TransferWise has disrupted international transactions in many ways. When you make a transfer through their system, instead of going through the “traditional” money route of brokers or physical or online banks and then to the recipient in another country, the money you send is instead redirected to someone who is receiving money in the opposite direction (from the country you are sending it to).
What this has allowed was to avoid currency conversion fees. While we may believe that a worldwide money transfer company manages transfers across borders, the disruption rests in the fact that all outbound and inbound transactions stay within the originating country.
The revenue of TransferWise is based on fixed transactions fees and a percentage of the transfer. The transaction fee is either 2£, 2€, 2$ or 0.5% of the amount transferred, whichever is highest.
The novelty and disruptive attributes of TransferWise is that it uses Peer-to-Peer, a way of networking that is increasingly viewed as relatively unsafe (as you route data through third party computers and servers) which might have hinder the adoption of the technology in the corporate sphere for applications such as Skype. Other prominent tech companies are substituting away from peer-to-peer, such as Spotify as operating servers internally yields more flexibility. However, the security concerns do not seem to be relevant in TransferWise’s model.
However, reports from specialised information channels actually shed light on some details that are unknown to the public. It is argued that matching all outbound transfers to inbound transfers is very difficult. Traditional banks have a matching rate that is close to 100% because they have been building, expanding and consolidating networks and points of sale worldwide. When a payment is not matched by a payment going the opposite way on TransferWise, it has to be completed using reserve liquidity from the bank or transactions on the traditional Forex (foreign exchange) markets.
Anon (n.d.) The growing pains of P2P FX /Euromoney magazine [online]. Available from: http://www.euromoney.com/article/3591063/the-growing-pains-of-p2p-fx.html (Accessed 23 October 2016).
Anon (n.d.) TransferWise explained – everything.explained.today [online]. Available from: http://everything.explained.today/transferwise/ (Accessed 23 October 2016).
