In 2011, two Estonian expats, Taavet and Kristo, faced a common yet costly issue. Taavet, living in London, received his salary in euros, whilst Kristo, earning in pounds, needed euros to pay his mortgage in Estonia. The exorbitant fees for currency exchange sparked their 'Aha' moment, leading to the birth of TransferWise.

Wise (rebranded from TransferWise in 2023) has since evolved into a powerhouse in the fintech industry. This London-based company has completely transformed cross-border payments, growing from a simple peer-to-peer system into a global entity offering a comprehensive suite of financial products for consumers, businesses, and enterprises.

In this deep dive, I'll dissect Wise's current position and share some commentary on the performance. I will not be sharing any information that you can't see publicly.

Full disclosure: I am currently employed at Wise and hold a decent number of Restricted Stock Units (RSUs), which represents a significant vested interest in the company. For this analysis, I will only share public information for which you can see online.

Now, let's delve into Wise's robust business model:

🔢 Wise's success is built upon four key propositions:

  1. Cross-border Money Transfers: Wise's flagship service enables customers to send, spend, and receive money internationally at mid-market exchange rates (as seen on Google). This offers unparalleled value compared to traditional transfer services, with fees that are a fraction of what you'd pay at currency exchange kiosks.
  2. Multi-currency Account (MCA): The Wise account is a game-changer, allowing customers to hold and manage over 40 currencies. Whether you're a globe-trotting entrepreneur or an international backpacker, you can effortlessly maintain local currency wallets and make payments like a local.
  3. Wise Business: This bespoke solution caters to businesses with international operations, streamlining processes like international payroll and expense management. Impressively, Wise extends the same powerful features to its  395,000 active business customers as it does to its 8.6 million individual customers.
  4. Wise Platform: This innovative, proprietary technology allows banks and businesses to seamlessly integrate Wise's robust infrastructure into their own systems, significantly expanding Wise's reach and impact in the financial sector. The platform is supported by a network of over 90 banking partners, 65+ licenses, and 5 direct connections to payment systems, enabling fast and efficient cross-border transactions in 160+ countries and 40+ currencies. 

Wise's competitive advantage stems from its innovative technology and strategic banking partnerships, enabling faster, cheaper, and more transparent international money transfers compared to traditional banking systems.

The company's core strategy is encapsulated in this statement:

"Solve cross-border payment problems for individuals and small businesses by investing in low-cost, high-quality infrastructure and making it available through our apps and platform."

This strategy is underpinned by three interconnected pillars: :

  1. Mitigating Risk: Ensuring Wise is reliable and available when customers need it most.
  2. Scaling Operations: Providing consistent, accessible customer support across various communication channels.
  3. Growth: Building upon the foundation of risk mitigation and operational excellence to earn licenses and trust, thereby fuelling expansion.

🚀 Financial & Growth

Wise's latest quarterly update (Q1 FY25) shows impressive growth across key metrics:

  • Active Customers
  • Volume
  • Underlying Income
  • Cross-border take rate
  • Instant Transfers
CEO Kristo Käärmann reports: "26% YoY growth in quarterly active customers to 8.4m, driven by strong customer retention and new customer acquisition through recommendations. Volumes increased 18% YoY (20% on a constant currency basis) to 33.2bn, reflecting our expanding active customer base. Concurrently, we've reduced fees, with the cross-border take rate decreasing by approximately 5% to 64 bps YoY (down from 67 bps in Q4 FY24)."
created by Ali Galan

The Margin Trends chart reveals Wise's evolving operational efficiency:

  • EBITDA Margin rises from 21.6% in 2022 to a peak of 40.6% in 2024, showcasing significant operational improvements.
  • Projections for 2025-2027 indicate a decline in margins, reaching 30.6% by 2027. This may reflect a strategic decision to sacrifice short-term margins for long-term growth through reduced fees and increased volumes.
  • Net Margin follows a similar trajectory at a lower level, peaking around 25% in 2024 before declining. The gap between EBITDA and Net Margins suggests increased investment in scaling operations.

