Full transcript: Taavet Hinrikus on London Real
0:20 Let’s do this. This is Silicon Real, the video podcast dedicated to the people of the London technology startup scene. I am Rose. I also host London Real, which is a similar format. We have guests like Tim Ferriss, the 4-Hour guy.
0:37 We’ve had Minister’s apartment, George Galloway, and we even had Max Keiser here from Russia today, and he was yelling a lot. Screaming. Yeah, he was screaming. He was really mad at Ben Banki and all these other people. He was really angry.
0:50 Yeah, not for children, that one. Oh no, wait, I censored that one in a big way. My co-host today is Mr Colin Pyle, who comes to us in London via Toronto, China, India. You’ve got epic motorcycle rides under your belt. You’re now an entrepreneur in London, living the life, working on it, working on it, and this was your idea and it’s your fault we’re here, which was to basically create a weekly talk where we meet really cool people from the London technology startup scene.
1:18 And this is episode 5, is that right? Y, and it’s going well so far, right? Had amazing guests. Yeah, yeah, I’m just loving these conversations more than anything. Fantastic.
1:27 Hopefully people are enjoying it. Yeah, no, definitely. And the people missing here today are the Beards, who are also a part of Silicon Real. They are Bryce Keane, Michael Hobson and Joe Scarboro, and you’re going to be seeing their faces rotate through here as well. They run the Silicon Drinks about every week, which is fun as hell if you want to meet people that like their jobs.
1:47 It’s a really weird group of people that are excited about their future, so definitely stop by and check that out. And there you go. Our guest today is Mr Taavet Hinrikus, who is the co-founder of TransferWise, which is a peer-to-peer international money transfer business, and according to their website we help people save a lot of money. I like it when it’s simple like that, you know. It was like Michael Collison, it was we make web transfers easier, right?
2:17 Silicon Real is, we have real conversations with people, right? It’s good. Yeah, nice and simple. So Taavet was Skype’s director of strategy until 2008. You have the infamous handle of being the first ever employee of Skype.
2:31 Very true. Impressive. So I started working with Niklas and Janus when they were first working on the idea for Skype and a few companies before that. So ended up becoming some the first employee on the team and had a hell of a lot of fun helping to build up that company from an idea on the back of a napkin to the first few hundred million users. So a lot of good experience disrupting an awesome industry, and now we’re doing this again with TransferWise in a different industry, but it’s very similarly looking to disrupt something which is an existing but very cumbersome and boring industry.
3:07 Fantastic. Let me just finish out TransferWise really quick. You’ve had funding from founders and co-founders of PayPal, of Betfair, of Wonga, and I think in May you announced a big investment round of $6 million from Peter Thiel’s Valar Ventures. Is that correct? Very true.
3:23 Awesome. And then you have all sorts of things like, you were guys, the Guardian called you one of the five startups to watch, and then East London’s 20 hottest tech startups. That doesn’t put any pressure on you, does it? I think more than that, you know, we’re actually driven by what our customers tell us. So, you know, I would recommend everyone to go and look at the reviews we get from our customers on a platform called Trustpilot, and greeting seed is actually what’s putting pressure on us, and what’s driving us.
3:51 You know, we’re seeing how people are screaming day in and day out, how using TransferWise has made a difference in our life, how something which used to be very complicated and very expensive has now turned out to be a very simple and transparent process, right? Which, as it should be. Well, welcome to Silicon Real. First of all. Welcome.
4:10 Thanks for hosting me. No problem. And you’re kind of among guys that have been in finance. I mean most directly, Colin, you sold your currency brokerage firm in 2008 to, was JP Morgan at the time? No, we sold it to just a publicly traded transfer agency in Canada, but yeah, I know the FX, you know, the FX world.
4:27 Well, I worked in finance for a long time, mostly fixed income, but I know FX, and there’s nothing that winds me up more than getting ripped off on foreign exchange transactions as a customer. There’s nothing that infuriates me more, that when I go to see Thomas Cook or these places in the airport, knowing that I’m getting jacked by bid-offer spreads. I can drive a truck through, and the transactions on top of that. And since I’ve been in the markets, I understand what a bid-offer is, and I tell people, I’m like, look at these exchange rates, they’re like eight big figures away, where you buy and sell, and there’s transaction fees, and then on top of that, if you use an ATM in a foreign country I mean, I could get going and going and going.
5:03 So I’m with you on the business model, but I was wondering if you could tell the people that don’t know about TransferWise and the whole concept of a peer-to-peer foreign exchange setup which you’re building. I’m actually really hoping to learn from you guys. I mean, you’ve been in finance for much more than I’ve been. So I’m really hoping to write down at least three tips on how we can improve the business. I mean, definitely good.
5:24 Well, I tried it last. I’d be disappointed if I didn’t get some tips from you guys, definitely. But going to story of trans. I mean, it’s actually very, it’s very simple. So I was I was born in Soviet Union.
