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High fees and bad customer experience were taken for granted in the remittance space for a long time, said Kristo Käärmann, CEO ofTransferwise, who experienced the frustrations of traditional money transfers firsthand while living in London and sending money to his home country of Estonia. A lot less money arrived than expected.
According to Käärmann, banks typically charge a $25 transfer fee in addition to 3-5% of the total transaction. His remittance company, on the other hand, generally charges 0.5-1% of the total transaction value. Käärmann spoke with Rebecca Blumenstein of the New York Times at CB Insights’Future of Fintech.
With limited competition, there was little incentive for banks to be innovative or transparent within the remittance space, says Käärmann, and consumers and businesses weren’t inclined to leave a bank due to high fees or poor customer experience either. But now, Käärmann says Transferwise, along with others, are making the remittance industry much more competitive. “We can move money from a bank in the UK to a bank in Italy in 40 seconds or less, at a fraction of the cost,” he said. “It costs them [banks] 7x what it costs us.”
But cost and speed are only part of the larger equation. Convenience is also critical, including adding new currencies based on consumer demand. Israel’s shekel is an example of a currency that was recently added by demand and has seen higher than expected transaction volume.
Transferwise, which is based on in London, has now expanded their physical presence to Australia, Japan, Singapore, and the US (nearing 800 global employees) in response to user demand. Käärmann noted what the European Union got right and how it helped facilitate the industry. By altering banking requirements, the EU enabled new market entrants, like Transferwise, to offer their remittance services throughout the Single Euro Payments Area (SEPA)
, which is a new format for cross-border Euro bank transfers. However, while this afforded the company a unique opportunity, it also gave rise to similar services.
As for crypto-currencies, such as bitcoin, Käärmann argues that they are being used more for storage and growth of wealth, rather than payment and transactions.
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