Don’t Write Off This Beaten-Down Fintech. It Isn’t Trendy, but the Stock Could Climb.
Technology stocks have had a rough year. That includes fintechs, which marry the flashiness of tech start-ups with the financial services traditionally provided by boring old banks.
To be sure, Wise (ticker: WISE.UK) is a fintech company. It’s based in the trendy east London district of Shoreditch. Senior executives hot desk next to junior employees. The office is a former tea factory and features a sauna.
But its services aren’t nearly as edgy as those of its fintech cousins dealing in cryptocurrencies. Wise simply helps people transfer money between more than 50 state-backed fiat currencies at cheaper rates than what Main Street banks charge. It handled $76 billion worth of transfers last year and boasts more than 13 million customers.
London Stock Exchange –listed Wise employs 3,368 staff and has a market value of 3.5 billion pounds sterling ($4 billion). In addition to offering cheap international money transfers, it offers debit cards that let you spend overseas without paying fees, receive local money payments, and hold accounts in multiple currencies. Wise fetches 38 times this year’s expected earnings and is valued at a 90% premium to its peers.
The business started in 2011 when two friends from Estonia living in London got fed up with the expense of transferring money between euros and pounds. Taavet Hinrikus worked for Skype but got paid in euros, while Kristo Käärmann worked for Deloitte, getting paid in pounds but owing money on a mortgage in euros. They decided to take matters into their own hands.
Anyone who has moved money across currencies through traditional banks knows their frustration—the transaction can take a week to complete, you only know the exchange rate afterward, and there are hefty fees tacked on top of whatever exchange rate the bank offered you.
Their solution was to change the business model. Instead of using the established cross-border banking services, it built its own infrastructure that allowed it to cut out the middleman. It also cut out a lot of the costs.
After slowly building the business, the founders took the company public in 2021 at £8 a share, giving it a market value of about £8 billion. The firm has been profitable for four years.
Since then, Wise has faced some hard times. First and foremost was the broad market selloff that hit tech shares particularly hard. Shares are down 56% this year, trading at around £3.35.
In addition, co-founder Käärmann ran into trouble with tax authorities. He found himself on a public list of deliberate defaulters, owing more than £1 million in back taxes and penalties. The board investigated, and the U.K.’s Financial Conduct Authority last month said it had also opened a probe that could potentially find that he isn’t fit to run a public company.
Wise’s business, meanwhile, could prove resilient in an economic downturn. It only accounts for 3.5% of all cross-border transfers, leaving plenty of room for growth as people move more than $26 trillion across borders every year.
“We see no reason why revenue growth should not remain above 20% in the coming years as the group continues to take market share from the banks,” said Numis analysts led by Kim Bergoe in a June 30 note. “The company is both a profitable and cash-generative disrupter of a huge market.”
At the moment, Wise may just be a victim of the dip in sentiment. But the business appears to be on a solid footing, so its investors stand to gain over the longer term.