While Donald Trump threatens to block money transfers to Mexico, one tech startup could spark an increase in the amount of money sent between the two countries by introducing this week a much less expensive way to send cash.
TransferWise — a London-based “unicorn” whose investors include billionaires Richard Branson and Peter Thiel — just launched a US-to-Mexico cash-transfer service that it says is 70 percent cheaper than the competition.
Charging a rate of 1.5 percent on transfers of $200 and up, TransferWise easily beats standard fees of 5 and 6 percent charged by players like Western Union, Moneygram and Xoom, not to mention conventional banks, co-founder Kristo Kaarman said.
“People have a sixth sense that the bank is somehow ripping them off, but they don’t know quite how,” Kaarmann said in an interview this week.
The answer, according to Kaarmann, is that some transfer services are using artificially inflated currency-exchange rates on transactions.
“You have to dig for this information because they don’t publicly disclose the fee,” Kaarmann said of most money-transfer outfits.
As a result, they’ve reaped a bonanza of between $5 billion and $8 billion over the past five years on money transfers between the US and Mexico alone, according to World Bank estimates.
The amount of money transferred between the US and Mexico has ballooned to $24 billion annually, according to the World Bank.
Last month, Trump dangled the threat of blocking this massive money flow as a way of forcing Mexico to finance the building of a giant wall between the two countries — a project whose cost he has estimated at $8 billion, and up.
“It’s an easy decision for Mexico,” Trump wrote in a March 31 memo. “Make a one-time payment of $5-$10bn to ensure that $24bn continues to flow into their country year after year.”
TransferWise declined to comment on Trump’s idea, which President Obama blasted as a “half-baked” plan that was “primarily put forward for political consumption.”
Founded in 2011, TransferWise isn’t yet profitable, although it has raised $91 million from a roster of high-profile investors that also includes Andreessen Horowitz.
Neverthless, TransferWise is “not subsidizing transfers, we’re investing in growth,” Kaarmann says. “Once we have scale, we’ll be able to offer our reduced prices and still have a margin.”
TransferWise, which operates around the world, last week launched money transfers between the US and Canada.