Fintech unicorn TransferWise sees valuation climb to $5 billion

  • TransferWise employees and early investors sold some of their stakes in a $319 million secondary deal.
  • The company's $5 billion valuation makes it one of Europe's most valuable fintech unicorns.
  • It highlights an acceleration in online payments and a reduction in cash usage caused by Covid-19.

Fintech start-up TransferWise is now valued at $5 billion following a secondary share sale, the company announced Wednesday, highlighting increased investor appetite for online payments amid the coronavirus pandemic.

Founded in 2011, TransferWise has become a formidable competitor to the likes of Western Union and MoneyGram by lowering fees and adding a slick online platform to help consumers move money across borders. It now has a total of 8 million customers globally and processes £4 billion ($5.2 billion) in cross-border payments each month.

The London-headquartered money transfer firm hasn't added any fresh cash to its balance sheet with this deal, instead opting to give employees and early investors the chance to sell some of their stakes in a $319 million secondary deal. It's not the first time existing investors have sold shares — the company was valued at $3.5 billion last year in a $292 million secondary round.

"We've been funded exclusively by our customers for the last few years and we didn't need to raise external funding for the company," said Kristo Kaarmann, TransferWise's CEO and co-founder. "This secondary round provides an opportunity for new investors to come in, alongside rewarding the investors and employees who've helped us succeed so far."

Unlike many of its rival fintech unicorns — Revolut, Monzo and N26, to name a few — TransferWise is profitable. Kaarmann recently told CNBC that the firm expects to turn an annual profit again in its 2020 accounts. The company has been profitable for three years running, but a big selling point of its multi-currency card is the ability to convert to local currencies when travelling.

Kaarmann and fellow co-founder Taavet Hinrikus both had the option to sell shares in this round, though TransferWise declined to disclose how much they sold. TransferWise says share sales were settled internally, rather than through an investment bank like Goldman Sachs. The company's $5 billion valuation makes it one of Europe's most valuable fintech start-ups, with the top three — Revolut, Klarna and Checkout.com — each worth $5.5 billion.

The secondary round was co-led by existing investor Lone Pine Capital and a new investor, D1 Capital Partners. Another new investor, Vulcan Capital, also bought shares, while Baillie Gifford, Fidelity and venture capital fund LocalGlobe increased their holdings too. Other investors in the firm include British billionaire Richard Branson and PayPal co-founders Peter Thiel and Max Levchin.

Online payments accelerate

TransferWise has made a deeper push into banking of late with the introduction of a "borderless" multi-currency account linked with a Mastercard debit card. It claims to have taken more than £2 billion in current deposits through the account and issued 1 million cards. The company says its main competitors are still banks, though it has no plans to become a bank itself.

Last month, TransferWise signaled its interest in offering investment services for the first time after obtaining regulatory approval from the U.K.'s Financial Conduct Authority. The company aims to have its first investing feature launched by 2021.

The 43% bump in TransferWise's valuation reflects an acceleration in online payments and a reduction in cash usage caused by Covid-19. U.K. peer Revolut recently secured an additional $80 million of cash from San Francisco-based private equity group TSG Consumer Partners.

In the U.K., ATM transaction volumes fell around 60% on average at the start of the country's lockdown, according to data from cash machine network Link.

Meanwhile, management consultancy Bain & Company expects the adoption of digital payments to climb as much as 10 percentage points to 67% of total transaction values globally by 2025.

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