Fintech Wise eyes integrations with larger platforms as means of growth

Singapore

AFTER it launched its online money transfer service in Hungary, Wise noticed an unusual influx of customers.

Curious about the growth, the company asked its new customers how they had been referred. It turned out that employees at a small bank in Hungary had been suggesting Wise to its customers as a better alternative for international money transfers.

"The bank managers were using Wise on their own, and started recommending Wise to their customers. The tellers were telling the customers to download the Wise app and hand-holding them through the process," said chief executive officer and co-founder, Kristo Kaarmann.

The ease and speed of the transfers made customers happy, which in turn made the tellers happy. While the bank missed out on some revenue, this was not much of a concern as online transfers had been more of a cost than a profit centre for the bank.

Wise's experience in Hungary inspired the fintech company to build a product for banks and financial services companies. Wise Platform allows any company to offer Wise transfer services to its own customers.

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Within Asia-Pacific, Wise Platform has been adopted by six customers: fintech Aspire, online brokerage Tiger Brokers, accounting software Deskera, Google Pay, Shinhan Bank in South Korea, and digital bank Up in Australia.

"That was quite an inspiration, hearing a lot of banks that don't want to build an international network like we have. We don't want to build a domestic bank either. The best approach is to make Wise services available to where they are already doing banking," said Kaarmann.

Global game

Wise, formerly known as TransferWise, is among the fintech firms shaking up what it means to be a financial services company.

The company has a large footprint globally, and touts its Wise card as a way for customers to transact like a local in nearly any market. A Singapore customer, for instance, can use his or her Wise card in 200 countries for payments or withdrawals. Funds can be received in nine different currencies and held in 54 currencies.

Customers can also have their salaries paid into their Wise accounts as Wise can issue account numbers for multiple jurisdictions. The Wise account also links with other online wallets such as PayPal.

Kaarmann claims the secret to its global progress is thinking both global and local simultaneously. Products developed at any of Wise's offices are built with the aim of being able to work globally, with some local tweaks to facilitate differences in regulations.

While local culture may impact how some features of a product are used, perhaps making some features less popular than others, Kaarmann said the core of how banking works is still the same across borders: There may be particular "quirks" but "the underlying idea of how money works is still the same, so a lot of things we built resonate pretty much anywhere in the world".

This has allowed Wise to accumulate a customer base of 12 million people and businesses, with over £3.7 billion (S$6.6 billion) held in Wise accounts as of Mar 31, 2021 and over 2 million debit cards issued since 2018.

Convincing investors

The company has been growing fast. Volume has grown from £8.6 billion in Q1 FY2020 to hit £18 billion in Q2 FY2022. Likewise revenue has been rising in tandem from £57.3 million in Q1 FY2020 to £132.8 million in Q2 FY2022.

And the pandemic has done little to dampen that trajectory. For Q3 FY2022 ended Dec 31, transaction volume rose 38 per cent year-on-year from £15 billion to £20.6 billion. Revenue also grew in tandem, rising 34 per cent from £111.9 million to £149.8 million.

Wise last reported a profit for H1 FY2021 of £12.7 million, a 13 per cent drop from £14.6 million a year prior. Earnings per share also fell from 1.43 pence to 1.23 pence.

The payments company attributes the fall in earnings to its reinvestment and incurring one-off exceptional costs with its direct listing. Wise did not report its profit in its Q3 FY2022 business update.

Corporate cash - a metric Wise uses as an indicator of the company's ability to generate cash and maintain liquidity - grew 97.3 per cent in H1 FY2022 to £344.6 million from £174.6 million a year earlier.

Investors, however, appear less than impressed. The company listed on the London Stock Exchange via a direct listing in July 2021. Its shares have fallen 49.8 per cent since, valuing the company at £4.9 billion.

Kaarmann is confident of Wise's prospects. Travel plans are resuming and businesses are continuing to expand internationally as e-commerce adoption opens new doors.

"The post-Covid world feels like a different world, but in practical terms people still have the same needs and things they need to get done," said Kaarmann.

Demand for Wise's services hasn't slowed, given banks' hidden and high fees in international money transfers. Wise, meanwhile, is lowering its fees and successfully attracting the small- and medium-size enterprises that are often hardest hit by bank fees. With supply chains and customers becoming more international, businesses need cheaper means of international money transfers.

According to Kaarmann, Wise accounts for 2.5 per cent to 3 per cent of the world's money transfer volume. In 2020 the global cross-border payments market reached £18 trillion, of which Wise accounts for about 2.5 per cent of the £2 trillion personal market or £50 billion according to its prospectus. "We're still only scratching the surface," he said.

Kaarmann is looking to the Apac region to drive growth. Most of Wise's revenue still comes from Europe and the United Kingdom, but Apac is catching up. For H1 FY2022 ended Sep 30, Apac revenue grew 40.5 per cent year-on- year from £32.8 million to £46.1 million. Apac now accounts for roughly a quarter of the company's business despite having had a late start.

The company launched in Indonesia in November 2020, and has added more products in Malaysia. In Singapore, which is Wise's Apac hub, the company is set to add 150 new roles this year to support expansion and product development in the region and across the globe.

But the transfer space is about to get more crowded. This past week, startup Atlantic Money launched an international money transfer service that promises to be even cheaper than Wise. The newcomer says it will charge a flat £3 per transfer, and will not charge a markup on the exchange rate.

Given the high rates that banks charge, there may be room for more competition in this space. But Wise will have to work extra hard to convince investors that it is the horse to back in the fintech race.