London's $1 Billion Finance Startup TransferWise Is Just Like An Ancient Islamic Money Transfer System
It does this by not actually transferring money across borders - instead, it matches up payments with those going the opposite direction. So "your" money never actually leaves the country - it's just rerouted to someone who's being sent a similar amount by someone overseas. Your foreign recipient, meanwhile, receives their funds from someone trying to send money out of their own country.
The beauty of TransferWise is that despite its complexity, its users never have to worry about these peer-to-peer details. Their money just transfers quickly and cheaply, at the click of a button.
It's all powered by highly sophisticated back-end software, but despite this, the underpinning concept isn't new. In fact, as Michael Levitis pointed out to me on Twitter, it bears remarkable similarities to an ancient Islamic money transfer system called Hawala. (It's a comparison also made by Quartz.)
Much like TransferWise, Hawala sidesteps the headache of actually transferring goods across borders (something even more difficult when you're dealing with gold or physical assets hundreds of years ago). Instead, there's a network of brokers, or Hawaladars, who are based in all of the possible recipient locations. A customer might go to the Hawaladar in the first city, agree to transfer funds, and be given a password. When the recipient in the second city uses that password, funds are given to them from the second Hawaladar's cache. The funds paid to the first Hawaladar, meanwhile, remain with him, until a transfer in the opposite direction releases them.
The Hawala system has been used to sidestep the US trade embargo of Iran, Government Security News reports. It's not clear what would happen if a customer used TransferWise were used to sidestep an embargo in a similar incident.
So while TransferWise's solution to the age-old problem of international money transfer is an innovative one, it's definitely not a new one. It just goes to show - the old ideas are often the best ones.