Transparency pays off for rising star of fintech scene
A drive for openness has helped the TransferWise boss to build a $5bn global player, writes James Cook
Kristo Käärmann, the 40-year-old chief executive of $5bn (£3.9bn) currency transfer service TransferWise, pulls up his hoodie as he sits outside a log cabin in Tallinn. “Sorry, it’s very windy here,” he says, peering into his computer screen on a Zoom call. “Luckily the sun is out, which is quite rare.”
After a decade spent in London building what has become one of Europe’s most successful fintechs, Käärmann has used lockdown as an opportunity to move back home to his native Estonia.
With a net worth of £229m, he can afford to take a short break with his wife, lingerie designer Kriss Soonik.
It’s just 10 years since he and his co-founder Taavet Hinrikus were trying to juggle their own expenses while Käärmann worked as a management consultant and Hinrikus was an executive at Skype.
Eventually, they hit upon the idea of paying each other’s expenses, reducing the amount of money flowing around the world and thus avoiding stiff currency transfer costs. Not long after, TransferWise was born.
Käärmann spent the first 26 years of his life in Estonia, experiencing Perestroika and the country’s transition to independence in the Nineties.
It helped to instil a sense of inventiveness in Käärmann, who had watched as new industries including banking emerged from the wreckage of the USSR.
“It was an inspiration to me,” he recalls. “The idea that a couple of simple dudes from the fringes of
Europe can provide a fix to this was a little bit inspired from our upbringing.”
In the company’s early days, the pair made a splash in the City by stripping down to their underwear outside the offices of big financial firms to boast that they had “nothing to hide” about the cost of currency transfers.
More recently, their approach seems to have mellowed somewhat, but “the attitude hasn’t really changed”.
Käärmann adds: “The fact that they’re not telling you what you’re charged, that’s not acceptable.”
TransferWise announced on Wednesday that its annual profits had doubled to £21.3m and its revenues rose 70pc to £302m.
It now has 8m customers globally, processing around £4bn in payments
each month. The company was expected to have been hit hard by the pandemic because it offers a travel card, but Käärmann says that customers including expats and families split among several countries are still using the service.
Part of TransferWise’s resilience is down to a shift in strategy. “Back in the day, you might remember everything was about growth and how many customers you have,” Käärmann says.
But after five years burning money chasing rapid growth, the founders switched their focus to profitability: “Almost every action that you do on TransferWise is sustainable and maybe even slightly profitable.”
It’s a far cry from challenger banks, where executives privately complain of losing money from offering current accounts. Käärmann speaks proudly of the company’s partnerships with central banks including the Bank of England and the Hungarian National Bank, which allow his business to send customer cash directly around the world.
These deals helped to boost TransferWise’s valuation to $5bn in July following a $319m secondary offering, placing it just behind Revolut, Checkout.com and Sweden’s Klarna in a league table of European fintech.
Does this make the company a contender to meet Dominic Cummings’ dream of building $1 trillion start-ups in the UK after Brexit?
Käärmann laughs when asked about Cummings’ plan. “I didn’t spend any time on this to be honest,” he says.
When asked what’s on his shopping list of factors needed to grow TransferWise in the UK, Käärmann pauses to think.
“It would be great if we had an arrangement to access the European market on the same terms as we had it two years ago,” he says.
The company last raised venture capital funding in 2017, and Käärmann says “this is it for a while” when it comes to raising outside money.
TransferWise’s founders have stayed silent on any plans to go public, but when asked whether a future float would take place in London or New York, Käärmann makes it clear that both cities are seemingly still in play.
“I do think London is an interesting, real thing and I wish that there would be more companies listing in London,” he says.
“But then again, we also have companies in London who list in New York and that also makes sense in many ways.”
“We haven’t thought about this that much,” he says as the wind picks up outside the cabin, rattling the wind chimes once again.
“You’re right, one day we will have to think about it. But we’re not there yet.”