> TransferWise captured the UK<> Poland corridor and expanded from there.

Close! They started with UK <> Estonia, both co-founders are Estonians. IIRC in the very very early days, the whole settlement was done by users themselves over a Skype group.

You are right, but the Poland corridor was probably the key to proving the model though.

Why would either be lucrative? AFAIK within the EU bank transfers are free of fees.

Within the Eurozone bank transfers are generally free of fees, but banks still like to rip people off on exchange rates between different currencies and the EU doesn't seem interested in doing anything about that.

Not if using different currencies. high fees and/or abusive exchange rates.

Poland has 30x the population and likely 30x the number of immigrants to the UK.

I think the exact rule is this: International bank transfers denominated in EUR below 50.000 EUR can’t have higher fees than domestic transfers. FX fees and spread can still remain.

exchange rate

In general, banks do charge excessive fees on exchanging currencies. For example, if you want to exchange €1,000 to $ or £, they'll charge you (by default) a 2.5-5% conversion fee. After negotiating with them, you generally get it down to 0.3%.

These days, I convert through my broker, because they only charge me 0.2% for FX conversions.

It's insane, borderline criminal. I knew someone who wanted to convert ~1m AUD -> USD -- and the banks were still trying to offer to do at 2-3% ! At that amount, you can open a brokerage account and trade through EBS or CNX directly and pay basis points.

Of course they would. Most people don't understand how the fee structure works, so will comply.

You can open up a brokerage account at Interactive Brokers with a few thousand and use it to exchange FX. It's pretty accessible.

I agree, most people are just not aware. I like the machines I've seen in airports and train stations that offer currency conversions. They have 'No Fees! No commission!' posted all over them -- ignoring the fact that the bid-ask spread they're charging is 15-20%. Again, criminal.

Sad but true. :( That said, people do pay for convenience, which I assume is the main function of those cash machines. If I end up in a foreign country that I haven't visited before, I'll likely withdraw some cash (not much) from one of those machines just to be safe.

You never know when your credit cards might stop working.. (I've had my main card blocked randomly while travelling and it frankly was a pain)

Just withdraw cash on a credit card from a regular ATM. Most "normal" credit cards charge on the order of 3% over spot on the FX, some cards further charge a flat fee, but this is still better than those markups.

It's even possible to get cards that doesn't charge a fee and gives you spot FX, even for cash withdrawal (Halifax Clarity in the UK is one). That leaves any fee the ATM might charge you, but if you can find one that doesn't, this is a supremely efficient way of getting cash abroad.

Credit card ATM withdrawal incurs punitive cash advance interest rates. I guess you can pay it off within the day though if you can calculate how much it is.

Charles Schwab checking/debit: no foreign transaction fee, uses the exchange rate, and refunds all ATM fees internationally.

Charles Schwab checking is only available to US residents though -- if you're in a foreign country, you're out of luck.

Which is why we're suggesting different cards that are available in different countries.

Is this relevant? http://news.forexlive.com/!/interactive-brokers-to-cut-off-u...

Might be. I'm actually not based in the US (but I did exchange FX recently).

Perhaps someone in the US using IB could check?

I don't think it's just lack of information. There are probably structural differences having to do with who is taking the fraud risk that account for the different rates.

With a brokerage account, how easy is it to get your foreign currency sent to a bank account in that country?

Often surprisingly hard. The other country is a big factor - Ireland is easier than Iran, the Netherlands is easier than North Korea.

Very easy. Check out Interactive Brokers (horrible interface, but great rates)

What stops banks from dropping those fees to compete with TransferWise? Are they serving a fundamentally different slice of the market?

Probably nothing, but the loss of customers probably doesn't make up for the fees they currently make.

Banks in Germany are competitive with TransferWise for fairly large amounts (several thousand euros). You can achieve sub 0.5% charges with DKB, including the exchange rate penalty, for example. The main problem is that the pricing structures are opaque. Often the exchange rate is not properly advertised (and may not apply depending on the time of the transfer) and there are additional charges to include.

Banks are starting to compete, and they have great advantages to put them right in the middle of the battlefield.. if they move fast enough. For them it would be FX trade volume play and they can forego the fees to the end customer

I wish someone would challenge other dinosaurs like PayPal. Say what you want about Amazon's monopoly but at least they have actual customer support.

Paypal also has support (call,email) used them for refunds and changes on account.

Having had a recent experience with that, their "support" is utterly incompetent. Made a donation to a charitable organization (same one I've made in a previous year), PayPal reversed it without giving any reason, I contacted their support trying to find out why, and several hours later they could tell me nothing more than what the website said: that it was rejected and no reason was given, and I should try using some other method to make the transaction. (They also referred me to an email address for another department, who had no phone number, and that email produced no answer for a week, after which they gave the same non-answer.)

I think maybe payers are the product here not customers.

I used to think the horror stories about PayPal were mostly from sellers, and that they at least went out of their way to do well by buyers. This "support" experience demonstrated otherwise; now I just think they have awful support across the board.

I haven't seen the refund one. Do you have it? All I could see is the ticket system where issues are closed by support rather than user.

Should be able to try for a refund on a payment until 6 months old.

I have zero experience in remittances, so I could be wrong but the whole model seems very capital intensive. It needed ~ 1 billion dollars worth of transactions to turn a profit. [1] [2]

Isn't that supposed to be a bad idea, specially for software based companies.

[1] Transferwise model: https://en.wikipedia.org/wiki/TransferWise#/media/File:Trans...