5:35 I grew up in Estonia, and that’s where I met Niklas and Janus, and started working, working on Skype with them, and during that journey at one point I moved from Estonia to London. However, I still stayed on the payroll in Estonia, so which meant, very simply, that every month I was getting my salary paid in Estonia in euros, but every month I was having all my spending in pounds in the UK, so every month I went to the bank, and went to the bank, transferring ,000 to London, and I was expecting to receive 750 or so, you know. Every month I look at my bank account in London and I see that I only got 700 or so, you know.
6:13 A big chunk of it got missing. It’s kind of like someone’s greasy hands were were there, and you know, just taking whatever stuck to it. For me, yeah, wasn’t a great feeling. No, at that point I met Christo, who is now my co-founder in TransferWise, and he’s another nice Estonian fellow he had moved to London. He was working for deoe, doing some consulting here, and he was getting paid in London but he had a mortgage to pay back in Estonia, so every month he walked to a bank here, you know.
6:43 He actually had to go to a physical bank branch office, because you couldn’t make foreign transfers online. So every month he walked to a bank branch office, who is a pile of cash, and he was making a transfer to Estonia, similar to me, he realized that the bank is screwing him. The bank is taking way too long time to process it, and you know, he has to go to the bank branch every month. So we met, and you know, we were both kind of scratching our heads. Said, hey guys, you know, there’s going to be something we can do about it.
7:10 It’s not really, it’s not a modern way of doing it, and we realize that we have a problem where we can actually help each other So next month we set out to do things in a different way. So what happened is I made a transfer from my account in Estonia to Christo’s account in Estonia. So that’s a local transfer, so it’s essentially free of charge or very inexpensive, and then he made a transfer from his account in London to my account in London, and then we just looked at c bank exchange rate, and you set, boom, it worked, and you know, instead of £700 I got £750, right?
7:43 I know, a big difference. And so we started doing it this way. We even had a couple friends join us. So we had a little Skype chat, and we can call it the virtual trading floor, you know. Somebody said, hey I need 2,000, and somebody said I need 3,000, and these trades were matched in, and, you know, we were doing it, and very soon we have saved thousands of pounds in bank fees, and thousands of pounds, you know, that’s equal to a few nice weekend trips anywhere, or, you know, it can take a month-long vacation.
8:10 You know, it’s a very noticeable amount of money. So kind of on the back of this experience we figured that there are many other people who have the very same problem, and then we thought, okay, let’s set up TransferWise. We went about it in a very kind of very lean way at first. So we built a site, we got the license, and we launched it and as we launched it, you know, we had an article about us and TechCrunch, and 15 minutes later, first guy sent us £2,000.
8:43 That was a moment of [expletive]. What are we going to do now? Wasn’t really thinking it’s going to work so quickly, and that was kind of two years ago, and now we’re sitting here We’ve transferred some $200 million of our customers’ money so far. So we helped them save more than 10 million dollars in bank fees, and we’re growing, growing fast. You know, we started out with only doing pounds and euros.
9:07 Now we’re doing about 10 currencies. We add another 10 currencies this year, and lots more, lots more development happening in every area of the business. So, super exciting. And you know, above all, what’s driving us is really getting some feedback from our customers. You know, seeing how these people are coming to us and thanking us, because it’s something they’ve been, it’s a problem they’ve been facing for years, and now we’ve come up with a way to do it very transparently, very easily, and they’re just loving it.
9:35 Just real quickly, just to run up the business model, and I know you’ve got a question. Do you have to go through banking regulators, whether there’s money laundering issues or any of that stuff? Because I know you’re kind of a peer-to-peer network where you’re like, look, I’m just transferring money to this guy on an agreement, or do you have to go through all that financial regulations and jumps, do we do? And I think it’s actually a good thing. you know, because we’re dealing with people’s money, so trust is incredibly important, and therefore it’s good we regulated, you know, we’re following the same rules and regulations as any commercial bank does in the European Union, so we’re doing the same checks for anti-money laundering, no customer, you know.
10:13 I think it’s all, it’s required, and it makes sure that there won’t be a company starting in a random street where people will just take your money and disappear. So I think if you deal with people’s money, a certain amount of oversight is required, and it’s good. Yeah, the regulatory question was right, because actually when I was running my FX business, we got to a certain size, and all of a sudden it’s just like, hey, we’re going to throw a compliance officer in, and it just drove me crazy.
10:44 But yeah, so you guys are completely regulated and dealing with that kind of oversight from the UK government, or from, you know, because you deal in multiple territories? So Europe is a wonderful place because in Europe’s regulation is largely unified. So we’re licensed by the FCA in the UK and supervised by HMRC as well, so we do all of that here, and this gives us a license to operate all over Europe. So as we expand to new countries, which we’re busy doing, then we have to establish what’s a local regulatory environment.
11:18 We have to apply for the right licenses and follow those rules. So, you know, it’s a necessary and larger part of the business, and ideally I’d like it to, but it’s the way we have to do things, and making sure that we comply with everything is critical for the business. You know, one of our standard questions we ask after the they kind of describe their business model, is why will you win in this space, and if you could answer that why, you guys? Is it the timing you guys did, is it because you listen to your customers?
