Money transfer boss who’s planning a £3.6bn float
Tech boss who built a money transfer giant turns his sights on investments and reveals...
AT FIRST glance, Kristo Kaarmann looks like a typical tech entrepreneur. He is sitting in his spare room in Hackney, wearing a sweater emblazoned with his company’s new name: Wise. The original brand – Transferwise – was ditched last month because Kaarmann, chief executive, has a broader vision for the tenyear-old money transfer service.
His plan is to roll out investment products to its ten million customers later this year, in addition to its bread and butter: sending money abroad cheaply, undercutting the fat fees charged by high street banks. In an ironic twist, Wise now counts banks among its customers.
But despite his casual attire, Kaarmann is tending to some very serious business with plans to take Wise public in the coming months, in what is expected to be a blockbuster multibillion-pound listing for London’s stock market. The digital company, which has its headquarters in the landmark Tea Building in Shoreditch, has appointed bankers at Goldman Sachs and Morgan Stanley to prepare its flotation.
Analysts reckon it is worth more than $5 billion (£3.6 billion), making it one of Europe’s most prized financial technology or
‘fintech’ firms. It counts billionaires
Richard Branson and Peter Thiel, a co-founder of PayPal, among its high-profile backers.
A listing would come hot on the heels of takeaway service Deliveroo and would be a huge boon to the City as it tries to build its status as the venue of choice for fast-growing tech firms. It would also help soothe the blow of London losing its crown to Amsterdam as Europe’s main trading hub.
Kaarmann doesn’t need a suit and tie to convince investors that Wise is mature enough to float – the numbers speak for themselves.
The business he founded in 2011 with fellow Estonian Taavet Hinrikus turned an annual profit of £21.3 million up to last March, while revenues were up by two thirds to £302.6 million. The company has been churning a profit since 2017 – setting it apart from other lossmaking tech upstarts.
It has a roster of financial heavyweights that have piled into fundraisings, including Fidelity and Baillie Gifford. And Kaarmann reckons the problem they set out to solve in the first place still offers a massive opportunity. ‘Whenever people use their money internationally, that’s about £9trillion of different currencies floating across countries, just for individuals and small businesses,’ he says.
‘And the fees that the banks take from these flows, most of it in entirely hidden mark-ups, is about £190billion a year.’
Wise transfers about £4.5billion every month for individuals and small businesses, so he knows there is still huge growth potential in this market. ‘The people who work at the banks can’t be happy about what they’re doing.’
Kaarmann, now 40 years old, first discovered the problem upon moving to London aged 27 as a finance consultant. He met Hinrikus, an early Skype employee, soon after moving to the City.
‘I got the opportunity to send some money back into my savings account in Estonia, and then realised that not all of the money arrived, because of the fees the bank came up with,’ Kaarmann says. ‘Taavet had the exact opposite problem – he was paid in Estonia, but living in London. So I gave him pounds in the UK, and he gave me euros in Estonia.’
That moment gave rise to Transferwise. The company charges less than 1 per cent on many currency transfers; banks cream off more than 5 per cent on average.
Momentum gathered over the years as Kaarmann and Hinrikus roped in cash from Branson, Thiel and venture capital firms such as IA Ventures and Andreessen Horowitz, the latter of which has backed Facebook, Twitter, and Airbnb.
The Estonian duo were not afraid to front bold marketing campaigns. In 2014, they led a flash-mob who undressed to their underwear in the City to show they had ‘nothing to hide’ in their low fees. Although Kaarmann is softly-spoken and mild-mannered, his upbringing in Estonia as it regained independence from Russia influenced his determination and entrepreneurialism.
‘In the ending years of the Soviet Union and the national awakening, and the Berlin Wall falling, I guess in my early teens, I saw a country being built from scratch,’ he says. ‘We didn’t have any companies, we didn’t have banks – there was no structure to the economy.’
Far from the wreckage of the Soviet Union, Kaarmann and Hinrikus are now running one of a few start-ups valued at $5 billion or above, alongside rival Revolut.
Kaarmann is keen to discuss his plans for growth. The company will sell investments, which he says will be a way for customers to make a decent return on their cash rather than a means of taking a punt on the market. The move seems well-timed if inflation is on its way. ‘The great challenge we have is because of
SMART MONEY: Kristo Kaarmann could become a billionaire from a float expanding into international banking, letting our customers receive money into their Wise accounts...the side effect is accumulating cash balances in their accounts.
‘So there are now more than a few billion pounds in personal balances. Then the next question is: can they hold that in cash or can we give them a different asset, like balances in global stocks. But the approach here is not to provide trading services – we don’t intend to add to any speculative investments.’
Despite rumours, Kaarmann makes it clear he has no plans to apply for a licence to lend money and take on digital upstarts Starling and Monzo. Wise already offers bank-like accounts with debit cards. ‘It’s quite common for our customers, for the things that they do internationally, such as paying their business suppliers, to do it in their Wise accounts. People who are more international and travel also use the Wise account more than they do any other bank account.’
Kaarmann and Hinrikus are thought to own about 40 per cent of Wise. A flotation could make them billionaires. But Kaarmann remains refreshingly down-toearth – even taking customers out for dinner before Covid struck – and says he’s looking forward to travelling again...with his Wise card, of course.
‘Bank staff can’t like what they’re doing’
FROM shop owners to personal trainers, hotel managers to wedding planners, small businesses and sole traders up and down the country eagerly watched last week’s Budget to find out what was in store.
For many, it has only been the financial support from the Government
over the last 12 months that has enabled them to just about hang on. Even with the help available, thousands of businesses have sadly closed due to the pandemic.
