Low-cost money transfer service TransferWise expands to the UAE

UK-founded platform has a licence from ADGM and plans to make Abu Dhabi its Middle East hub

TransferWise chief executive Kristo Käärmann, said the company "always knew" its expansion into the Middle East would start in the UAE. Photo courtesy TransferWise

TransferWise, the global low-cost online money transfer service founded in the UK, is expanding to the Middle East after receiving a licence from the Abu Dhabi Global Market Financial Services Regulatory Authority to operate in the UAE.

The platform, used by 6 million customers worldwide, expects to bring its first product to the Emirates next year, the company said.

“Money transfers from dirhams have long been one of our most wished-for currencies, so we always knew we would begin our expansion into the Middle East in the Emirates,” Kristo Kaarmann, chief executive and co-founder of TransferWise, said in a statement on Tuesday.

A total of Dh169.2 billion was sent from the UAE last year, the Central Bank’s 2018 annual report shows. Global remittances totalled $689bn (Dh2.5tn) in 2018, according to World Bank figures.

The average cost to transfer money from the Middle East and North Africa has decreased in the past five years to close to 7 per cent from about 8 per cent in 2014. However, the percentage slightly increased in the second quarter of this year and remains expensive at 6.91 per cent, the World Bank’s June report on remittance prices said.

TransferWise and other low-cost services, such as Remitly, WorldRemit and Azimo, aim to allow faster, cheaper cross-border payments. In the UAE, FinTech companies are also trying to compete with banks and exchange houses, but have hit some regulatory hurdles.

“The latest World Bank data shows an uptick in the cost of sending money from the Middle East, and there’s such a strong expat community locally who desperately need a better way to manage their money across borders,” Mr Kaarmann said. “TransferWise will soon be able to help those living and working in the Emirates by bringing innovation and competition to the market, resulting in lower prices and a better experience for customers.”

The ADGM location will be TransferWise's 13th global office, joining a number of other new FinTech companies opening up in the financial free zone in recent months. In July, its regulatory authority published a framework for the establishment of digital banks and robo-advisers.

“At  ADGM, we recognise the huge potential of FinTech to transform the financial services sector and promote inclusive growth and financial inclusion,” said Wai Lum Kwok, senior executive director of capital markets at ADGM, at the FinTech Abu Dhabi conference on Tuesday.

"This has been a few years in the making … but it wasn't until about a year-and-a-half ago that regulation was in the right place and it made sense for us to start very actively engaging," Tim Harley, head of Middle East expansion at TransferWise, told The National on the sidelines of the conference.

The FinTech sector in the region is growing at a compounded annual growth rate (CAGR) of 30 per cent, according to a report last month from the Milken Institute Centre for Financial Markets.

“I don't think Transferwise's move to ADGM is surprising given the role and value of payments providers in the region, especially those that provide remittance services,” said Jackson Mueller, associate director of the FinTech Programme at the Washington-based centre. “Our analysis found that a majority of FinTech investments in the broader region are focused on payments platforms.”

TransferWise, founded in 2011, is available in 49 currencies and more than 1,600 currency routes. It claims to be eight times cheaper than banks in its biggest markets, saving people $1bn a year in comparison. Around a quarter of its international transfers are instant.

Instead of marking up the currency exchange rate, TransferWise charges an upfront fee. For example, sending £1,000 (Dh4,752) from the UK would cost around £3.95 (0.3 per cent), depending on the destination. It also publishes comparisons to major banks on its app and website.

“The main problem with cross border is just the sheer cost of moving money across borders to the individual,” said Matt Briers, chief financial officer of TransferWise. “The next is the level of transparency … so not only are people being charged 5 to 10 per cent, but actually they might not know that’s the case.”

TransferWise is a rare profitable unicorn with revenue of £179 million in the fiscal year ending this March, and a net profit of £10.3m. The company has raised about $700m in primary and secondary funding from investors such as Lead Edge, Lone Pine, Vitruvian, IVP, Merian Global Investors, Andreessen Horowitz, Sir Richard Branson, Valar Ventures and Max Levchin from PayPal.