Wise keeps its head above water as big banks look for slice of the payments pie
Payments fintech firm Wise has managed to keep growing, despite multiple controversies and fresh challenges from both bigger banks and new fintechs.
It is going from strength-to-strength because of unbeatable low payment rates and a strong brand identity, which has undermined many traditional banks, especially with young customers.
But the London-listed fintech is starting to face competition from bigger, more established lenders, as well as new challengers looking for a slice of the payments action.
Wise’s fintech star steadily rose after the UK-based company began offering cheap foreign exchange payments in the early 2010s.
Despite multiple controversies – including a regulatory investigation into its chief and co-founder Kristo Käärmann over a 2017 tax-dodging scandal, and a money-laundering compliance fine – Wise is booming.
A record 5.5m people joined its platform in the second quarter of 2023 – a 40 per cent increase on the previous year.
Big banks have so far been unable to compete with Wise’s revenue model; Santander has warned that its profits are at risk from Wise’s cheaper forex margins.
Last week, however, HSBC introduced an international payments app and debit card, Zing, to challenge Wise (and Revolut) for a slice of the payments market – although it is unclear how HSBC intends to compete with Wise’s super-low transaction fees.
Wise remains cheaper than HSBC’s Zing, charging 0.45 per cent in exchange fees while HSBC charges 0.6 per cent.
RBC analyst Benjamin Toms described the launch to the FT as a long-term “defensive” move, which aims to pull in and retain younger customers.
Wise continues to outpace direct competitors: peers Monese and Revolut both posted losses in 2022.
Monese, a UK-based fintech start-up which offers accounts to people under served by big banks, posted a £30.5mn loss for 2022, a near-70 per cent increase on the previous year.
In comparison, pre-tax profits for Wise soared 173 per cent to £51.3m in the six-month-period to the end of September 2023, while its share price is up by 49 per cent year on year.
Along with higher customer demand, higher interest rates boosted the amount that Wise made on the cash customers kept with the company in 2023.
For now, Wise seems to be staying ahead of both big and small competitors: despite a dip when Zing was announced, Wise’s stock has bounced back in the new year to a near-record high.
Wise bucked the downward trend of fintechs in 2023 after the sector was hit by “high-interest rates, geopolitical tension and increased energy prices due to the Russia-Ukraine War,” according to SaaS-based market intelligence platform Tracxn.
Fintech investment dropped to £2.61bn in 2023, down 72 per cent year on year from £9.27bn, as investors increasingly moved toward green energy start-ups and AI.