Test for London’s fintech sector: Wise listing could turn into ‘volatile affair’
Cross border payments company and fintech giant Wise will be admitted to the London Stock Exchange tomorrow morning.
No price guidance has been issued, which will mean that the stock price will be determined during the auction, which will be a lengthy one – from 7.50am onwards, with trading to begin just after 11am – since the float involves a direct listing.
The cross-border payments firm, which began its journey in 2011 as Transfer Wise, now boasts 10m customers worldwide and has been profitable for the last four years.
So far this year, the company processed £54bn in payments, with users attracted by the low fee structure compared to other banking transfer services.
‘’The Wise listing will be a test for London as a Fintech hub, as the UK grapples with its post-Brexit status in an era when it has struggled to attract fast growing companies looking to launch an IPO,” said London-based Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, this afternoon.
The company expanded from a personal peer-to-peer service to offer businesses faster payments solutions and that is an attractive feature of its growth prospects, Streeter stressed.
But she sees plenty of risks ahead: the company has rivals snapping at its heels in the revolutionary world of payments and to stay competitive it may be forced to cut fees faster than it can reduce costs.
“Excessive volatility in currency markets could also affect its profits,” Streeter added.
Although the payments industry is in a state of flux, she continued, Wise is still confident that its strong brand recognition will mean demand for shares will be high when trading begins.
Direct listing
A direct listing system is viewed as cheaper and simpler than a traditional IPO where the whole process is managed by expensive investment banks which underwrite new shares and help find institutional and sometimes retail buyers for them.
Instead of new shares being listed, only existing ones held by early investors or the founders are traded on an exchange.
“So underwriters don’t have to be paid and shares aren’t diluted. However, the risk is that not as much interest is drummed up, and there is no guarantee for share sales as it relies purely on supply and demand,” Streeter explained.
By targeting existing customers and offering incentives including bonus shares, representing 5 per cent the value of existing stakes, if customers keep onto their holdings for a year, Wise is hoping there will be a flurry of interest, she pointed out.
“Direct listings are more of a level playing field for institutional and retail investors who will be able to buy shares at the same time, when they begin trading on the London Stock Exchange,” Streeter noted.
She stressed that Wise has opted for a dual class structure though, which means under current rules it won’t be eligible for a premium listing, although under recommendations put forward in the UK government’s Hill listings review, that could soon change.
“Clearly the founders still want to keep a strong arm on the tiller of the company as it launches into public waters,” Streeter said.
“Retail investors should be aware that under such a structure, they won’t have as many voting rights as they might do if they hold shares in other companies listed in London.”
“This arrangement may also put off some institutional investors who are uneasy about the lower levels of corporate governance brought about by a dual class structure,” she said.
As this is a direct listing, there will be a lengthy opening auction period from 7.50am to establish the opening share price.
“Trading is expected to commence just after 11am and we would expect it to be a volatile affair,” Streeter concluded.