11:50 I think it’s very simple. and, you know, we’re up against the banks, and if you think about how the big banks are doing the business, it is just simply outdated. I mean, if you think about the experience you get from a bank, things are slow, things are expensive, it’s just not what you’re expecting. So let’s go, let’s go a few steps back, and let’s think about what’s happened in the world at large. I mean, over the past 10-20 years, a number of different industries have gone through a complete revolution.
12:19 Publishing has changed. Aviation has changed, thanks to easyJet thanks to Ryanair, we can all fly for much cheaper. There’s much bigger choice, much more transparency. Same thing happened in telecommunication 10 years ago with Skype. You know, now we’re all expecting that we can make high-definition video calls for free across the world.
12:37 So now we’re getting to the last dinosaur in the town, which is financial services. Consumers have come to expect much faster services, much more transparency, much lower prices across all industries and now banking is there standing up, and no, we’re not getting it. You know, we’re not changing. So I think there is a very large amount of change coming in financial services. We can see this happening right now with all the peer-to-peer lending.
13:03 We can see it happening with likes of Stripe. You know, every part of financial services is being changed and it’s being changed not by the banks. It’s being changed by startups like TransferWise, like Stripe, like others, like Funding Circle in the UK. And I think there’s a very big structural difference. You know, we’re operating as modern online companies without having some balance sheet which has lots of brick and mortar.
13:28 So, you know, we’re doing, we’re setting things up in a modern way in our IT system. We’re not relying on mainframes from the 60s, so I think there are a lot of structural differences which make it possible for us to win, and you know, if we’re going specifically into what we’re doing in money transfer, the other big difference we have is peer-to-peer liquidity, so the fact that we’re utilizing our customers’ money to make the service available for other customers is a big difference. Every bank you go to, they will wire physical money from one country to, so they’re using old networks for it, they’re using SWIFT for it so these things are just much slower, much more expensive.
14:05 So there’s a very big structural difference which enables us to provide a service for a much different price and much quicker than compared to traditional banks. You know, one of the things that struck me about their business model is that they look at mid rates, you know, in FX. And 10 years ago nobody knew where the mid rates were unless you worked at a bank that was part of their power, was the power of information. It works on corporate bonds. It works on derivatives, and so now, I mean, you couldn’t have done this 10 years ago, could you?
14:35 Because would there have been that kind of publicly available information for foreign exchange rates? Yes, we could. I mean, I think 10 years ago, you know, there was number of large exchanges where we could have gotten this information. Okay. I mean, even now, if we talk about the mid-market rate, I mean, the whole topic of exchange rate is something which still continues to puzzle me in a sense that, you know, if you look at the way they want it.
14:59 There are lots of different exchanges. Yeah, I mean, you know, banks are on purpose hiding this. You know, this is the next big scandal to hit the bank. You know, we look at, we look at FT, for example. You know, we see it reports an exchange rate that’s a mid-market rate for yesterday.
15:15 Now I go to my bank today and I ask him, hey, I want to exchange ,000. They tell me, here’s the rate and I tell them, hey guys, but you know, the rate is different. But no, no, no, that’s a rate today. I mean, that’s a rate you’re getting. Good.
15:27 And then tell them about what if I exchange a million pounds, right? It’s a different rate. So, you know, but this way the banks are charging 300 basis points. It’s complete, it’s robbery in broad daylight. And you know, we, so the way we look at it, and the research we’ve done, on average you lose about 5% if you make ,000 transfer from London to Paris, and it’s going to take you 3 to 5 days to get there.
15:55 That’s complete, it’s ridiculous. It’s utterly ridiculous. You know, in 2013, taking 5% and 3-4 days. It’s BS. You know, we recently demonstrated getting money from a debit card in the UK to a bank account in Europe in 5 minutes and for a very low cost of 1 pound, and making exchange at some mid-market rate.
16:17 So I think there’s just no reason why consumers should not love this. Okay, we got some hard, and, you know, and I think we’ll probably see over the next year, over the next three, five, 10 years, that you know, banks will also probably have to, you know, they have to stop charging 300 basis points. I think consumers will be, will become smarter, and they go asking for mid-market rate. So I think, you know, this kind of embezzlement will end over time. Yeah, you might be right, but you know, we’re driving it.
16:49 These banks have also owned these markets for hundreds of years, but I’m going to ask you a couple of hard questions. You have a hard question coming up, right? I’ve got one now. People come to you and they want to say exchange 1,000 or ,000 EUR, and you have this peer kind of exchange there, of some guy that wants to buy euros at this level, by euros at this level, but I think I heard you on an interview saying if the amount is larger than that, then you guys kind of need to go to a foreign exchange market yourself, and so at that point you kind of turn into a bank, do you not, or turn into a trading firm that is kind of relying on other exchanges, and is that, doesn’t that limit you?
17:25 So let me ask a question. What finds a bank? Okay, or another market player that has to quote exchange? So you know what what I think matters to us is making sure our customers get to send money from A to B in a very quick way, very easy to use, for a very low cost. What if there’s no peer on the other side that wants to do it for the same price?
17:47 Then you know, we face a very hard question do we tell our customer sorry, can send money today, or do we decide that whatever it makes, whatever it takes, will make it possible to send money. So we decided that in case there is no, there’s no counterparty at the moment we’ll bite the bullet. We’re going to go on the market. We’ll buy that money even if we, even if we lose money, because for us it’s more important to make sure our customers are happy. It’s more important to make sure the money gets from A to B as our customers want it.
