[nilanp]

Amazing there hasn't been a mention of TransferWise in this thread

You get about 1.5% more money with them when you do a transfer.

Their low cost model is driven by using automated KYC checks and the kinds of fraud models you'd expect from a web startup

More here

https://transferwise.com/gb/compare/western-union-exchange-r... Disclosure - I'm an employee - but the hype in this case is warranted

[drited]

Are Transferwise profitable and earning at least their cost of capital?

While I hear your startup vs big guys point, I looked at the public companies in this industry before and was amazed at how much they do spent on compliance systems (much of which is for automated checks) and also of course on human checks/follow-ups.

Two things stood out: 1. How unprofitable the smaller of the public players in this space (e.g. Moneygram) were as a result of regulators pushing for ever-higher reductions in fraud, using threats of the kind of action that was taken against WU as a stick. WU spends $200m a year on compliance, and if remember correctly unprofitable Moneygram just completed an $80m IT system upgrade.

2. In addition to the large up-front fixed cost for systems, how much ongoing variable compliance cost these companies have to spend because fraudsters are notoriously good at figuring out how to beat automated KYC checks.

If Transferwise are just using automated checks and not the additional human reviews that WU uses (per the article 25% of their workforce are devoted to compliance) , aren't Transferwise just basically biding time until they get large enough to attract the attention of an attorney general due to the undiscovered fraudulent transactions going through the system? Then bam $586m fine like the one just handed to WU and you go out of business.

How can a startup that charges 25% of the revenue of the only profitable public player in the space hope to cover the variable compliance cost required to mitigate this risk?

I recognise that the argument often put forth is that the fintech startups match people on either side and hence take out the bid/ask spread on the exchange rate transaction, but doesn't this ignore that the largest money flows are uni-directional - i.e. remittance payments from immigrants in wealthy countries sending money back home? The matching breaks down if the money-flow is predominantly one-way.

Genuinely interested in the answers to the above - I passed on an investment in the industry because I couldn't get comfortable with the above.

[nilanp]

Hey - great questions

So the reality is that - "moving money" costs - almost nothing.

Think about it. The process of doing a bank to bank transfer (what transferwise does) - involves one bank in one country, crediting another banks account in the originating country, and then the money turns up in a "correspondent"or "nostro" account in another country. The matching bit helps - but the real magic - is that monopolisitic incumbents have been charging spreads for years - TransferWise is different as they aren't greedy.

You are right - that fraud and KYC checks - are significant in the industry - but lets step through what these are.

I can share that we actually have pretty sizeable complaince and fraud teams - larger than many established financial services companies - but unlike them Fraud and KYC is part of the product - not a sign off team. The team understand our global regulatory responsibilities, and try to understand how tomeet them; whilst trying to figure out how to reduce customer and friction andcostin the process. There's been a complete lack of innovation in this domain for decades due to the dynamics you've outlined.

Forexample with KYC:

From KYC perspective - you have to verify that a customer is who they say they are - and check they aren't on any AML blacklists etc.

Different jurisidictions - have different thresholds (limits) at which they ask for KYC checks in place.

With Western Union Digital (and with transferwise) - someone may take apicture of their passport, driving licence, scan and upload. This then needs to be verified.

For its first few years - like other players in the industry - validated every single one of these documents individually - but over time got to a point where they had built up enough data to be able to validate these documents in an automated fashion. Inevtiably given how strict regulation is in this industry - the onus is still not on letting the bad guys through

I can't comment in public on transferwise's profitability - but can say the business has been operating sustainably for over a year - i.e. not losing money on a transaction - and investing sensibly on marketing.

Marketing is relatively small spend for Unicorn B2c startup - with over 80%+ of new customers coming in through WoM

[MarkCole]

Hi there, enthusiastic and regular Transferwise user here.

I think the answer is that while Transferwise is a great product, Western Union serves a niche that Transferwise/PayPal/Web Startups aren't fulfilling. That is anyone even with low income can just go into a store and use it. No need for a bank account, a PC (even basic computer knowledge is not required which may hinder older people) or the internet.

[fastball]

I don't know about everywhere else in the world, but these days it's not too hard to get a free bank account in either the US/UK.

[anon1385]

>the kinds of fraud models you'd expect from a web startup

Code written in Javascript by a fresh college graduate with no domain knowledge that you pulled from GitHub?

When evaluating a financial service the last thing I ever want to hear is that it's run like a "web startup".

[nilanp]

I'd rather that - than run like Western Union. Lol

[lmm]

Do you still only allow transfers between different currencies? I tried to use Transferwise once but lost interest when I realised I couldn't send my friend the currency we were both using.

[davotoula]

Their unique selling point is in fact very good conversion rates between currencies.

However they don't support ALL currencies. Sometimes the support a currency one way only.

[lmm]

They advertised it as being "cheap international transfers" and I was excited but they don't allow EUR<->EUR which makes it basically useless for most of my cases.

[driverdan]

There's also Bitcoin, which costs significantly less than all these money transfer services, doesn't require disclosing tons of personal info to use, and is decentralized.

[tschlossmacher]

Interested in using the service, in most cases my bank takes about a month to send money from AT to CA, are transfers fast?

[davotoula]

Just a shame they started blocking transfers to (reputable and legit) bitcoin exchanges. Kraken being one.