Transferwise is a currency exchange and money transfer service. It operates by pairing exchange transactions between different currencies. For example, if an individual wishes to send £1,000 into a US bank account (so that the money arrives as US dollars), that transaction will be paired with one or more transactions sending US dollars into British bank accounts that total £1,000. Exchanges are aggregated and anonymised, without offering users the ability to interact with each other, which makes this an exemplar multisided business model instead of a matchmaking business model (where the two parties are brought together to exchange between themselves).
The idea for the business came about in 2007 when a Skype employee from Estonia, Taavet Hinriikus, moved to work in London but was still paid in euros via an Estonian payroll. Frustrated with paying substantial fees to convert his salary into British pounds he found someone in the opposite position – a London salaried Estonian, Kristo Kaarman – who was paid in pounds but with liabilities to pay in Estonia, and began swapping currency with him directly using the Bank of England exchange rate. Realising that they were both making substantial savings on exchange commissions, in 2011 the pair decided to establish a website to link individuals wishing to swap currencies. Transferwise now employs over 450 people (as of November 2015), and in 2014, customers transferred the equivalent of $1.6 billion using Transferwise’s platform.
Transferwise typically serves individuals undertaking personal transactions but also serves SMEs. Both customer types are served by the same model and technical infrastructure. The typical individual using the service is one who exists between at least two regions, for example a travelling freelancer who undertakes project work abroad. However, as the maximum transaction size is substantial (£1m although currency dependent) wealthy customers may also use the service to purchase one off overseas assets, for example property or a yacht. On the business side the typical customer will be a small to medium sized enterprise with with international liabilities, e.g. Foreign workers, suppliers or sub-contractors.
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A dyadic transactional relationship where your good or service can be designed and delivered without prior interactions with the customer.
Engagement — Value Creation Proposition
Transferwise proposes to exchange currencies cheaply and conveniently at lower cost than traditional currency exchangers (e.g., high street banks). The service operates at scale, i.e. bus rather than taxi, and benefits from network effects in that the more users the platform has the faster transactions can be performed.
Delivery — Value Chain
Transferwise matches opposite sides of currency transactions. For example, if a person wishes to exchange 100 GBP for USD, the platform will match that person to one or more people who, in aggregate, wish to purchase 100 GBP with USD. Transferwise makes the exchange at the mid-market price, i.e the real exchange rate with no spread, thus the only fee paid is at the initial funding of the account (see below). The transaction takes a maximum of two days to match. Users are able to set a limit on the rate at which they are willing to exchange in order to protect themselves against market movements. The service is cashless and will only operate to and from bank accounts, although you may fund your account with a credit card. The converted money is then delivered to a nominated recipient account. Transferwise has partnered with – or has established its own accounts with – local banks in each country to deliver transactions quickly and without bank transfer costs, and to ensure compliance.
Monetisation — Value Capture
Customers pay 0.5% when they fund their Transferwise account. For amounts below £200 this becomes a flat fee of £1. Currencies that have a fee higher than 0.5% are: INR (0.7%), RON (1% + 10 RON flat fee), TRY (1% + 6 TRY flat fee), PHP (1% + 145 PHP flat fee), NGN (1% fee), and BRL (2% + 16 BRL flat fee), as well as USD and SWIFT currencies.
Disclaimer — Written by Peter Jackson and edited by James Knuckles under the direction of Prof Charles Baden-Fuller, Cass Business School. This case is designed to illustrate a business model category. It leverages public sources and is written to further management understanding, and it is not meant to suggest individuals made either correct or incorrect decisions. © 2016 Published 23 April 2016