As international transactions steadily rose, it wasn’t until companies like Wise came about that people saw banks as relatively incompetent at cross-border payments. Wise’s customer base is far-reaching as a result, with small businesses becoming increasingly involved in international markets, along with expats and remote overseas workers, it was a perfect storm for a modern, faster, and cheaper approach to overseas payments.

Wise’s strong performance against headwinds

Wise isn’t a payment processor, nor does its transactional volume perfectly correlate with consumer demand. Many people depend on them for a diverse range of activities, making them more robust in the face of a troubled economy.

In October, Wise announced that they’ve upgraded their guidance, meaning they believe forecasted profits to be better than expected. Initially, this may be surprising given that most major economies - particularly ones that Wise accepts customers from (though it is geographically diverse) - are stagnating besides the US.

Interest rates

One reason behind this, besides the fact that revenue is more diverse than being a payment processor like Visa and MasterCard, is that they’ve benefitted from hiked interest rates. The UK, US, Canada, Australia, and the EU all have interest rates between 4.10% and 5.50%. 

This isn’t just the same benefit that banks receive, it’s greater because customers do not expect competitive savings rates from their multi-currency wallet accounts - that’s not why they use them. Wise isn’t a place to store or save money, in part because it doesn't have FCSC Deposit Protection. So, Wise can make use of a higher risk-free rate on the £12 billion in customer account balances.

Growing user base

Wise’s strong performance has also come about due to a 32% rise in active customers. Their claim is that it’s “driven by our high levels of word-of-mouth referrals and increasing adoption of the Wise Account.”

Wise of course have a referral program, where inviting 3 friends can reward the person with up to £75. However, word-of-mouth is something far bigger than Wise; it’s the rapid realisation of traditional banking’s shortcomings. 

The FT’s recent Market Insight opinion piece highlighted the desperate need for a better cross-border payments network, especially with global payments expecting to rise from $190 trillion to $290 trillion from 2023 to 2030.

The three current issues of sluggish expensive international banking payments were outlined as:

• The current systems hinder economic integration 
• Vulnerable people bear the biggest burden (e.g. higher spreads for “exotic” currencies)
• Alternatives like Crypto and closed-loop systems carry significant risks

Whilst the opinion piece never mentions fintechs like Wise and Revolut, in part because the author is in search for better banking systems and frameworks, it’s clear that Wise is doing very well with the cards it has been dealt. And, for it being more accessible, cheaper, and faster than banks, the public are continuing to find out about this.

Profitability and rising fees

In 2022 and 2023, Wise increased a few different prices for using their service. Notably, a variable fee (from 0.47% to 0.56%) increases when converting GBP to EUR, along with an increase in fees when sending from a wide range of accounts.

These fees remain to be low by almost any metric. Revolut is arguably their most fierce competitor, yet charges 1% on conversions over the £1,000 monthly limit. This freemium model is great for customers transferring small amounts, making it cheaper than Wise, but it can become more expensive than Wise when transferring larger monthly amounts. 

In fact, Wise has a few competitors that are edging them on rates. Matt Lewis from TopMoneyCompare says "Young European company Atlantic Money charges a flat rate of 3 Euros with no spreads. I am personally skeptical about their ability to charge so little over the long-run considering that their own costs are likely to be higher than 3 Euros per transfer, but they are still generally cheaper than Wise"

This could be one reason why Wise have retained customers: they understand that Wise appears to be sustainable and healthy. But, it’s also because of the growing awareness of these alternative fintech solutions. A small increase in fees may turn some customers away, but there are more coming through the door to make up for it.

Final Word

Economic stagnation around the world appears to be no threat to Wise, who are upgrading their guidance and seeing new customers come through the door. Despite increasing fees and new competitors springing up, Wise remains to be seen as a reliable, convenient, and affordable option among the fintechs. Whilst it doesn’t replace our need for a better cross-border banking framework, it pushes the current one to its limit regarding competitive spreads and remaining profitable.