18:17 So you make markets in foreign exchange? Yeah, I mean, I guess you can, you can call it that way. Okay, will you call up other players, or will you go to exchanges if you have to, the other side of that transaction? We’re, we’re, we’re set up and connected to a number of different exchanges. You know, sure, I mean, maybe at one, you know, one point, if we succeed, we’ll become possibly large exchange ourselves, but that’s not, you know, we’re driven by helping consumers and small to medium businesses do this.
18:45 So, you know, we’ll do whatever we have to, to make it work, and you know, as scales get bigger maybe we have to. Maybe we have to become an exchange, and hey, you know, if that’s needed, then we’ll do that. Would you turn someone down if you said, look, this is going to cost you 3%? It’s not worth it either wait or go somewhere else because we can’t provide you that service today. Would you ever do that?
19:07 Been a case No. We haven’t. We haven’t. No, actually, sorry, I’m lying. I think it was about a month after we launched when we had a customer make.
19:15 So we had, we had a limit of 2,000 maximum, and we had a customer make 15 trades of 2,000 in a row, and he actually sent us some money. The next moment sounds like a bank on the other side. Like, we’ll test these guys out, and I think, we had to, we had to send the money back to the customer, but that’s the only time we’ve done it. So now we’ve, we’ve, we’ve been continuously expanding the set of currencies. We’ve been, we’ve been expanding the limits, so now we’re doing trades up to a million pounds, and I don’t see why we would refuse anything.
19:48 You know, we’re set up right now, we’re plugged into the exchanges. If we need, we have our own liquidity. We are well, well funded, so that’s what we do. You know, back then, one month after launch, it was a little bit different. Do you ever worry about market players coming into your market that aren’t peers, that aren’t individuals, that are businesses, or JP Morgan down the street, and you know, trying to crush your foreign exchange markets?
20:12 I don’t see how I would crush it, but I would, I would see this as a, as a sign of, with one, if they come. Okay, so you don’t see much funny business going on where big sizes are coming in. Okay, no, I’m sure you know what I mean. Yeah, cuz most traders would love to try to exploit anything they could. Is kind of, yeah, the one thing, see, you guys don’t really take risk because you don’t actually give the client the rate until you have their funds, right?
20:37 So that’s where, like, a guy on a trading floor, to be tricky, would just try to call you up and be like, hey, I want to buy half a million, and then you know, maybe not deliver on the trade and screw you guys, but because you wouldn’t actually get the rate until you receive the half a million, that the risk is really there. There is no risk for you guys. Yeah, I mean, you will. Yeah, we’ve very carefully built our model so that we don’t, we’re not exposed to unnecessary risks.
21:02 Yeah, so if you want to get a rate right away, then you can use a debit card, and we guarantee your rate right away. And you’re thinking forward, there’s a suite of services that we can offer, where you know you can, you can reserve a rate, and if thinking about what businesses need, within, you know, kind of spot trades and forward trades, and so on So there’s much more, much more we can do, and we may decide to do this thing in the future, but right now we figure that, you know, it’s simplicity which wins. You know, getting your money from A to B for a very low cost, very quickly, in a super easy-to-use way.
21:35 That’s kind of, that’s our bread and butter, and that’s where we figured that none of the other things are needed, like, you know, doing forwards or, you know, any of, any of the, any of the funky stuff is not what our customers want, and the little guys, the one that’s getting crushed right now. If you’re a big business player doing forwards with decent size, you can really wind your bank trading floor down to give you pretty decent rates, but the guy doing 1,000 lb, he’s the one that’s getting hit hard. Totally right.
22:04 And that’s where you guys really, and our customers, you know, there are, there are people like People Like us. You’re from Canada, I’m from Estonia, the States, America from States, I, you know, we’re all, we’re all immigrants here. Yeah, you know, thanks, thanks to the UK for taking us, but, you know, it’s people like us who are using us. It’s people who have real estate abroad. Lots of Brits who got real estate in Spain, you know, lots of British pensioners who retired to SP, South of Spain, House of France.
22:30 It’s students. It’s these kind of people who use us you know, funny enough, we have lots of people using us who work for a bank. Yeah, sure, they do have banks kind of gotten overtly in your face, or have banks come to you and said stop this, or do you think are they just waging their own silent war against you? And also, second, do you think you’ll ever be acquired by a bank? So, I think banks, you know, it’s, it’s, it’s kind of very similar to, to what happened when we’re getting Skype going.
22:59 You know, we’re thinking, what is telcos going to do? You know, what will telcos do? Will they crush us? Will they block us? Will they kill us?
23:06 We say, buy us and shut us down, you know, all kind of stupid SS we had, and the reality is telcos have done nothing. They have done check sh, you know, now we’re Skype will turn 10 this month, and Skype now competes with all the telcos in the world. It also partners with many of them, but Skype owns 30% of long-distance calling minutes. Telcos, what have the telcos done? They’ve lost most of their market, you know, prices have, prices have come down, market share has been lost from telcos.
