“The way to get startup ideas is not to try to think of startup ideas,” Paul Graham, co-founder of startup incubator Y Combinator once wrote. “It's to look for problems, preferably problems you have yourself.”
In the case of friends Sean Barrett and Brett Myers, they set out to solve a problem not uncommon to expats. Barrett and Myers were both originally from Australia but were working in Ireland, and found themselves not-infrequently having to juggle money between European bank accounts and Australian bank accounts.
“Moving money is just always one of those things that has to happen when you’re an expat but it’s incredibly difficult and expensive,” Barrett says.
The two found a simple solution: Instead of each of them moving money between his own bank accounts, the two would move money between each other’s account.
“I might have Australian dollars in Australia and I needed some euros, and he had euros and he needed some Aussies,” Barrett says.
“We were working in finance at the time, so it was just a simple matter of looking on the screen, saying, ‘Okay that’s where the interbank [rate] is and that’s the rate we’ll set. And so you just transfer from your Australian account into my Australian account, and I’ll transfer from my euro account into your euro account.”
“There were no cross-border payments or anything,” Barrett says. “Essentially it was free.”
Doing it this way cut out bank fees and padded exchange rates. “It was very obvious that the rates that you would get off the banks were just ridiculous. They were charging 4 or 5 per cent as well as a big transfer fee because you’re essentially moving this money internationally. “
It was this simple idea of cutting out the banks from the equation that Barrett and Myers have parlayed into CurrencyFair: A peer-to-peer based foreign exchange system.
“At that point it was like, ‘Okay we’ve got this little system but obviously you can never know when someone is going to have the opposite requirements to you, or have money. So there was no real way to find other people who would want to do something like that. And obviously there’s the whole trust factor – you couldn’t just find a stranger and do it.
"At that point we says okay how can we make this more accessible to more people? And at the time the whole peer-to-peer thing had really caught on.”
It was an “easy step” to go from exchanging currency between the two of them to seeing the potential for a P2P platform that would let people do similar exchanges on a larger scale, Barrett says.
“It was simply a no brainer,” adds.
“People in different places have these different requirements, so the only way you could bring that many people together at once was through technology, which is building a platform on the Internet where it sort of solves both problems – it brings the people together and it solves that trust element because you’ve got this entity sitting in the middle who basically takes care of all the money and that’s regulated.”
How P2P currency exchange works
CurrencyFair holds funds in segregated client accounts, Barrett says. “If you can imagine the peer-to-peer aspect of it: We’ve got someone in Ireland who signs up, for example. And they would deposit their euros into our local segregated bank account. So they pre-fund that.
“[Then] you have someone sitting in Australia who wants to convert Aussie dollars. They deposit those funds into our account here in Sydney.
“When they match on the website, those funds change ownership within our systems in our client account, then we can just remit them locally. There’s none of these international bank fees, no intermediary fees.”
CurrencyFair charges a flat fee of $4 for a transaction. Users set the rate they want to exchange at, though the rates are ‘collared’ by CurrencyFair to keep them reasonable. CurrencyFair makes money from ‘haircutting’ the rates.
From the humble origins in two expats exchanging money between a handful of bank accounts, CurrencyFair has grown to the point where some $750 million has been exchanged between members, saving users an estimated $25 million, Barrett says.
Turning the idea to a startup began in 2009, when the Irish and global economies were in crisis. Enterprise Ireland identified CurrencyFair as a “high potential startup” and offered assistance, including mentoring.
“We quit our jobs and says ‘we’re going to give this a go’,” says Barrett, who is now based out of Newcastle in NSW. In addition to some help from Enterprise Ireland, funding came from friends and family, as well as some angel investors later on. Recently a “boutique VC firm” in Dublin has come on board, Barrett says.
Building the platform took about 12 months and CurrencyFair went live in April 2010.
“It was just a mad rush to get this thing up,” Barrett says. “At the time we built it on the fly – we built everything ourselves essentially. Now we’ve just relaunched the website on a completely different platform. It’s much more stable and scales much better.”
CurrencyFair hit profitability earlier this year. Now the company is gearing up for growth.
“We want this thing to grow, and grow quickly,” Barrett says.
“The growth is steady, but we want to increase that from maybe the 10 to 12 per cent month-on-month range to more like 25 per cent."
The largest portion – 37 per cent – of CurrencyFair users are based in the UK. Australia makes up 20 per cent of the user base, but represents the fastest growing segment. Australian registrations are on track to increase by over 200 per cent compared to the last year.