These trends indicate that Wise is not only growing but also adapting its business model, potentially positioning itself for future strategic initiatives.

Regional Revenue Analysis

  • Europe remains Wise's primary market, though its revenue share is gradually decreasing.
  • Asia-Pacific demonstrates rapid growth, significantly outpacing other regions.
  • North America shows strong performance, indicating Wise's competitiveness in a challenging market.
  • The UK market exhibits steady but modest growth, possibly indicating market maturation or a shift in strategic focus.
  • The 'Rest of World' category, while smaller, shows promising growth, potentially representing strategic expansion into emerging markets.

Business Segment Analysis

  • Business segment customer growth (13% YoY) lags behind personal (26% YoY).
  • However, business segment revenue growth (14%) outpaces its volume growth (17%), suggesting increased value extraction per business customer.
  • Personal customer balances are growing faster (31% YoY) than business balances (12% YoY), indicating different use cases or trust levels between segments.
  • The business segment appears to be in its early stages, presenting opportunities for targeted growth investments.

Customer Dynamics

  • Customer balance growth (23% YoY) outpaces active customer growth (26% YoY), indicating increased trust and engagement.
  • Quarter-over-quarter growth in active customers has accelerated from 4% in Q3 FY2024 to 6% in Q1 FY2025, suggesting improving customer acquisition strategies or favourable market conditions.

Revenue Efficiency

created by Ali Galan
  • Cross-border revenue growth (12% YoY) lags behind volume growth (18% YoY), yet overall financials remain strong.
  • This discrepancy points to improved operational efficiency and potential success in cross-selling additional services.
  • The slowing growth rate in business customers and volumes may indicate approaching saturation in certain markets or customer segments, potentially necessitating expansion into new geographic markets or product development.

In conclusion, Wise demonstrates robust growth across multiple dimensions, with particularly notable performance in operational efficiency and regional expansion. The company appears to be strategically balancing short-term profitability with long-term growth initiatives, positioning itself for continued success in the evolving global financial services landscape.

Historical Financials (continued):

This section is particularly revealing. Let's delve into it:

Card and other revenue is skyrocketing, with a 55% YoY growth. This isn't a side hustle anymore—it's evolving into a core revenue driver. Wise has clearly succeeded in getting customers to use their cards for everyday transactions, not just transfers. They've essentially transformed a utility into a lifestyle product.

The divergence in underlying interest income growth between personal (34% YoY) and business (13% YoY) segments tells a more complex story than it might seem at first glance. Whilst it's tempting to conclude that personal customers are simply parking more cash in their Wise accounts, the reality is likely more nuanced.

This disparity could be driven by several factors:

  1. The rapid growth in personal customers (26% YoY) compared to business customers (13% YoY), naturally leading to a faster increase in personal balances.
  2. Changing behaviour patterns among personal users, who may now view Wise as a more integral part of their financial lives.
  3. Business accounts, whilst growing more slowly, might already maintain higher average balances, making percentage growth appear smaller.

What's clear is that this underlying interest income is becoming a crucial piece of Wise's revenue puzzle. It's a clever way to monetise customer trust without resorting to additional fees. It's also clear that Wise isn't just sitting on these balances; they're more likely investing them in safe, highly liquid assets as per financial regulations.

The brilliance lies in the virtuous cycle Wise is creating:

  1. More customers and higher balances generate more interest income.
  2. This allows Wise to offer competitive services and even share some benefits back to customers (evident in the growing "Benefits paid relating to customer balances").
  3. These perks, in turn, attract more customers and encourage larger balances.

Wise is playing a multi-dimensional chess game. They're balancing growth, profitability, and customer value across multiple product lines and segments.

Working at Wise, it's clear to me that we're committed to expanding and serving our customers in the best possible way. Coming into the office every day, I see how we're all driven by a central mission: making money borderless and cost-effective, while doing so in a transparent way that puts our customers first.

This analysis marks my first attempt, and I acknowledge there may be errors. With a Bayesian mindset, I welcome constructive feedback to refine my approach. Moving forward, I plan to conduct these analyses more frequently, gradually delving deeper into other companies.

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