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samedi 31 janvier 2015

London's hottest new finance startup is identical to an ingenious ancient Islamic banking system

Islamic architecture middle east


TransferWise is the hottest tech property in London right now. The finance startup has raised $58 million on a rumoured valuation of almost $1 billion off the back of its ingenious way to transfer money overseas with almost no fees.


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 bypass 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 avoid 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.


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