CurrencyFair Rides Irish Fintech Wave With Money Transfer Market
These days, people can send a text message halfway around the world in a matter of seconds, but wiring money across the globe can still take several days. And the typically poor exchange rates and fees charged by banks and other intermediaries can make international money transfers “a blatant rip-off,” in the blunt assessment by upstart Irish fintech company CurrencyFair.
That’s why CurrencyFair’s four founders—three of them former bank employees, which they lightheartedly apologize for on their website—set out in late 2008 to create a simpler, faster, and cheaper system for international money transfers, using an online peer-to-peer marketplace.
“The whole concept is rather than having a big intermediary, let’s try to get those buyers and sellers closer together again,” CurrencyFair co-founder and CEO Brett Meyers says.
His company is one of the leaders in the burgeoning Irish fintech scene. Most people have heard of Stripe, the Irish-founded payments startup (now in San Francisco), but a whole generation of smaller companies has grown up in the shadow of the financial crisis. Recent efforts to boost local startups include the NDRC FinTech program, which has backers from the public and private sectors, and Accenture’s new fintech accelerator in Dublin.
The financial crisis has spelled both opportunity and consternation for CurrencyFair. On one hand, consumers have felt angry with and mistrustful of banks because of the role they played in the global economic crisis. That frustration has made people more willing to try alternative financial services provided by tech startups like CurrencyFair, says Meyers, an Australia native who previously worked as a JPMorgan Chase analytics manager in Ireland for three years.
On the other hand, the financial crisis brought road blocks that CurrencyFair had to hurdle before it could start wooing customers. New European regulations muddied the approval process required for companies that handle payments.
“We hit everything at the wrong time,” Meyers says.
CurrencyFair applied for approval in Ireland in mid-2009, then was told that new rules were being implemented in November that would allow it to receive European-wide approval as a payment services business if it passed muster with the Central Bank of Ireland. CurrencyFair execs re-applied under the new regulations, but were left twiddling their thumbs for several months, waiting for the green light to flip the switch on their website, Meyers says.
“The regulators were under pressure. They were just taking ages,” Meyers (pictured below) says. “I can still remember the feelings of frustration burning through cash, just waiting, waiting, waiting.”
Finally, CurrencyFair got the go-ahead to launch in May 2010. The company grew modestly for the next three years, partly because it was spinning its wheels until it improved its software, Meyers says. The technical co-founder left the business, and a new CTO was brought on, he says.
CurrencyFair has expanded rapidly since 2013, when it raised $2.5 million from Frontline Ventures, which has offices in Dublin and London, and angel investors. CurrencyFair has raised more than $7 million to date, Meyers says, and its other investors include Enterprise Ireland.
In the past year, the company invested more heavily in marketing, product development, and staff expansion. It grew from eight employees in early 2013 to nearly 50 today at its Dublin headquarters and satellite offices in Australia and the U.K. The startup has handled more than $1.6 billion in money transfers to date, and its daily transaction volume has jumped significantly in recent months, to more than $6 million, Meyers says.
“We’re starting to get things right,” he says. “You really feel like you’ve got some momentum.”
Here’s how the startup’s system works: Say an Australian native working in Ireland—call him John—wants to send money to his bank account back home. He deposits his euros into an account with CurrencyFair and searches on CurrencyFair’s marketplace for other users who want to send money in the opposite direction. The company’s software matches him up with Jane, an international student who wants to transfer funds from Australia to her Irish bank account. CurrencyFair exchanges the money by executing domestic bank transfers in Australia and Ireland, so Jane’s Aussie dollars get deposited into John’s Australian bank account and John’s euros are moved into Jane’s Irish bank account. The advantage is that domestic bank transfers are usually free and clear quickly, as opposed to international transfers, which are traditionally laden with fees and take longer, CurrencyFair says.
The company charges a fixed transfer fee of 3 euros per transaction, plus a margin on the exchange rate that averages 0.35 percent of the transfer amount. Banks tend to charge a series of fees (some of them hidden) that often amount to around 5 percent of the transfer total, CurrencyFair says.
A distinguishing feature of CurrencyFair’s marketplace is the ability for users to set their own currency exchange rates. In theory, this means someone could actually find a better deal on CurrencyFair’s marketplace than the “wholesale” exchange rate that banks get—the current actual value of a currency, like 1 British pound being worth 1.27 euros—and effectively make a tiny profit off the transaction. “If you beat the interbank rate, then what you’ve bought is worth more than what you’ve sold, so in effect you have made money,” Meyers says. The best rates offered by users are typically 0.2 percent better than the interbank rate, he adds.
CurrencyFair offers transfers between 20 currencies right now. Most of its business comes from Ireland, the U.K., and Australia, chief operating officer Michael O’Donovan says. Customers include expatriates working or living abroad, business owners, international students, and people purchasing property overseas.
One of O’Donovan’s friends, for example, recently needed to import 20,000 euros worth of furniture for his business, which supplies furniture for daycare centers, but he needed to pay for it in British pounds. He paid 800 euros, or 4 percent of the transaction, in currency exchange fees, O’Donovan says.
The fees would have been 90 percent less had he used CurrencyFair, O’Donovan says. “Effectively, that’s his profit. It’s straight to the bottom line,” he says. That businessman is now a CurrencyFair customer, he adds.
CurrencyFair isn’t the only online peer-to-peer money transfer company out there. London-based TransferWise offers a similar service and has raised money from high-profile backers since launching in 2011—reportedly $33 million from the likes of Richard Branson and Valar Ventures, which was co-founded by Peter Thiel. Other related startups include Boston-based peerTransfer, which focuses on international tuition payments and has raised more than $20 million from Spark Capital, Maveron, and other investors.
Yet in these early days of peer-to-peer online money transfers, CurrencyFair and its competitors are still dwarfed in the marketplace by banks and traditional foreign exchange brokers. “We’re just trying to build up” the industry of alternative currency exchange and payments companies, CurrencyFair head of online Brian Monaghan says.
CurrencyFair’s short-term to-do list includes developing a mobile app and adding new product features, Meyers says. The company also plans to continue to expand to more countries, including the U.S., Meyers says.
CurrencyFair can currently transfer funds to and from the U.S., but only for customers who live outside the U.S., and only via domestic wire transactions that can result in a small receiving fee on top of CurrencyFair’s charges, O’Donovan says. Many of its current transactions involving U.S. dollars are made by American citizens living abroad who want to send money back home. The company will seek regulatory approval to serve U.S. residents and to make automated clearing house (ACH) transfers that would mean zero receiving fees, he says.
Winning U.S. approval will likely be a long, potentially expensive endeavor because each state has its own licensing requirements for money services businesses. CurrencyFair is raising more funds that would partly be used to expand to the U.S., Meyers says.
Over the long term, Meyers is curious to see how the financial services sector evolves as more tech startups continue to challenge the status quo. “It’s a lot of specialist people basically chipping away at the banks,” he says.
In response to lost revenue, many banks have started corporate venture arms to “work more closely with innovators” and “make acquisitions down the line,” Meyers says. “But big companies like Apple are entering the game as well,” he adds.
It’s a chess match to see who will “own the customer in the long run,” Meyers says.
“Are banks just going to become the plumbing?” he says. “It’s fascinating how payments are evolving.”