23:37 So not much they could have done, and the exact same thing will play out for us. Since in the money transfer market I don’t see it playing out in any different way. The banks are earning way too much money from this right now, so we will not be dropping our prices until the very last moment. So, you know, we’ll just slowly keep on growing. We’ll creep.
24:00 We’ll keep on earning our market share, and then, you know, one point, well, you know, few, five years from now, we’ll be competitive with all the banks. And you know, we’ve achieved certain market share. The banks have gotten their act together, and then you know, it’s going to be happy competition. That is exactly what will happen. I worked in banking for over 10 years, and they will.
24:19 You are not on the radar. If you are, they just don’t look at you, and they’re going to concentrate on what they’re still doing best. Maybe innovator’s dilemma, and not until the very end will they say, oh yeah, I mean sa dilemma has been researched so much by now. The sad, the sad thing is, sad thing is there’s actually no good solution. You know, so, you know, the smart, smart one, and, you know, let’s be honest, the bank, you know, there are lots of smart people at banks.
24:44 Smart guys will realize that a structural change is happening in the market. Best thing for them to do is keep on earning money today, because no bank today will benefit from dropping our prices. You know, they’re not going to get more customers. If you’re HSBC today, today that’s not going to make a difference for you. So best thing for you to do is know that the market will change over the coming years.
25:05 Think about what are you going to do once it happens, but until that, keep on milking. Yeah, keep squeezing away, but at the same time they, they lose a customer like me, right? Cuz, so I used you guys last week. Yeah, but then what are you, you’re, you’re one out of Braan. Exactly.
25:19 Well, that’s the thing. They just don’t care about the average user, and they, at the end of the day, they still make money off of me. Going to you, it’s not like they lose completely, right? They, cuz I’m making a transaction that I would have not made. I’m making a transfer to you that I otherwise would never have made.
25:35 So they’re, they’re not earning zero. They’re just earning maybe a bit less than they would have otherwise, and I think, you know, also besides us, this is, this is a golden opportunity for a lot of companies to build up competing financial services. Now I totally believe that banks will get wacked together in three, five, 10 years’ time, but until that it’s a golden opportunity for lots of fintech innovation. Yeah, a lot of large companies will be built, and then you know, the market will change, everybody will adjust, but it takes a lot of time if you’re HSBC to do adjust.
26:09 Yeah, definitely. How was your TransferWise experience? Yeah, fantastic. What did you do specifically? I moved money from Canada to the UK.
26:16 Um, at first it wasn’t an option, and I emailed you guys, and it was like, you know, why can’t why isn’t Canada showing up? And they’re like, because in Canada to transfer over, use the SWIFT network, and it’s actually quite expensive to send a wire transfer from Canada to Estonia. Um, but your customer service got back to me right away. They opened it up. I made the, I made the transfer.
26:37 Um, the one thing is fees, right? When you’re, you’re making it, it’s HSBC Canada. If I just transferred it from HSBC Canada to HSBC UK, I would pay no transfer fees, but they rape me on the FX, so I went through you guys, and they raped me on the wire transfer fees, but I got a good FX rape. So it’s kind of like, there need, at some point I’d rather just say hey, why don’t I just have a bank account with you guys, and I can transfer internally and get good rates all around, right?
27:09 And that’s what eliminates that problem. Yeah, I mean, you know, we’re not open for customers in Canada, right? In a, in a way we would like it to be. You know, we’d like to be open in Canada so that you can use a local transfer in Canada, or pay with a Canadian debit card, as something we’re still working on. So until that, we have this workaround, so you can transfer money from your account in Canada to our account in Europe, which is an expensive, complicated SWIFT, SWIFT foreign transfer, which will most likely cost you between 20 and 30 Canadian dollars.
27:44 Yeah, but you know, if you’re transferring a larger amount of money, you can still make meaningful savings on the exchange rates that you get from TransferWise. I still, I still wound up ahead. Okay. So PayPal, what do you think PayPal is doing right, and what are they doing wrong right now? Oo, it’s a tough one.
28:01 It’s tough, because some of their people are your investors. Asking a loaded question. Or I just noticed recently I can hold the Sterling balances and dollar balances on my PayPal. I had a big transfer recently. They made me switch it to a corporate account.
28:14 You know, they’re not the easiest people to deal with. So I think PayPal has, um, and their FX rates, you seen. Have you ever done it through PayPal? No, huge, shocking. So PayPal, I think they’ve forgotten who their customer, Ries, they’ve forgotten what got them going.
28:30 You know, PayPal got going by helping people transfer small amounts of money from one to another. And now if you look at the user experience in PayPal, it’s pretty damn horrible. If you, if you look around at a customer support experience, I haven’t heard a single positive thing about it, but I’ve heard about 200 negative comments about this. You know, they’re fighting 10 different battles. So to be honest, I’m kind of confused what the hell they’re trying to do, because as a user, they’re not doing anything to make the service better for me.
29:01 You know, they’re giving me different fees. So on, you know, if, if I look at foreign exchange, PayPal charges between, depending on the country and currency, between 3 to 4% for making a currency exchange. Yeah, they’re the new bank in town, is what they are. Totally. They started off as, you know, like you said, the kind of the internet, you know, different kind of business model, but now they’ve turned into this horrible customer service, ridiculous rates.
