TransferWise is burning cash as it grows its global footprint

UK unicorn, TransferWise filed accounts on 27 December which showed the start-up, valued at £680m, had revenues of less than £6.5m in the year to 31 March, despite carrying out £500m worth of transfers per month. While this may not be surprising, given its business model of charging rock-bottom fees, it has led some to question how the company will justify its sky-high valuation. The firm's response is that, at this point in its development, the focus is on investing in the business and bringing the service to as many people as possible. In 2015, TransferWise reached 5% market share in the UK and expanded globally; it now offers 30+ currencies and sends money between 55 countries. In time, platforms such as TransferWise are likely to integrate with institutional foreign exchange platforms. Meanwhile the firm's strategy of trying to partner with banks, as we reported last month, could be an attempt to cut banking cost and improve margins. TransferWise is in talks with several UK banks about embedding its money transfer capabilities in their smartphone apps and has struck a deal with Estonia’s largest retail bank, LHV.

TransferWise founders Kristo Kaarmann, left, and Taavet Hinrikus with the company's logo. TransferWise

Update: Since this story was written TransferWise has filed "amended" accounts that shed more light on how much revenue and profit or loss the company made last year. You should check them out ahead of the figures in this piece.

Hot British online money transfer startup TransferWise is officially a "small company."

The startup, apparently valued at $1 billion (£680 million) last year, had revenue of less than £6.5 million ($9.5 million) in the year to March 31 2015, according to its latest set out accounts filed with Companies House on December 27.

The filing is a set of "abbreviated accounts", revealing relatively little about the company's finances on the face of it. But the fact that it is abbreviated tells you something in itself.

Abbreviated accounts can only be filed by small or medium-sized companies, based on sales thresholds. TransferWise says in the filing that it is using "an exemption under section 477 of the Companies Act 2006 relating to small companies."

So TransferWise is a small company then. The government defines small companies as businesses meeting at least two of these three requirements: revenue of less than £6.5 million ($9.5 million); £3.26 million ($4.8 million) or less on its balance sheet; and 50 employees or fewer.

The abbreviated accounts show TransferWise had over £45 million ($66 million) of cash on its balance sheet in the year covered, implying it must qualify as small under the other two exemptions — revenue and staff size.

Companies House

That suggests TransferWise's revenue is under £6.5 million — a tiny figure considering the amount of money behind it. The startup raised $58 million (£39.5 million) from venture capitalists in the last year alone and has transferred over £3 billion ($4.4 million) on its platform since launch. It's currently doing £500 million ($734 million) worth of transfers a month.

Costs also appear to be running well above revenues. The abridged balance sheet shows it has £11.6 million ($17 million) of debts due within a year.

Companies House

It's unsurprising that TransferWise is pulling in a relatively small amount revenue as its whole model is based on charging clients rock bottom fees for international money transfers. That means it will likely pull in a lot less than a MoneyGram or Western Union.

But just how little it appears to be making in sales raises questions about exactly it will justify its sky-high valuation. CEO Taavet Hinrikus confirmed to BI last year that the company is not profitable.

The FT recently pointed out that TransferWise's new strategy of trying to partner with banks — a far cry from its traditional banker bashing ethos — could be an attempt to cut banking costs further to improve margins.

A spokesperson for TransferWise told BI:

At this stage in the company’s development, we don’t consider revenue figures that useful. But a 5x revenue growth is not insignificant for any business.

We're focused on investing in the business and bringing the service to as many people as we can. In 2015, in the UK we reached 5% market share.

We went from being a UK and European company to a global one, launching in the US and Australia. We now offer 30+ currencies on 450+ currency routes; sending to 55 countries and from 40.

Aside from how it will justify its valuation, questions might also be asked about how a company that handles so much client money and has built its brand on transparency can justify keeping its own finances so private.