Wise: maverick fintech hero heads for zero fees
Investors are buying into a story of disruptive and rapid revenue growth
Payments business Wise joined the London market unconventionally via a direct listing in July. The group’s maverick journey continued with an update on Tuesday. Wise promised higher gross margins — defined as fees from customers minus fees from banks — even though it is charging clients less. The gains will be supported by speedier money transfers that should reduce costs, notably on hedging.
The fast-growing fintech, like several rivals, is grabbing retail payment flows from costly banking incumbents. Investors are buying into a story of disruptive and rapid revenue growth. Yet Wise’s overarching goal of “Mission Zero” eventually aims to make such payments free, eliminating its core revenue source. Ancillary services would have to take up the slack. No wonder some investors are scratching their heads as to how to value this business.
Average transaction fees were 0.62 basis points in the three months to September — 5bp lower than the previous quarter. Fee declines mean slower growth. Wise expects revenue increases of “low-to-mid 20s” for the full year. That compares with 39 per cent for the previous year.
Such metrics hardly add to the appeal of the stock. Investors seem to have only recently realised that Wise is not understating its growth forecasts. Pre-listing growth rates are a thing of the past. The shares have declined by a fifth since the highs of late September. They are now trading below their first-day closing price.
Volumes of cash going through the company’s payment system remain a better indicator of long-term growth. These rose 36 per cent to £18bn in the latest quarter. Momentum here should be easier to maintain. Gross margins are now expected to be 3-5 percentage points above last year’s figure of 62 per cent. That means greater investment in engineers and marketing, which should reduce costs and push up volumes.
Wise hopes to reach a tipping point at which rising volumes and falling fees become a virtuous circle. To invest, you must believe the business plan is boldly disruptive — not just an exercise in buying market share.