29:25 New bank, right? That’s the way it feels, as the online bank. Yeah, I mean, which seems like, I’m sure they’re making a lot of money, but um, I don’t know how sustainable that is. I mean, don’t get me wrong, I have a great business, and you know, as every very large business, it’s you know, you get a set of very new challenges, and you know, things are, are complicated. I just, you know, what I’m confused about is what the battles are in, there’re also in a lot of merchant services, so on, so just don’t know what the battles are in.
29:54 You know, my feeling is that the business of helping people money is not what they’re so focused on anymore. So okay, I could be wrong. You know, I just try to, I’m going to move us right along. Here, Taavet, you’ve been in Skype before, and now you’re in TransferWise. You’ve seen a lot of different business models, and this is something we like to ask people here on the show, is that if you had to sign an NDA and be completely out of the TransferWise business for the next two years, and we gave you, say, 10 20 million pounds of startup capital, what would you go do, or what, what industry really excites you right now, assuming you had to stay in London too?
30:25 So I really think London is a great place for fintech. Now I think fintech could be what defines London on the world startup and technology map. You know, we’re seeing, we’re seeing TransferWise, we’re seeing Funding Circle, we’re seeing Wonga. You know, even Betfair, you know, there’s a lot, lot of success stories already in London for fintech, and many more coming. So I think London, as, um, as a fintech capital, you know, it’s really starting to sound well.
30:56 So I think fintech in London is an incredibly hot area, and I think the other, you know, very exciting ones are education and health, where we’re going to see so much change happening and, you know, maybe as an, you know, as an outsider, it’ll be good to go into education or into health. I think, you know, it’s going to be a lot of, lot of change happening, which will affect many people’s lives, a lot of great companies built. So you talk about fintech as an opportunity.
31:24 So you’re TransferWise, you’re tackling the banks on FX rate. What other opportunities in fintech do you think are sort of prime for real opportunity? Think about anything you do with your bank today, debit and credit cards, loans, mortgage, money transfer, information services. Anything the bank is offering is already being disrupted by a number of different companies who are not banks. So these are all humongous opportunities.
31:57 Pretty much everything the banks do, they’re doing wrong. You know, there’s an opportunity in building a new online bank, which many people are doing, and you know, but that’s inherently going to be a local game, but that huge opportunity, you know, the guys who are building Bank Simple in the US doing a great job at this. There is opportunities building some specialized vertical solution, like, like TransferWise you know, we want to make sure that people around the world can send money anywhere they need to.
32:25 So you know, it’s a, it’s a, it’s a vertical, but we can do this on a global basis. So many different ways of building building large businesses. So how old are you, Taavet? 32. 32.
32:40 All right. So if you could make a phone call and speak to the 20-year-old Taavet, I guess, back in Estonia and give him a bit of advice, uh, what would it be? I stock and Skype, it’s about the same. I know, it’s always, it’s always easy to say that everything you done has been, you know, has been as right, and actually I’m pretty happy with, with, with where I am, what I’ve done. You know, lots of experience in various ways.
33:14 So you want him to study more, or to take more time, or to take more risk? I dropped out from University, which was a pretty good experience. I think I did go. I did go and get an MBA from business school later, which was also good fun, but I think one year was totally enough for that. Any, you know, I think you know the question is combining, combining various different things you know, enough experience, working, you know, education, travel.
33:45 I think, you know, having a wide set of experiences is what helps people be successful. You know, hanging out with different people in your life, you making sure you don’t get stuck doing one thing too early. And what’s the best piece of advice you’ve ever received? Probably forgotten that one, fair enough. And if there’s a 20-year-old listening right now who wants to, you know, be like you one day, or wants to be part of this whole tech startup scene, whether it be Skype or money or fintech, what, what should you tell them to do?
34:20 You know, what one piece of advice, whether they should look to do this or do that, learn to C with no, but I think really it’s about, it’s about being persistent. You know, I, you know, if we look at kind of the world of entrepreneurships, the world of a world of startups, I think people are people are getting fixated on success stories. You know, people get fixated on Skype, people get fixated on on Facebook. The reality is that you know, even these businesses have gone through, have gone through hard times, and these businesses are one out of a million.
34:53 You know, most successful businesses get built over a period of five or 10 years, so it’s, it’s all about being persistent, having, having a goal in mind, and, and getting yourself ready for, for marathon. You know, you can’t start too, too slow, because then you’re never going to make it, and you can’t be too fast, because then you’re going to fall down dead after the, after the first 10K. So I think, you know, it’s about being persistent, having a goal in mind, and then just slowly but surely building, building your way towards it.
35:24 Good advice, really good advice. You know, I saw that you got some funding recently, and I’m guessing you guys had the choice or some choices when it came to VC funding, and I’m wondering how do you choose the right VC? VC is invest in people, so you want to make sure you have a match on a personal level. You know, you want to make sure that the guys who invest, who invest in you are the people who you’re happy being in bad way for the next 10 years. It really, it really, it really comes down to finding people who will complement you, who will help you build a large business.
