off a lowered currency exchange rate, sometimes there’s both – and none of this is especially transparent. It can produce unpleasant surprises when in total it adds up to high single digit fees for each transaction.

Why is this process so cumbersome and painful?

Let’s say I need to send money to someone in India. My bank (after understanding my request) needs to get paperwork together. Then it needs to contact its partner bank in India, which then reaches out to the recipient’s bank, which then reaches the recipient. Without being to able identify entities along the chain the process cannot proceed.

The paperwork can be onerous (given governmental concern about money laundering and other nefarious activities) and often actually uses paper, thus slowing down the process even more.

The second big player in international money transfer are companies like Western Union. But they charge a significant cut to pay for their extensive network of agents who make money transfer possible. (WU apparently has 600,000 agents and someone has to pay for that convenience, no?)

Into this mix came two frustrated wise guys with a clever idea. What if two people in different countries had accounts in each country, and money can just be deposited (and withdrawn) there without needing to cross borders? Out of that was born the company Transfer Wise, now simply called Wise – which is now rapidly growing.

Among other things, they have a Multi-Currency Account (previously called Borderless Account), which enables money to be easily and cheaply transacted in fifty currencies using just a single card.

While Wise is an interesting business story, given their streamlined (machine-learning based) systems, low fees, and convenience, what makes them unique is what I’d call the Wise puzzle.

Wise has a program called Mission Zero, the aim of which is to reduce the cost of money transfer to, you guessed it, zero. Just like sending information (say through email) costs nothing, they want money (which is a form of information) to be sent at no cost.

That’s obviously great for customers, but what about the company whose main revenue source is the fees charged for transferring money? Why sabotage your main business that way?

Perhaps they have built enough of a loyal customer base, and have confidence that they can generate revenue through other sources (investment products and such).

Or they’re just nuts, and are hellbent on destroying the money transfer business.

Either way it would be a big win for consumers.

End Notes

Disclaimer – I’m not a financial expert nor do I work for Wise.

Wise Multi-currency Account – https://wise.com/us/account/

Business Breakdowns podcast with James Revell – https://www.joincolossus.com/episodes/50736441/revell-wise-moving-money-around-the-world