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WISE offers significantly faster and cheaper international transfers than traditional banking routes. They focus on retail payments, catering to smaller peer-to-peer or small businesses transferring money across borders. Their digital-focused approach eliminates the need for handling cash and provides transparency in fees and transfer time. WISE is not a bank but operates as a licensed financial institution. They prioritize price, speed, transparency, and convenience in their value proposition.
WISE was founded in 2011 by two Estonian entrepreneurs who experienced the inefficiencies and hidden fees of cross-border money transfers. They developed a closed-loop system using their own network of global bank accounts to execute transfers without money actually crossing borders. Since its founding, WISE has grown exponentially, serving millions of customers and earning close to a billion pounds in income. The company is listed on the London Stock Exchange with a market cap of 6 billion pounds.
WISE's competitive advantages lie in its pricing, speed, transparency, and exceptional user experience. The company is around 10 times cheaper than average cross-border transfer fees and ensures fast and transparent transactions. They have built trust with their customers, resulting in a significant portion of their customer base coming from referrals. However, WISE faces competition from traditional players like banks and money transfer operators, as well as emerging threats from card networks, fintechs, and social media platforms. WISE aims to counter these challenges by maintaining its scale economies and partnerships through its WISE platform, while continually focusing on their customer-centric mission.
Wise, formerly known as TransferWise, operates in the remittance market, offering cash-to-cash transfers for unbanked customers in 200 countries. Unlike Western Union, which charges a 5% fee, Wise charges only 65 basis points. This lower cost of service is possible due to their efficient business model. Wise has a disciplined approach to sales and marketing, maintains vertical integration in domestic markets, and leverages technology like AI and machine learning to automate processes and manage liquidity. With a lean cost structure, Wise maintains a 20% profitability line and continues to grow at a rapid pace.
Wise's mission is to make cross-border transfers as easy and affordable as sending an email. While their low-cost model threatens the profitability of traditional players, Wise aims to differentiate itself through transparency, low prices, and user experience. They provide a transparent price comparison tool and constantly seek to lower transfer fees. Wise's competitive advantages lie in their counter-positioning strategy, offering superior pricing compared to banks, and their focus on customer trust. However, the potential paradigm shift towards digital currencies and increasing regulatory risks are factors that need to be considered in evaluating their long-term sustainability.
This is Zack Fuss, an investor at Irenic Capital, and today we’re breaking down Wise. Wise helps individuals and small businesses move money across borders. It offers significantly faster and cheaper international transfers than traditional banking routes because of its innovative closed-loop system. Twelve years after its founding, Wise serves six million customers and earned close to £1 billion in income last year. Investors currently value the business, which is listed in London, at £6 billion.
To break down Wise, I’m joined by former payments exec and now investor at Sydney-based TDM Growth Partners, James Revell. We cover the broken system of correspondent banking, which has led to slow, opaque, and expensive transfers and then explore how Wise has counter-positioned itself to take advantage of this large market. Please enjoy our breakdown of Wise.
For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.
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Show Notes
[00:02:27] - [First question] - Overview of Wise, their key product, and core competency
[00:04:17] - The founding story of Wise and the road leading to today
[00:09:18] - Wise’s size and scale today compared to 2011
[00:11:07] - Their competitive advantages and how it informs their goals
[00:19:24] - Exploring Wise’s closed loop system and why their model can’t be copied
[00:21:28] - Unique characteristics of their business model that allows them to capture such robust margins
[00:25:32] - Overview of Wise’s unit economics and their revenue model
[00:34:49] - Interchange fees and how Project Zero guides the business
[00:36:44] - Why their lower take rate doesn’t destroy the industry
[00:38:24] - Ways Wise’s business model can’t simply be copied and replicated
[00:44:35] - Thoughts on who their true competitors are
[00:48:10] - Their customer acquisition flywheel
[00:49:49] - Float, increasing net margin, and how they contribute to durability
[00:53:55] - Key risks associated with Wise when evaluating the business
[00:58:35] - Reasons behind the decision to raise money as a direct listing in the UK
[01:01:03] - How people looking at Wise should think about margins over time
[01:03:32] - Lessons for builders and investors when studying Wise’s story
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