TransferWise Uses P2P Network To Cut Cross-Border Money Transfer Costs

London-based startup TransferWise is hoping to disrupt the business of international money transfers by actually transferring as little money as possible across borders, according to USA Today.

For customers using the company’s service, money transfers appear to be sent from one country to another. But in reality, TransferWise matches up a network of transfers so that money is rarely transferred internationally. In a simple example, money that one customer intends to send from the U.K. to Estonia is matched with another transfer from Estonia to the U.K.; in reality, the money would never leave either country. In practice, many more transfers might be involved to balance the payments.

Transactions are initiated by inputting bank or debit card information on the site or its mobile app. TransferWire charges a flat 0.5 percent transfer fee ($5 to send $1,000) and uses Reuters-published exchange rates, which it says are better than those banks use. The company says it has made $1.6 billion intransfers and saved customers $75 million in bank fees since it was launched in March 2010.

Since an estimated $5 trillion to $10 trillion is sent internationally each year by consumers and small to medium-size companies, that leaves plenty of room for growth — and TransferWise is growing at 20 percent a month, according to co-founder Taavet Hinrikus.

TransferWise’s challenges include countries with less-than-stable economies and currencies, as well as keeping liquidity high in each country, said Wayne Wong, a fintech analyst with Venture Scanner. And traditional bank transfers have some advantages. “Banks and companies such as Western Union have huge networks of physical branches that are helpful for people without Internet connections. So TransferWise might not be for everyone,” Wong said.