Smart money: Kristo Kaarmann could become a billionaire from a float
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 ten-year-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 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.
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