This startup wants to eradicate fees from finance

Fintech firm Uphold is making it easier for people to transfer and convert money without hitting them with high fees

13 Jun 2016

When Halsey Minor founded CNET in 1993, he took a gamble on a new kind of media business model. Instead of asking users to pay for content, he’d give it away and generate revenue from advertising instead. Since those early days of web news free content has dominated online media.

Now, 26 years after he launched CNET, Minor is applying the same thinking to the finance industry. Uphold, the fintech startup he founded in 2013, allows anyone to store, convert or move money and commodities instantly at no cost. Users store value on digital cards representing different currencies or commodities and can easily switch between these or send money anywhere in the world via email.

“We want to be able to remove all the costs and charges from the global financial model,” Uphold CEO Anthony Watson tells WIRED. Unsurprisingly, there are growing numbers of users out there who find that an attractive proposition. In 181 countries around the world, 75,000 people are using Uphold to send or store money. So far, its members have made nearly $1 billion (£700,000) worth of transactions on the platform.

When Watson joined Uphold (then called Bitreserve) in early 2015, the startup was primarily a place for buying and trading bitcoin. For a company that wants to make finance fairer and more democratic, the cryptocurrency was a logical place to start. “It’s the first currency that we as a world use because we believe in it and not because it’s backed by anyone,” says Watson.

But since joining the fintech firm, Watson has expanded its focus beyond bitcoin and it now allows members to hold, convert and trade 22 currencies, four commodities and two other cryptocurrencies: litecoin and ethereum. And like many fintech firms, Uphold is working to bring down the cost of personal finance.

Low-income migrant workers sending money back home to their family are often subjected to cripplingly high remittance fees. Mexican migrants send back around $25 billion every year, the vast majority of it from the USA where migrant workers can pay ten per cent or more just to send their wages home. That works out at around $2.5 billion in fees. “It’s fundamentally wrong that just because you come from a different demographic that you’re charged ridiculous fees for what is fundamentally a zero cost service,” says Watson.

Uphold members pay nothing to send money instantly to another member, no matter where they are in the world or what currency they are paying in. The platform only charges members (0.5 per cent) when they transfer money onto or off of the platform altogether. But money transfer is only the start of what Watson has planned for Uphold – he wants to turn it into a “universal financial service platform” that members use for all their normal banking needs without having to shift money onto and off the platform.

As fintech firms push down the cost of financial services, Watson predicts we’ll see an end to the incumbency of big banks. “We’re going to move to a world where in the next five to ten years the legacy institutions that are there will just disappear," he says. They’ll be bistro asset managers, advisors, private bankers. They won’t be the utilities that they are today.”

It’s not just that traditional banks have been slow to embrace new technology, explains Watson, but that their business processes – the heart of how they make money – are out of date too. Currently, most banks work by accepting customer deposits, taking out investments with that money (generating their revenue from those investments) and keeping a small portion of the deposits in reserve ready for customers to withdraw.

Northern Rock customers withdrew £1 billion in savings (about 5 per cent of the bank's total deposits) during one day in September 2007

Peter Macdiarmid/Staff/Getty

This system, called fractional-reserve banking, leaves banks vulnerable to runs if a large number of customers chose to withdraw their deposits at the same time, as happened to Northern Rock in September 2007. In the wake of the financial crisis, several prominent economists have called for an end to fractional-reserve banking, or for banks to at least consider increasing the ratio of cash held in reserve.

Uphold operates on an entirely different basis. It holds all customer deposits in its reserve, making it theoretically immune to bank runs. “If there’s a run on my bank, I won’t like it, but I’m not going anywhere,” says Watson. The company also displays all its reserve data in real-time so that customers can keep tabs on their deposited money. At the time of writing it holds £4.89 million – 100 per cent of its customers’ deposits – in its reserve.

For too long, argues Watson, the financial system has been stacked in favour of the people with plenty while it overcharges those who can least afford to pay. Uphold, he hopes, is about to usher in a new era of “ethical finance” that redresses that balance for good.