Introducing Wise plc (Formerly TransferWise), Wise provides cross-border money transfer services for personal and Business customers in UK, Europe, Asia-Pacific, North and South America. The company’s transfer infrastructure includes Wise Account for international people who need to move and manage money across borders; Wise Business for international businesses need; and Wise Platform that allows businesses and banks to offer their own customers international payments. Wise goal is to be the cheapest way to transfer money across borders.
I was introduced to Wise when I moved to Brazil and needed to move money. It was recommended by almost everyone I met in Brazil who needed to move money. During that time this board was discussing Remitly. I looked up Remitly as a source to transfer money internationally and found it more expensive and it had more negative reviews of it compared to Wise. So, I went ahead with Wise for my money transfer. Not all of my transfers have been seamless, but I blame most issues with government regulations, when I had to move larger amounts of money. But for smaller transfers approximately a thousand dollars the money goes through instantly. Any issues I had during the transfer were handled by a phone call to their team, directing me on how to adjudicate the problem. It was mostly me providing paperwork for a Brazilian bank for them to provide to the Brazilian government.
Financial Overview:
Market Cap: £7.6B
Last Quarter Revenue: £381.2 (36% YoY growth)
Gross Margin: 78.23%
Revenue for the last three years (Q4 is historically light growth over Q3)
Q3 FY2021
Q4 FY2021
Q1 FY2022
Q2 FY2022
Q3 FY2022
Q4 FY2022
Q1 FY2023
Q2 FY2023
Q3 FY2023
Q4 FY2023
Q1 FY2024
Q2 FY2024
Q3 FY2024
Q4 FY2024
112.1
116.3
122.9
132.2
149
153
187.1
229
268.7
279.5
310.9
345.1
375.1
381.2
Insiders own 37.02% of the company.
P/E: 21.8
P/FCF: 2.35
Growing Products:
Cross Boarder transactions is the foundation of the company
Below is a graph of how customers from different FYs continue to use wise for many years. Customers have been sticking around once landed onto the platform of Wise.
2+ Trillion dollars are moved across boarders by individuals every year and they have less than 5% of the market share
9+ Trillion dollars are moved across boarders by small-medium businesses every year and they have less than 1% of the market share.
Customers are utilizing more than 1 product
48% personal use more than 1 product up from 36% a year ago
60% of business use more than 1 product up from 55% a year ago
Assets under custody has grown 523% in the last year to 2.9B
Fast growing market is Wise Debit card. That lets you spend as a local everywhere.
Card revenue growing 54% YoY
Cut price in April this year because they are a cost plus model.
Expect the cross-rate currency take rate to go down year by year
Became first Non-Bank to get direct access to local payment system in Australia
Got Type 1 License for Japan, removing the 1,000,000 yen limit
Collaborations into SWIFT banking.
Expect lower gross margins with reduced pricing
Regulations in Europe on international transaction costs driving Wise Debit adoption
Card integrates with NU bank
Had to stop/slowdown on boarding new customers in UK/EU for a period last year.
They are onboarding about ½ Million customers ever month.
With different financial requirements from different countries
On-boarding has resumed, and further investments have been made to streamline.
The decision was made to slow down based on providing the highest quality.
Overall:
Profitable company Net profit grew 226% last year due to growing gross margin and operating margin. Has a hit new product in their card that is growing revenue fast 54% YoY. With them lowering their pricing they expect lower gross margins heading forward. But growing utilization of the debit card will help in the gross margins. As well as money being invested into mutual funds.
The company is using its pricing, scale, and expertise to build a moat. Its strategy of providing a cost-plus service shows its long-term planning to growth and sustainability. The certifications and licensing allowing them to utilize banking systems in different countries as well as SWIFT will continue to allow them to provide value and grow its customer base. They have less than 5% of market share for individuals and less than 1% of market share for businesses while being the cheapest option, shows they potentially have a lot of runway in front of them. They are ramping up their advertising and have seen a payback from advertising in 6 months currently.
Company is firing on all cylinders. Utilizing its large profit to continue to grow and cut prices to grow market share, while still maintaining profitability and stability. I have ordered a Wise Debit Card to compare the costs of utilizing it at my local ATM as well as purchases vs my American Credit/Debit cards and will provide feedback later. Taking a starter position in Wise.
Since I went to look them up, from their investor documentation -
“Co-founded by Kristo Käärmann and Taavet Hinrikus, Wise launched in 2011 under its original name TransferWise. It is one of the world’s fastest growing tech companies and is listed on the London Stock Exchange under the ticker WISE.”
Wise is an amazing company. They are the reason I sold out of Remitly with some profit because I realized the barrier of entry is fairly inexistent in this space.