36:06 Yeah, I mean, obviously we’re, you know, from the very beginning we were looking at investors as kind of extension of the team. You know, we’re looking at how do we get some of the smartest guys around the table to help us build this business out. There would have been lots of ways to take, to take D money, and maybe take more money and better TR, but we figured that, and we’re really looking at making sure we’re building the best team around us, so that’s why we got you know, we got the Index involved, great VC in London.
36:35 We got I Ventures with leading Sur from New York, great fintech experience. We got uh, lots of people in, you know, we got Saul and Robin Klein involved in London as well. we have, um, David U from Betfair. So, you know, we made sure that we have people around us who know how to help us in various ways. We had Max Levchin invest in our seed round, founder of PayPal.
36:59 You know, he knows a thing or two about building online fintech businesses, so we were looking at what are the gaps and making sure that we fill, we fill each of these with one or two people who can help us. Great position to be in. Yeah, how do you all agree on evaluation when you have all those people involved? Is it, is it a number that moves around a lot, or, or not when you’re getting those kind of investments? Kind of, yes and no.
37:27 I, I’d say, you know, it hasn’t ever been too, too much of a discussion or, or roadblock for us. You, in some ways, if you’re at a very early stage, it thinks there’s a, a certain amount of kind of just like generic market market average out there, and there’s a lot of kind of VC economics, which as an entrepreneur you have to understand to to, to know how things work and to know what outcomes other people are looking at. You know, how, how the mass works, and then you know, there also a question of figuring out what do you want, and you know, what, where do you think, what do you think is right?
38:06 You know, having some market information, and then I think these decisions are you know, it’s not going to be roadblocks. And one, one question we always, always seem to ask here is, is, is is people, when you look to hire someone or maybe even invest in someone, what’s that one quality that you really need to see in them that makes you want to kind of do that deal? So I’ve done a bunch of angel investing, and you know, I, I actually look at it always as investing in people, so businesses will change.
38:36 The question really comes down to, what are these, are these the right people who are willing to stick to it for the next five or 10 years to make that business a success? Do they have that in them? And when I look at hiring people, it’s actually three pretty simple questions that I ask, which is, first, are they smart, and are they the smartest guy for the job? Second, do they get things done? And third, can we work with them?
39:06 You know, often times you have super smart people who get things done, but, you know, something gets in their way, whether it’s their ego or, or something else, which just means that in this company you, you’re not going to be able to work with them in the role you’d like it to be. And it happens unfortunately quite often. But then, you know, if, if you get a match of these three things, then it’s really about giving them the tool to succeed, and just watching on the sideline and helping some out.
39:32 Good. I got a question for you. Um, Bitcoin, does it scare you or excite you? It excites me. Okay, are you worried that, you know, if there’s this one currency globally, then TransferWise is in trouble, or it’s so far down the road?
39:48 I think Bitcoin is a great opportunity, right, for us and for many other people. You know, um, I, I would draw another parallel from, from, from the Skype experience. Skype is a business which is today earning more than a billion dollars in revenue, and, uh, most of it is coming from enabling people to call regular phones. So if Skype is ultimately successful, there won’t be regular phones to call, but the reality is that’s going to take a long time. It’s going to take another 10, 20 years.
40:22 In, in 10 years’ time, Microsoft might not be around, so who knows what’s going to happen? Skype, uh, so in, in the same sense, Bitcoin will never take over the world. Sure, I agree. So it’s a huge opportunity for us and for many other people. Are you accepting transactions in Bitcoins or other ratio around?
40:41 We don’t, uh, we don’t, because for a very simple reason, the, the regulatory frameworks around Bitcoin are, are too unclear, so we’re just not feeling comfortable around anonymity, know your customer, or all these things when it comes to Bitcoin. You know, as soon as these things get settled in a ways that regulators around the world agree, we would love, we would love to work with Bitcoin businesses. Until that, unfortunately, you know, we feel that we can’t, uh, fulfill the obligations that have been put on us, because the bit, the bid and ask spread on Bitcoin is huge.
41:18 Yeah, I know that’s, uh, I mean, I know the Bitcoin exchanges are they’re churning out good money right now. Great, great little business. I went to an exchange and there was no bid, there was just offers, you know, so there wasn’t, I couldn’t even see how wide the market was. Take that. Yeah, you want some.
41:34 Here’s where it is really old school. So, um, you want some, you pay the price, or you walk. Yeah, I, I lifted the offer and got a couple Bitcoins, so that was, uh, that was my conclusion. Um, what did I miss? Uh, those are some really good answers, very succinct answers.
41:48 What did I miss? Yeah, no, I think you know I think it’s great. I think great business, I guess. Yeah, you know, will banks wake up? Um, and I think banks still control the cash, right?
42:01 At the end of the day, every user through TransferWise has a bank account somewhere. Um, and so either they jack their fees and, and they try to sort of hit people that way, or they just start to wake up. Um, so I think you know, that’s, that’s again where, um, where I hope the regulation will help us, that, you know, banks, I would be very anti-competitive behavior, and luckily most banks the world, open governments now, so I’m, I’m hoping that, uh, Number 10 and, and White House and other places who own these banks will will tell them that guys, that’s not a good idea to, to stop little guys helping customers and, and building their businesses.
