My analysis of $WISE (-4,01 %) :
- 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.