I became a Wise customer as I often send money to Brazil. On the last transfer, I sent money on a Sunday from my Wise account, pulling money from BofA and sending to a regular bank in Brazil. The WHOLE process took less than a minute. It would be a 3 to 5 business days in all other competitors. And the debit card you mentioned is a brilliant product. You can hold balances in most currencies in the world, which allows you to not be exposed to exchange rate fluctuations, and utilize ATMs in local currency wherever you go. And I didn’t check other countries, but in the US, you can set up as a regular checking account and be able to transact with any bank through traditional ACH (you have routing number and account number, can even set direct deposits). It’s a very versatile service for sure.
And on top of that, the fees and exchange rates were the best, too.
With all that said, I am not sure I want to be an investor in this international money transfers industry. What’s the barrier of entry? Just a better code? What prevents the big banks from entering it? Or Remitly and Western Union upping their game? It’s a low cost model with little fidelity and could be a race to the bottom.
Western Union and Remitly could up their game and try to catch up by renegotiating rates with all their partner banks, but that will take a while. They could rebuild their entire infrastructure to mimic Wise but that would take time and hurt their current customer base. Do I expect Western Union with all of their built in infrastructure being able to price compete with Wise, No.
It also takes time to get regulation approval from every different jurisdiction to provide the level of services that Wise can do. Wise spent years getting its Type 1 License for Japan. It becoming the first non bank in Australia to get access to the local payment system. Those provide them a head start against the other competitors.
Wise is built from the ground up to be a low cost model and to race prices to the bottom. Big Banks are not built to be low costs or low fees. Wise lowers fees because they can afford to not because they are facing competition.
Wise is also a new member to the party and I don’t expect big banks to move as quickly or rapidly as Wise. Big Banks also have a financial incentive to not change. They are charging between 3-10 times as much as Wise and Wise has less than 1% of the market share of the 11T dollars that is transferred across boarders every year.
Plenty of very successful business in the world were built to be a disruptor by offering the lowest price and racing prices down. The fact that you see this going to be a race to a bottom should be a plus in Wise favor not against it. Because everyone else’s infrastructure is not built to handle a race to the bottom.
I think the more interesting part of Wise and where the real moat could be is “Wise platform”: https://platform.wise.com/
This allows other companies such as banks, fintechs and even software companies to embed Wise within their offerings to clients rather than re-building Wise infrastructure (which would take many years). The end-consumer doesn’t even realize that Wise is underneath.
Their Wise Platform customers consist of innovative companies such as Google Pay, Ramp, Bolt, Deel, Monzo but also several legacy banks that want to offer more competitive FX rates to their end-customers. In total, they now have 85 customers.
I am not sure how much of revenue is derived from the Wise platform (I think it’s still relatively small compared to overall revenue), but this is sticky revenue with switching costs. I agree that the P2P transfers are a race to the bottom with low switching costs (customers can use Wise one day, Revolut the next day and then Remitly the day after depending on who offers the best rate), although it’s complex to rebuild Wise infrastructure and even until now, Wise continuous to improve their infrastructure by getting access to more payment rails etc. so in that sense, catching up won’t be easy for a newcomer. The adjacent products (such as Wise debit card) & stock investing (in select countries) can also increase switching costs. As mentioned above, most legacy competitors are also facing the “Innovator’s dilemma” as a substantial part of their revenue is derived from excessive FX fees.
I have been a customer of Wise for many years. Initially I worked abroad and often transferred money to EUR. My wife is from Asia and sends money monthly to her home country. In general seamless experience that takes seconds to arrive (as opposed to days with regular bank transfers). I also use the Wise debit card when travelling as you can easily save 2-3% on FX fees with every transaction. No investment in Wise currently but definitely a stock I’ve been watching.
Having used Wise I think it has a moat that is somewhat hard to see at first. Using Wise for the first time was a bit scary. The transfer I did required me to transfer funds over to Wise and then trust that Wise would transfer the funds into a different account in a different country. While working with any financial institution requires trust, if you live in a country with a well regulated financial system, you may not often think about the need to trust your institutions. This felt different to me. Who regulated this? Where was it located? If something went wrong, who would I talk to? What country would they be located in? To what authority could I complain if something went wrong and the company was not responsive?
Since that time, I have used Wise on a number of occasions for the reasons mentioned above - it is much faster and much cheaper than traditional wire transfers, western union, etc. Every time, it has worked exactly as it should.
This “trust hurdle” and Wise’s current market position leave it in a great position. The type of transfer I routinely did would have cost over a hundred dollars if working through a traditional bank. With Wise, it was in the $15 range. The big traditional banks remain focused on the high margin traditional transfers and I think are unlikely to try to compete with Wise on price. Wise, in my opinion, beats its existing non-bank competitors (Revolut, World Remit, etc) on fees, ease of use, and overall service quality. If a new company comes along, not only is it challenging and expensive to set up a system that can transfer money from and to virtually anywhere, not only is there is very little room to undercut Wise, but more importantly, given the trust hurdle, it would be hard to win over new customers if there is already a trusted, well priced, establish competitor like Wise.
All that said, I do not own shares. I’ve been following the company and have considered flagging it for the board, but can’t buy it through my broker and don’t want it enough to be willing to open a new account.
