How a simple mistake set in motion the start of a billion-dollar business

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Today, TransferWise is trusted by millions of customers worldwide, with the likes of Richard Branson and Peter Thiel having invested in its vision. Rewind 10 years or so however, and the picture was a lot different.

In 2008, Kristo Kaarmann — who’s now TransferWise’s CEO — was working as a management consultant in London and had received a Christmas bonus of £10,000 ($13,147), which he wanted to put to greater use.

Speaking to the BBC, the businessman explained that as interest rates were higher in Estonia at the time, he chose to transfer the earnings from his British account to his Estonian savings account — expecting this would help him earn more from the money. This didn’t, however, go as hoped.

“I paid my U.K. bank a £15 fee, and transferred the £10,000, and then a week later I saw that £500 less than I had expected had arrived in the Estonian account,” Kaarmann told the U.K. broadcaster, BBC News. The CEO explained how he looked into how this had occurred, and realized that he “had been incredibly stupid.”

“I had foolishly expected that my U.K. bank would have given me the exchange rate I saw when I looked on Reuters and Bloomberg,” he said, adding that instead, “the bank had used an exchange rate 5 percent less favorable, which is how it and all the other banks get their cut. It was my mistake.”

As one of the latest business leaders to be profiled by the BBC, Kaarmann said in its “The Boss” series, that this incident went onto see him try to discover a way of transferring cash overseas in a more cost-effective way. This led to Kaarmann meeting his soon-to-be business partner.

According to TransferWise’s website, the two founders, Kaarmann and Chairman Taavet Hinrikus, met at a party and found out that they both worked in London but needed different currencies.

Kaarmann was paid in pounds but had a mortgage back in Estonia that was done in euros, while Hinrikus was paid in euros but needed British pounds to pay his bills in London.

After teaming up, the pair would informally transfer money between one another, by looking at the mid-market rate of a certain day each month, allowing them to attain a fair exchange rate without paying additional bank charges.

This led to the businessmen building a network of Estonian friends transferring money, according to the BBC, which went onto spark the start of their own business: TransferWise, which was launched in 2011.

Today, the money transfer service acts as an online account for its 4 million-plus customers, allowing them to send money, get paid and spend money internationally, without being faced with high fees.

Now considered amongst Europe’s “unicorn” start-ups — which are companies valued with at least $1 billion — TransferWise is thriving, with it being reported in 2018 that it had valuation of $1.6 billion.

Read the BBC’s article in full here.

—CNBC’s Ryan Browne contributed to this report 

This article was first published by CNBC https://www.cnbc.com/2019/01/28/transferwise-kristo-kaarmann-on-what-led-up-to-the-business-idea.html and is republished with its permission.

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