Taavet Hinrikus, one of Skype’s first employees, recently launched a new company called Transferwise, which enables cheap peer to peer currency exchange.
Banks charge 3-6 percent more than the mid-market rates for currency exchange. Mid-market rates are halfway between the “buy” and “sell” rates from global currency markets. Transferwise cuts out the banks by matching your exchange with someone else’s.
Hinrikus is Estonian but lives in London. He says he often needed to transfer money home and was charged for currency exchange (GBP to EUR) as well as for the transfer itself. An informal market emerged where Estonians would exchange currencies between each other, and now Transferwise automates this process.
As a user, you transfer the money you want to exchange to Transferwise’s UK or Irish account. Your cash is matched with one or many other parties at the mid-market rate currently available on the currency markets. The cash is converted, for example, from British pounds to euros and transferred to the designated recipient. Transferwise charges 1 GBP for each transfer. No banks or brokers get a commission on the exchange process. For example, if I wanted to send 1000 EUR from Amsterdam to the UK, Transferwise would save me around 40 EUR at the current exchange rates.
Hinrikus calls Transferwise the “Easyjet of currency transfer” (EasyJet is one of the biggest low-cost airlines in Europe). Currently, you can only exchange British pounds to euros, and vice versa, but Hinrikus told me that additional currencies will be added soon. The American dollar is one of the most requested currencies.
Transferwise is based in London, has 5 employees and was founded in 2010. It is privately funded.