[2] The company started back in 2011. And select quotes from the article:

> A source close to TransferWise, which has been profitable since early 2017, tells me the new funding values the seven-year old company at $1.6 billion.

and,

> The company now serves over two million customers and offers 750 currency routes, seeing customers transfer more than £1 billion every month.

That's not what capital intensive means[1]. A company that has low margins as its business model necessarily needs to have a large body of transactions to get much revenue.

Six years to get profitable is not really a remarkable period for a VC-funded company.

1: It means requiring lots of capital to get set up, eg. because you need to aquire expensive assets to run your business. Buying your own hardware is more capital intensive that running cloud, even if the latter is possibly more expensive in the long run.

Yes. Sorry, incorrect choice of words.

So the question is if the margins are so low that they need a billion dollars to make a profit, what kind of scale do they need to be worth a billion dollars.

And it somehow it makes me question their business model as well. Sooner or later they will be tempted to raise fees and get more profitability.

It's easy to get distracted by the value of the transactions, but they're just the payload. Nobody is "buying" a product worth those billions in transactions, the same way someone bought $N worth of books for a bookseller to have $N revenue.

A shipping company is evaluated on its ability to move containers, and nobody cares (well, the insurer does) if the containers are filled with iPhones or cardboard, as long as the customer pays the shipping fee.

> So the question is if the margins are so low that they need a billion dollars to make a profit, what kind of scale do they need to be worth a billion dollars.

Well, if we're assuming P/E=20 then they need to be heading for 50 million dollars in profit. Let's guess their "gross margin" from their spread is 2%, so they're currently at top-line revenue of 2 million dollars (and the same in costs). So if their costs were completely flat they'd need to grow to be processing 25 billion dollars of transfers to justify the valuation; in practice growth won't be completely free of costs so we're talking about a bit more, maybe 50 billion dollars. Does that sound vaguely plausible?

> And it somehow it makes me question their business model as well. Sooner or later they will be tempted to raise fees and get more profitability.

I doubt it; there are a lot of competitors in the same space. At the moment TransferWise has the name recognition, but that won't let them raise costs a lot.

I would assume that they will be able to get significant revenue from building higher-value-added services on top of their infrastructure. The "Borderless account" is a potential step in that direction: https://transferwise.com/borderless

Plus they'll be able to increase the fees by x% little by little...judging competition

They don't need to sell a billion dollars, they need to move a billion dollars

And yes, they might increase their fees when they get bigger, still, if it's smaller than what the banks charge, it's a win

(However, since money movements are not balanced they still need to "move back" some of it so they can settle their accounts - but I guess they already have some bulk currency buyng/selling bank to do that)

Not sure about that. Perhaps if they're super convenient to use. But if I'm going to put in the time to set up a system to reduce fees on FX conversions, I want to be sure I'm getting (close to) the best rate possible.

If they start charging 1% tomorrow, up from 0.5%, I'm pretty sure I would reconsider if I were using them (and I have used them in the past, in the early days -- they're great).

But I started routing currency conversions through an account at my broker (Interactive Brokers), and I'm currently getting market rate + 0.2%. These 0.3%s add up fast if you're converting meaningful amounts of money and in comparison Transferwise seems expensive again. But of course it's still a long way from the 2.5-5% banks are charging.

It's not their capital.

It's clearly a service mostly depending on eastern (central) european migrants working in the UK.

I wonder if brexit doesn't fall through what will it do to their single leg business.

And even if brexit fails, these people will become less and less dependent of their home country. (moving close family to the uk, paying off mortgages)

So yeah, my point is these untapped areas can dry off quick. (I'm talking a decade maybe)

Or there are stupid investors who don't want to invest into this no-brainer goldmine. :)

I use transferwise for US => UK. It also seems to be the most widely recommended of the services in the expat community.

not just the UK, this is the same pain point for everyone when interacting between Euroland and the rest of Europe too.

Germany + France + Italy + Spain have _a lot_ of people sending money to non-euro countries.

EDIT: this could dry up quickly anyway though. My bank charges idiotic amounts to change and trasnfer money, I doubt there is any technical reason they must, they can get to TW level trivially, it seems, they just don't care enough.

I use them to move money to/from Europe, The US and Mexico. I used a competitor a year ago. My point is that their business seems to be far beyond a significant Brexit risk.

If they gain inroads in the US Mexican/Central American community, the UK-Eastern Europe segment will pale in significance.

It started as that but it has expanded since. There are lots of people using Transferwise all over the world now. People going to vacation or living in Japan, for example, can save money by using TW.

transferwise has great rates all over the world but not sure how dependent they are on UK market.

> Incumbents like Western Union have always been very expensive and borderline evil.

I'd be interested in more information on this; what kinds of things have they done?

https://www.wave.com/ is tackling the US/UK/CAN <-> East Africa (and apparently now Ghana?) corridor

For me, Transferwise is still very expensive. I use ICICI bank to send money to India and it goes straight to recipient bank account in less than 2 hours along with market rate (xe.com)

Doesn't ICICI quote at least 2 rupees higher than the market rate? I have only sent money from INR to $

It is still very cheaper than rest of the herd

It actually got most of the GBPEUR, not just for Poland.

It might have got most of GBPEUR retail, but the vast majority of that flow by volume is traded in placed like Interactive Brokers, or over the phone between guys who need to swap a few million here and there.

Fair enough, yeah. I only had retail in mind :)