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Wise PLC - An Analysis

My analysis of $WISE (+0.76%) :


- Founding and purpose: Wise was founded in 2011 by Kristo Käärmann and Taavet Hinrikus to combat high fees and inefficiencies in international money transfers.

- Business model: Wise uses local liquidity pools and APIs to optimize currency conversions and transfers without currencies physically crossing borders.

- Market entry: Wise is increasingly integrating with government-backed payment systems (DPS) to bypass bank partnerships and enable faster and cheaper transfers.


Market and competition:


- Market size: the global market for cross-border transfers is approximately USD 35 trillion annually, with corporates (~50%), SMEs (~40%) and consumers (~10%) being the main players.

- Competition: Wise competes with traditional banks, fintechs and crypto solutions. However, it has a strong position through its integration with DPS and its network effects.

- Geographic focus: Most transfers are between USD, EUR and GBP. India is the largest market in Asia, although Wise's overall presence in Asia is weaker.


Business divisions:


- Cross-border transfers: main source of revenue (63% of revenue). Wise continuously lowers fees (take rate) to attract customers and encourage usage.

- Wise Account: A multi-currency account with features such as a debit card and the ability to create local bank accounts in multiple currencies.

- Interest Income: Wise generates interest income from customer deposits, with a portion of the interest returned to customers.

Wise Platform: White-label solutions for banks and corporates to enhance their cross-border payment infrastructure.


Competitive advantages:


- Network effects: Large liquidity pools and numerous transactions enable cheaper and faster transfers.

- Integration with DPS: Wise has access to multiple DPS, reducing dependency on banks and increasing efficiency.

- Negotiating power: Partnerships with banks and DPS strengthen Wise through high transfer volumes and reputation.


Challenges and risks:


- Slow growth in SMEs: SMEs are less willing to switch from traditional banks, which inhibits growth in this segment.

Regulatory risks: Stricter regulations could affect Wise's business model.

- Crypto competition: Stablecoins could pose a threat in the long term, although they are currently still inefficient.

Financial projections:

- Growth: Wise is expected to grow revenue at 22% CAGR and PBT at 19% CAGR by FY'28.

- Margins: Long-term PBT margins are estimated at 13-16% as the company reinvests heavily in expansion and product development.


Conclusion:


Wise has a strong market position due to its innovative infrastructure and low fees. However, it faces challenges such as slower SME growth, regulatory risks and potential competition from cryptocurrencies. The company remains a leading player in the cross-border payments space.

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