Since banks charge transaction fees and bake in markups to exchange rates, the duo’s frequent currency transfers were costing them a small fortune. One year Käärmann thought HSBC had lost some of his Christmas bonus because 500 euros less than expected arrived in his account. ... The Estonian software engineers devised a simple solution: Hinrikus would transfer euros from his Estonian bank account into Käärmann’s Estonian account, while Käärmann would transfer pounds from his British HSBC account to Hinrikus’ at Lloyds. This would save them on international transfer fees, as well as on currency drag since they used the real exchange rate, known as the midmarket rate. Soon they had a Skype chat going with other Estonians who wanted to exchange money this way. Eventually this Skype-linked money exchange forum morphed into TransferWise. ... TransferWise uses a system not unlike the ones big financial institutions use to “cross-trade” securities, without incurring costs or commissions, by internally matching buyers and sellers. In this case the official midmarket price offers clarity–neither side is speculating–so it’s simply a balancing process, as TransferWise’s computers simultaneously verify that both sides have the money ready to swap. Indeed, its matching system means funds rarely cross international borders. ... The company is now producing roughly $5 million in revenue a month versus about $1 million per month a year ago. ... Of the $150 trillion in currency-transfer volume annually, the consumer portion amounts to an estimated $3 trillion. ... Still, that’s a decent-size market, with the revenue generated from it exceeding $45 billion.
In 2013, at age 30, he set out to build a better, more equitable way to assign credit scores to millennials who, in the wake of the recent financial crisis, had never taken out a loan before. All Sims needed to get started was a trove of data from a financial institution. ... When Lending Club went public in late 2014, Sims scraped together about $1,000 to buy stock. “It sounds dumb now,” he said, “but it felt like a chance to participate in history.” He was so taken by Lending Club that he began listening to the company’s earnings calls. “Like a weirdo,” he said. It was on one of these calls, in 2015, that he heard Chief Executive Officer Renaud Laplanche say that 14 percent of Lending Club’s borrowers, or more than 100,000 people, “returned for a second loan.” That struck Sims as curious. He knew that for all the information the company made public about its borrowers—incomes, employment histories, their reasons for borrowing—one thing it didn’t list was repeat customers. ... Sims saw a business opportunity: a research service that would independently rate Lending Club loans the way Morningstar rates mutual funds. Sims asked a data scientist, Allen Grimm, to help design an algorithm to identify loans that seemed to have been taken out by the same person and yet were assigned different rates. They called it the Financial Genome Project. ... Lending Club and its backers don’t deny the self-dealing but say it’s a nonstory. ... Sims has discovered dozens of other loans he suspects were made to company insiders, as well as lending practices that seem to have been designed to push growth above all else.