Currency exchange

"Hey, hidden fees, your secret's out!" In bold letters, the slogan - which almost sounds like a threat - adorns the website of TransferWise. The start-up allows clients to transfer money abroad without high fees and at average exchange rates - no headache involved, the site promises.

By contrast, trying to transfer money from and to their native country Estonia was a headache for the London-based founders of TransferWise, Taavet Hinrikus and Kristo Käärman. Käärman told DW that the platform was born out of necessity when he moved to London and began to work there in 2007.

Paid in pounds with bills in euros

"I had to send money back home to pay for my mortgage and for my student loan," he said, explaining that the normal process would be to go to the bank and make an international payment from pounds into euros to his bank account in Estonia. "I realized that, every time, the bank takes about 5 percent of the money as part of the exchange rate. And I didn't really like that."

His friend Hinrikus had a similar problem. He was paid in euros, although he lived in London, where the common European currency had no buying power. So the friends devised a system by which Käärman transferred British pounds to Hinrikus' account and Hinrikus in turn transferred euros to Käärman's account - no fees involved, and at the official currency rate. The idea for the start-up was born.

Solving a problem

The Transferwise service went online in 2011 and recently became available in Germany. The platform is especially attractive for expats who often transfer large amounts of money home. Companies that pay employees abroad can also benefit from the new service.

"51 British pounds in euros 22 minutes ago," "3,000 British pounds in euros a few minutes ago" - the transfers pop up on a map in the background of the website as they occur. At present, the platform supports currency exchanges between, among others, euros, British pounds, Polish zlotys, Georgian lari and Hungarian forints. TransferWise collects a one-euro fee per transfer, and transfers larger than 200 euros cost an additional 0.5 percent of the sum transferred.

Banks usually charge customers much higher rates for transfers into different currencies. TransferWise, however, uses official exchange rates, the so-called mid-market exchange rate, for transfers into another currency. TransferWise, which says it has transferred some 300 million euros, saves customers fees by maintaining accounts with banks in different currencies.

Accounts across Europe

"We don't use the bank to transfer money internationally," Käärmann said. "We only use the bank in the UK to collect pounds, so our customer is paying pounds in our account in the UK. And we pay out from our account in Germany." By holding accounts across Europe, TransferWise says it has saved customers about 12 million euros.

Banks are unlikely to be surprised by the decline in income from charges and fees associated with international transfers, according to Markus Feck of a consumer advocacy center in the German state of North-Rhine Westphalia.

"TransferWise may have just started in Germany, but the company has been around for a few years," Feck told DW. "Banks here will have been prepared for it."

Traditional banks unlikely to change

Feck said he doubted German banks would change their established practices anytime soon.

"A start-up is flexible and has the opportunity to structure itself differently from a bank that has existed for years and works in a certain way," he explained. "The banks generally have a very tough time breaking new ground."

Data security is a key concern among potential TransferWise customers - and an issue that all banks offering online banking have to deal with, Feck said.

Käärman says he believes TransferWise offers better security than traditional banks.

"TransferWise uses the newest and most secure safety regulations," he said. "Additionally, there's nothing that can be stolen because, unlike a bank, TransferWise does not hold on to its customers' money."