Launched just over a year ago, and running Euro/GBP transfers only at this point, TransferWise bypasses the traditional international money wiring systems entirely. TransferWise aims for a more or less direct transaction between payer and recipient, avoiding the exorbitant traditional bank and credit card costs.

How much cheaper is TransferWise? They’ll process a £1,000 payment into Euros for 35-40 EUR less than the major banks, and over 100 EUR less than Western Union. They do so by both applying a far better exchange rate and drastically lowering the processing fee to just 1GBP on transfers up to 300GBP. (See their dynamic cost/comparisoncalculator.)

To fulfill payments, TransferWise simply sets up its own accounts in each region it serves. So if Lane in London needs to pay Sal in Rome, Lane sends his GBP to TransferWise’s UK account, then TransferWise instructs its continental EUR account to pay Sal’s. Through the end of February, the company has processed over €10 million in transactions.

TransferWise’s founders are two Estonians, Taavet Hinrikus and Kristo Käärmann. Taavet was part of the original Skype team, and Kristo is a former Deloitte manager with financial systems architecture expertise.

They’re addressing a massive market, of course: cross-border payment flow for goods and services reached $150 billion a day in 2010, Taavet says, based on UNCTAD figures. Taavet runs some numbers: “If you assume the average fee is now 5%, that means our industry is $1.925 trillion per year (5% of the $38.5 trillion/year total). Disrupt that down to 1% and you have $385 billion/year.”  98% of the market outside of remittance providers like Western Union, he believes, is handled by the banks, “so it’s really about expanding that 2%.”