In his Budget, Chancellor Rishi Sunak announced a new wave of support for the nation’s small businesses, including £5 billion in Restart Grants for shops and hospitality businesses, and an extension of the furlough scheme and VAT cut for the hospitality sector.
However, he also confirmed the resumption of business rates from June and a rise in corporation tax. So what was the verdict from small businesses? We spoke to several to hear their views. Seeing larger chains such as WHSmith still being allowed to sell stationery, gifts and cards in their shops has been frustrating for Sarah Laker. She runs two stationery shops in Cheshire, but has been unable to open either during lockdown restrictions.
Sarah opened her first store in Marple, near Stockport, 15 years ago and acquired another in nearby Wilmslow last October when the previous owner retired. She has kept her businesses running thanks to a mix of Government loans, grants and the furlough scheme, and says that she found ‘a lot that was positive for small businesses’ in last week’s Budget.
The Restart Grant of up to £6,000 for small businesses which have been forced to close during lockdown ‘will really help,’ she says, as ‘the Wilmslow shop is really struggling at the moment and the Marple shop is only just breaking even’.
Throughout lockdowns, Sarah has switched to click-and-collect and online sales, but says that operating this way is ‘incredibly time-consuming because everything takes three times as long’.
She says: ‘It’s been really hard. I’ve been working six or seven days a week throughout and haven’t taken an income for a year now. There was just no way I was going to let a pandemic take my business away from me.’
Having furloughed her four staff on and off over the past year, Sarah says that the extension of the scheme until the end of September will be useful.
‘It’s been really handy to be able to furlough people, but I wonder whether the extension goes far enough as some businesses might struggle to fully restart by the time the scheme finishes,’ she adds.
THE increase in contactless payments – from £45 to £100 – will be useful when the shops reopen, as she found many customers were reluctant to touch the card payment machine when required to enter their pin number, even though she sterilised it every time.
Moving from London to Hertfordshire to open Bethnal&Bec luxury self-catering retreats in 2017 was a leap of faith for Chris and Vicky
Saynor. But their determination paid off as their business soon became a constant fixture on ‘Best UK staycation’ lists.
After being almost fully occupied in the first few years of opening, Bethnal&Bec was forced to close along with the rest of the hospitality industry for nine months out of the last 12.
Chris and Vicky were able to benefit
from the one-off £10,000 Small Business Grant as well as later grants for closed businesses.
Being self-employed, the couple were theoretically eligible for the self-employed income support scheme. But having invested heavily in setting up the business, their latest tax return showed a loss thanks to rolling over operating losses so they couldn’t claim any support.
‘If you’re a new business, or a business that has made a lot of capanyway ital investment, you get no support,’ says Chris, adding that it was only thanks to the business grants and other personal savings that they were able to keep going.
The new Restart Grant for businesses will certainly be a help to Bethnal&Bec, but the business rates holiday extension until the end of June will have no impact. ‘The business rates holiday is great, but if your business is under a certain rateable value threshold you wouldn’t be paying business rates thanks to Small Business Rates Relief,’ says Chris.
He adds: ‘I don’t want to bash the Government as this is an unprecedented situation and these grants have been a godsend.’
But he suggests grants may have been more effective if they supported new businesses and differentiated between companies that would usually be closed off-season and those that are usually open all year round.
Specialist sports retailer
Berkhamsted Sports is another of the thousands of retailers still having to manage sales remotely.
Dave Walden is the co-owner of this Hertfordshire business and says that turnover is down 80 per cent because they can only do deliveries and click-and-collect.
‘Our business is all about talking to our customers and letting them try out the shoes or equipment, so it’s been really hard,’ says Dave. ‘We did well in the summer, but to close again just before Christmas – one of our busiest times – was awful.’
Without the Government’s business grants, including the £25,000 Retail, Leisure and Hospitality grant last summer and lockdown grants since, things would have been very different, he says.
‘Whatever your opinion about the Government, there’s no question that they’ve really helped small businesses throughout the pandemic,’ adds Dave.
The Restart Grant of up to £6,000 will also be ‘really helpful,’ says Dave, while admitting it would have been nicer if it was bigger.
‘But it could have been a whole lot worse and the Government is going to have to start clawing money back from somewhere.’
Dave would also have preferred to have seen a longer business rates relief extension announced in the Budget.
WHILE he was initially alarmed at the hike in corporation tax, he says that it should have minimal effect due to the size of his company. The Baby Cot Shop founder and nursery designer Toks Aruoture says she has ‘mixed feelings’ about the business rates relief extension. She has premises on the upmarket King’s Road in Chelsea, West London.
‘I appreciate that business rates were waived for a year, but I don’t think we should be asked to start paying them, even at a reduced rate, from June,’ she says.
‘It would have been better if they had been scrapped until next year. Many of us are not going to be able to recover those lost sales from 2020 and it’s a large amount of money for us.’
Toks founded her baby products and nursery design business in 2012, first online and opening her shop four years ago.
Due to lockdown, the retail outlet has been closed for much of the past 12 months and while she was able to shift to offering digital interior design services and live video consultations, turnover was still considerably down.
‘Our customers love coming into the store and bringing their partners, their parents and friends – it’s a big affair,’ she says.
‘But even when we could reopen, pregnant women understandably didn’t really want to venture out shopping as much as before.’
Toks has appreciated the Government support of grants, bounceback loans and flexible furloughs.
However, she says: ‘I’m not dancing for joy. The Restart Grant is good, but it’s not enough – it’ll cover rent for a month – and I feel the VAT cut for the hospitality industry should be for the retail industry too as we’ve suffered as well.’
However, she is looking on the bright side.
‘I just can’t wait to reopen,’ she says. ‘I love helping and encouraging new mums-to-be and to see them and my staff again would be the icing on the cake.’