
A mistake that led to a £1.2bn business - eigenvector
https://www.bbc.com/news/business-46985443
======
rahimnathwani
I love TransferWise:

\- separate business and personal accounts with the same login details

\- own account details for US, UK and Germany (6 unique account numbers in
total: 3 for personal, 3 for business)

\- low transaction fees (e.g. 1 USD for domestic US transfers vs. the 25 USD
that most US banks charge for wire transfers)

\- low and transparent exchange costs for moving money between USD/GBP/etc.
accounts

\- very simple and easy UX

\- instant push notifications for transactions

People have complained for years about the fat and hidden margins charged by
banks for sending money abroad, or receiving money from abroad. People have
observed how simple it would be to fix, except for the regulatory difficulties
of getting set up.

I'm sure others have tried. These guys actually did it and made something that
works well for large groups of people.

~~~
sokoloff
I send only about 1 [domestic] wire transfer per year, but I don't recall ever
paying a fee (USAA, Vanguard, or ETrade). It could be that I just ignored it,
but I am generally pretty fee-sensitive and feel like they were all either $0
published or courtesy waived.

~~~
elcomet
The fees are usually hidden in the exchange rate that favors the bank

~~~
sokoloff
Not in a domestic (USD) transfer...

~~~
elcomet
Yeah of course, but we are talking about international transfer here (that's
where transferwise is useful)

~~~
sokoloff
Are we? I replied to ggggp’s comment on fees “low transaction fees (e.g. 1 USD
for domestic US transfers” with my own experience specifically on domestic
wires.

~~~
elcomet
You're right, sorry about this. My bank doesn't charge me either for domestic
wire transfers (under a certain amount)

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campbellmorgan
I used to work in the same co-working space as them in London in 2012 when it
was just 3 of them and 3 interns. If I remember correctly, they managed the
whole thing on excel sheets balancing out their EUR and GBP accounts with the
frantic interns settling transactions manually.

Always interesting to see tech companies that going on little to no tech!
Congrats to them!

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hnhg
I'm not quite sure I buy this founders' "myth" of experiencing a
transformational mistake - why can't we just be satisfied with them looking
for an opportunity and executing well?

It's getting really tiring to read the same PR tropes, to be honest, and we
need to start calling them out. The BBC, particularly, loves peddling them.

~~~
radmuzom
Having worked in multiple startups as a very early employee, I have seen the
story evolve and change over the years as the startup becomes successful. So I
agree with you that this story is probably exaggerated, if not outright false.

~~~
itronitron
The origin story is great because it is relatable and communicates the benefit
to customers of using the service. I doubt that the story is false, if
anything it has probably been simplified.

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mattnewport
1400 employees seems like a lot for what the article describes they do. I'd be
curious what the breakdown is, are a lot of them customer service agents?

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nkkollaw
I sense a little bit of political correctness on his part. I bet his reaction
was a few cuss words towards the bank rather than saying it was his fault.

I live in Poland but make money in EUR. Finding out what percentage my bank
used to STEAL from transactions left me pissed off for a few hours (and led me
to eventually find out about TransferWise--which is what I now use, actually).

Even if you ignore the fact that for every 1 EUR I give my bank they're able
to loan other customers 10 EUR--which should make it more than enough to give
me a free account and wave all fees for any transaction I wish to make--these
are a few bits exchanged via computers. They hold all currencies, and move
records between 2 accounts in different currencies. There is absolutely no
reason to charge 5% for this operation. If you DON'T ignore the fact that 1
EUR I give my bank they're able to loan other customers 10 EUR, they're
complete criminals and they're in business only because most people don't care
about finding out how banking works.

~~~
reitzensteinm
The multiplicative effect of fractional reserve doesn't work like that.
Assuming a 10% reserve:

You give your bank 1 EUR, they can loan out 0.9 EUR. The person receiving the
loan spends the 0.9 EUR, which is then placed in the merchant's bank account,
and this bank can then loan out 0.81 EUR, etc.

A total of 1/0.1 = 10 EUR is the theoretical maximum amount of deposits
created by the existence of the original 1 EUR (with 9 EUR in matching
liabilities).

But your bank doesn't get to lend all of that out and collect interest on it,
and they actually can benefit less from lending your money than you could,
e.g. on a P2P lending site, where you'd be free to not keep a reserve.

That's not to say that the spread between the interest rate the bank pays you
and the interest rate they charge for loans isn't extremely large (an order of
magnitude in many cases), and overall a great business to be in.

~~~
nkkollaw
I mean, thanks for the more detailed explanation, but it doesn't make it sound
any less unethical (to not say "criminal" in a colloquial way).

~~~
reitzensteinm
Do you believe loaning money in the first place to be unethical? Or just banks
loaning out money that has been deposited with them.

~~~
nkkollaw
I believe charging premium to lend what you don't have to be unethical.

Think about loans that ruin people's lives (student loans, for instance), and
compound interest on those loans that make them basically unpayable: the fact
that they didn't even have that money to lend out in the first place is what I
think is unethical.

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wil421
>The TransferWise program in the United States is sponsored by Community
Federal Savings Bank, to which TransferWise is a service provider, except in
certain states in which TransferWise Inc. is a licensed money transmitter.

What is the difference between states using an intermediary bank and ones with
TransferWise Inc?

~~~
eridius
I can only speculate but based on what you quoted, I would guess that
TransferWise Inc. is only a licensed money transmitter in some states, and so
must partner with a bank in the other states in order to function.

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juliendorra
It’s interesting that we keep reinventing this method of moving money by
actually not moving it. It existed between merchants in the middle-age[1] and
most probably earlier (Mesopotamia?)

I suppose this is a cycle of centralization/decentralization.

[1]
[https://www.economics.utoronto.ca/munro5/BILLEXCH.htm](https://www.economics.utoronto.ca/munro5/BILLEXCH.htm)

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NicoJuicy
Not about TransferWise, but if anyone wants to know how banks ( and economies)
work.

I seriously recommend [https://newworldeconomics.com/category/how-banks-
work/](https://newworldeconomics.com/category/how-banks-work/) as a required
reading.

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client4
Transferwise enables me to be successful working in Asia. The only downside is
that they don't do CNY yet, otherwise I'd use them exclusively. Using banks
internationally is incredibly painful and ripe for disruption.

~~~
analyst74
If you're not transferring very large amounts,
[https://theswapsy.com/](https://theswapsy.com/) is a pretty good P2P
alternative specializing in USD <==> CNY exchanges.

~~~
client4
Ah sadly it's $10K plus. At this point I'm just opening an account in Hong
Kong. They do CNY conversion and wires now which is amazing.

