Business Model Canvas – Transferwise

Transferwise is a borderless, digital-only currency exchange platform with more than 6 million users. Founded in 2010, the company has pioneered the low-fee model, helping customers save ~90% on forex and remittance services compared to banks. Recently, they have announced a Borderless banking service, placing them closer to the ‘Challenger Bank’ category.

How does Transferwise make money?

Transferwise charges a commission whenever money is transferred through their platform, somewhere between 0.6-0.7% on average.

Transferwise Blog

You can compare fees in your own jurisdiction using Transferwise Compare tool; however, on average, Transferwise boasts that it will save you 8X the fees compared to banks.

The World Bank estimates that 7% of currency transfers, globally, are captured by fees. The total amount of fees charged by banks annually is estimated at $200bn. Thus there are both large opportunities to disrupt the middleman and profit handsomely.

Transferwise also has Business accounts and most recently has introduced its Borderless bank accounts. This helps increase the network of people that use its core service, while simultaneously building network effects that enable the company to continue to drop fees while maintaining profitability.

Community-Centric or Commercial-Partner Strategy?

Transferwise’s original pitch, brand, and strategy were built around the concept of being a ‘peer-to-peer’ service. While that statement would be considered partially true, the key for them in the early days was to build trust with consumers.

How Transferwise did this in the early days would be considered more community-centric, as they focused on finding ‘members’ who would become early adopters, and in turn invite their friends and colleagues in exchange for a referral bonus. Below is a data visualization of their membership in 2015, expressed as a series of nodes.

Transferwise Blog

It is estimated that up to 80% of Transferwise’s growth was achieved through word-of-mouth and referrals. This pattern has played out in a similar way with the Challenger Banks, and can generally be expressed as:

  • build a 10X better product with low fees
  • develop a loyal community, be adaptive to feedback
  • launch a referral program grow via word of mouth

This pattern has played out across the Fintech industry, especially among European Fintechs. The #FintechPlaybook works because trust is the critical component of a new financial services offering, not features. Early adopters serve as conduits of trust through their own networks and help any respective company create a critical mass until the network reaches scale, at which point the size and reach of the Fintech becomes attractive from a partnership perspective to others in the industry. Not all Fintechs follow this playbook, but many of the biggest and most popular services built a large and loyal community before they opened up commercial partnership opportunities.

Now they have partnerships with commercial banks (such as BCPE in France), with neo banks (Monzo in the UK), and offer integrations with platforms like Nero to help build their Business customer base, which is currently growing at a 100,000 new businesses per month. Furthermore, they have a partnership with Mastercard for their Borderless account to offer those users the ability to make payments directly in their day-to-day lives. It’s not a stretch to see how Transferwise’s strategy leads to a banking license in the not-too-distant future, targeting consumers and businesses who deal with cross-border transactions on a frequent basis and want a simple, no-fuss product that has low fees.

Fundraising and Valuation

Earlier this year, Transferwise sold $292mn worth of stock from their existing shareholders to investors at a valuation of $3.5bn.

The company is profitable, having posted an after-tax profit for the last 3 years. Revenue growth continues at an exponential rate, but the days of 2X annual growth appear to be over, meaning the company will likely start to look for ways to harvest the significant opportunities they have for new revenue streams. Among those is the more than £1bn in deposits they have in their Borderless account, a program they launched 2 years ago.

Business Insider

As one of the original founders of the company is still the CEO, they appear to be less focused on an IPO and more focused on growth and profitability, despite being one of the world’s most valuable Fintechs and offering a significant long-term growth path to investors, even at these valuations.

Transferwise Business Model Canvas

A business model is defined as:

“the rationale of how an organization creates, delivers and captures value.”

Alex Osterwalder et al invented the Business Model Canvas to help individuals and organizations conceptualize how to analyze, create, and develop business models.

Value Proposition

  • Low fee, digital-only forex service and Borderless bank
  • Saves consumers up to 90% on fees for wire transfers and currency exchange
  • Borderless and Business accounts enable payments, remittance and spending account for personal and business usage