Wise is Making its London Stock Market Debut With a Big Splash

Source: nezavisne.com

Wise, formerly known as TransferWise is an impressive operation. With 26 job openings just in Budapest (true for July 8, 2021) and as many as 49 in Tallinn, Estonia, there is little debate that it’s the leader in businesses of its kind, but what is that business exactly?

Not all foreign exchange services are alike

Source: dsbcf.com

Western Union and Moneygram are payment giants, but they operate in a completely different way than TransferWise for the most part. These two companies that have been called archaic by many of their critics offer disenfranchised customers who work abroad and whose families don’t have access to banking to transfer money in a cash-to-cash method.

These two companies are notorious for charging excessively high fees in those cash-to-cash corridors as monitored by World Bank, while Wise money transfers are known for being VERY CHEAP and VERY TRANSPARENT but do NOT support cash-to-cash transfers.

So what does Wise do exactly, and how does it “solve big problems”, if it does not enable cash to cash transfers? How is it different from a bank, and are there Wise money transfer alternatives that may be a concern for potential investors?

The introduction of Wise into the market has made a substantial difference for people who do have access to a bank account and need to transfer money abroad often (but not to immigrant workers whose families need to receive their remittance in cash). It is hardly the first service of its kind to offer such a service though.

Some foreign exchanges services, though, are alike

Moneycorp, dubbed by MoneyTransferComparison.com as “Oldest and Most Reputable Foreign Exchange Service”, is a company that has been offering these cheaper international bank payment services as early as the 1970’s. They started off by targeting small businesses in the import and export business (who have very high FX exposure and are moving significant sums of foreign exchange) but have expanded to private clients sometime in the 1990s.

There are more competitors out there, by the dozens. It’s true that none of them is as big as Wise, and it is probable that none of them has the same ultra-smooth online and mobile application interface (nor the flashy offices) but they are ultimately offering the same service give or take.

Wise money transfers have some unique perks like multi-currency accounts (borderless accounts) that allow customers to receive funds to an account in their name abroad, and they offer the Wise Card, but the core of the service is transferring money for a better exchange rate than the big banks is readily available elsewhere.

Perhaps the most similar alternative to Wise money transfer is OFX (ASX: OFX), an Australian company, previously named OzForex, which has approximately the same price structure per transfer (an FX margin of 0.4-0.5% depending on the corridor), the same reputation (global leader with 20+ years of experience), offers multi-currency accounts as well, and has a great online system and app… and is not doing amazingly well in the stock market since it was floated although it is a decent company which has shown great customer satisfaction over the years –

Wise’s direct listing debut proved a success

Wise shares opened at £8 a share in early June on their debut, putting the company’s market value at £8 billion. By the time it closed on the debuting day the price was £8.88, and has since grown to £9.36. Wise represents a somewhat struggling London that is trying to attract more tech startups.

With Wise being a rare unicorn, this has been one of the biggest British fintech success stories for a while. Wise has around 10 million customers around the world who benefit from its service. They facilitate an estimated £5 billion per month across borders – a large presence in the market despite being only 10 years old. It’s not like the many unprofitable venture-backed tech startups, either.

Wise has been profitable for a long time now, having broken even for the first time in 2017. The 2021 financial year saw profits double to £30.9 million for Wise, and whilst the pandemic hasn’t been conducive to expatriate and holidaymaking transfers, it’s facilitating more remote worker salary payments and the like.

Wise’s original founders Käärmann and Hinrikus remain to be the two largest shareholders, owning 18.8% and 10.9% respectively. The direct listing differs from a traditional IPO because it doesn’t offer any new shares. This is believed by some to be a more attractive way to enter the stock market as it avoids underwriting fees.

Conclusions about investing in Wise share

Source: fool.co.uk

Wise shares (LON: WISE) are showing remarkable interest from investors and it is indeed a leader in its own segment of the bank to bank international payments, but it is recommended investors stay informed and understand there are viable Wise alternatives out there.

Wise is currently operating in a vast amount of countries, but it’s not necessarily the cheapest. Its closest competitor is arguably Revolut, also a London-based fintech, that has a similar business plan. However, for customers in Europe, Revolut is cheaper than Wise for small transfers, as their freemium model allows them to offer the interbanking rate with zero fees (Wise often uses a 0.5% fee).

It’s not known whether or not Revolut’s business model is totally sustainable yet, as it only broke even for the first time in November 2020. However, there will be plenty of startups looking to gain market share by offering cheaper rates. It could be argued that Wise is reaching its limits because there are always those that undercut – even if they prove unsustainable.

Furthermore, we shouldn’t rule out a change in strategy from high street banks, which are currently failing to capture this low-cost remittance market. Ultimately though, what we do know is that Wise is profitable – its success will be long-term and sustainable. That in itself is a rarity among startups in this industry and has been reflected in the strong stock pricing since the direct listing.

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