42:43 So you think it, sure, you know, surely, surely there’s a risk around that, but I don’t think that’s going to be, that’s going to stop the business. You know, yeah, there’s going to be a country where there’s, there’s a local king who owns the banks and still make sure nobody can use TransferWise, but, you know, it’s going to be a few countries out of 200. So yeah, will your exit potentially be with a bank, or was that the last thing on your mind? An exit is the last thing on our mind.
43:11 You know, we’re, we’re building uh a global sustainable business, and, and we’re not really thinking about thinking about exit. So I mean, honestly, can’t tell you no. I mean, all, some of the, don’t have any idea. The great companies don’t have exits in mind. You look at Steve Jobs or Zuckerberg, like they want to build this for their career.
43:26 Why would they retire early, right? They want to build things. So no, that’s awesome. You bring a really good perspective. I think you, having your Skype experience, makes you see a lot of things you’ve seen before, as far as patterns, and it’s interesting that you say that.
43:39 However successful Skype is, you know, you still have to deal with phones, uh, you know, landlines or mobile phones, and like you said, you still have to deal with banks in some capacity. So it’s nice to know that you’re thinking about that stuff, and not thinking we’re going to change everything. And also you talk about like 10-year periods. You know, I think a lot of, of people, maybe people that don’t know enough about the tech startup businesses, they think I’m going to be in for two years and 3 years, but we talk to more people that sit in that chair, and they’re like, 7 to 10 years is what we’re talking here.
44:06 You’re in bed with your VCs for 10 years. I mean, these aren’t small decisions. No, it’s just interesting to know that people are really thinking long term here. So yeah, awesome. I got sorry, one more question.
44:18 Go ahead. Yeah, um, Skype revolutionized, changed people’s lives. What idea out there now that hasn’t fully taken shape, do you think has the same scale opportunity in terms of changing the average person’s life? Like I look at Skype, it touched everyone globally, excluding some places, and changed people’s lives. I, my brother lives in China.
44:41 I lived in Canada for most of my life. Changed our life, being able to sort of communicate that way. And I just do you see something else out there that has the same potential? Today, maybe, maybe not. I think you know, opportunities for that probably will be in transportation, maybe, you know, maybe also in in health tech.
45:05 You know, you’ll have things which will have a huge impact on people’s lives. Right? I think you know, Skype is a very unique and very iconic company in that sense. You know, I couldn’t, I’ve lived in in five countries. You know, I couldn’t have lived my life without Skype.
45:20 Yeah I know PR. Most people can now, even, you know, it’s amazing. Yeah, complete game changer, like you said, and completely changed the way you communicate with people. You know, just having that image is just, it’s so different. Yeah, hard to see the next one.
45:34 Is maybe it’s in life sciences? I don’t know. Yeah, you know, health tech, transportation. Yeah, I, Elon Musk is getting involved in this crazy, like, teleport, not teleport, but like this rail magnetic system that goes like 4,000 miles an hour or something. Yeah, you know, think about building a, think about building a maglev train between London and New York, which will take you in an hour.
45:56 Yeah, yeah, that’ll change. Cool. Yeah, that’s very cool. You know, you can’t really compare that to another new social network. Sure, yeah, on mobile phones, right?
46:07 But that’s the innovation that I get excited about you know, this app on top of another app, or this, you know, you see a lot of the same stuff. It’s just sort of adapting things. It’s not innovating things, and yeah, recycling old ideas. Awesome. Well, I’m going to open up a TransferWise account, cuz I got dollars and sterling.
46:26 I’m trying to juggle them, and it’s quite a nightmare really. I mean, you know, I still can’t figure it out. I’ve got accounts, both accounts on PayPal, at my bank here, and so I’m going to, I’m going to check you out, if you don’t mind. Thanks for being our guest. If you’re listening to us on iTunes.
46:42 Please subscribe if you want to see our faces. We’re on YouTube channel, Silicon Real, correct? Silicon Real. Yeah, awesome. We’re on Twitter.
46:49 We would love your suggestions. The only reason we’ve had these people so far is cuz former guests have suggested this, guys, so if anyone has any ideas, what’s the best way tweet at us. Yeah, tweet at us is the best way. And yeah, suggestions, if you’re interested in getting involved and helping out you know, again, this is for you guys, and we’re here to make it the best we can with the resources we have. And so, tweet at us, help out, give us ideas, recommendations, all that stuff, and we’ll be at the drinks every Friday.
47:14 Some stop by and say hi. A lot of people have come up to us and introduce us to people you think should be guests, and we’ll just keep going. Yeah, all right. Cheers, thanks so much. Until then it’s about the people.
47:26 Take care. They’re always hard-working, and that’s why I talk about the need for balance, because a lot of the founders here are just so busy focusing on their business, and it’s fantastic, but balance is important too, cuz then you need to be healthy and happy to grow that company to the next level. That’s very true. There’s one of there’s one business that requires all their employees to come to the drinks on Friday, and is that the Beards? No, although technically
