Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Is Wise Really The King of Online Money Transfer Services?

Personal_Finance / Forex Trading Aug 04, 2021 - 06:01 PM GMT

By: Boris_Dzhingarov

Personal_Finance

Wise, formerly known as Transferwise, has generated tremendous success and hype over the past 10 years in the online foreign exchange transfer industry. Granted, the company is one of many that offer consumers a nearly identical service of transferring funds from one currency to another.

But what separates Wise from so many UK currency brokers is the fact that its two co-founders scaled a solution to a personal problem to become an industry titan.


Wise Co-Founders Shared An Identical Money Transfer Services Problem

Kristo Kaarmann, a native of Estonia, was working in London for the multinational firm Deloitte and was paid in pounds. But each month he had to transfer money to an account in Estonia to pay for a mortgage in his home country.

Kristo was using his high street bank account to transfer pounds to euros and had no option but to accept the bank’s 5% makeup on the foreign exchange transfer. He said in a 2019 BBC interview he was “incredibly stupid” for assuming his bank would provide the same exchange rate listed on Reuters or Bloomberg.

But at the time there was no option to accept the fees as it was the cost of doing business. That is until he met Taavet Hinrikus, a fellow Estonian ex-pat living in London.

Taavet, Skype’s first-ever employee, was paid in euros as Skype is domiciled in the European Union. This means he needed British pounds to pay for his day-to-day life.

As it turns out the two shared the exact same problem from the opposite side of the transaction. What Kristo had Taavet needed and what Taavet had Kristo needed. If only there was a way for the two to work together and avoid the middleman.

Indeed there was. And it was actually quite simple.

Each month, the two would look up the British pound and euro exchange rate for their own private foreign exchange transfer. Taavet deposited euros into Kristo’s Estonian bank account while Kristo put pounds into Taavet’s bank account using the actual exchange rate.

Since no banks were involved, the two were able to transact with each other at the real foreign exchange rate. And this is how the concept of Wise was born: what if millions of people can transact with each other in a similar way.

The Wise Business Model: How Wise Works

Wise has stayed true to its original purpose of helping two people transact more efficiently with each other. The way it works is quite simple: Wise has company bank accounts located all across the world and each is funded in the local currency.

The technology behind the scenes will complete a transaction in the same way Taavet and Kristo did the very first time.

Suppose you live in the UK and have a friend who is studying a semester abroad in France. If you wanted to transfer them money you would essentially make a deposit into Wise’s UK-based bank account and at the same time, Wise’s France-based account will withdraw euros to the recipient’s account.

Unlike pretty much every other foreign exchange transfer service, Wise money doesn’t technically move money across borders.

By no means was Wise the first to create a system of exchanging one currency for another, that has existed for centuries. But what it did do is challenge the status quo and give consumers a new option where banks can no longer operate under the assumption it can get away with charging consumers whatever they want.

Taking Over The Money Transfer Service Sector By Storm

The vast majority of start-ups can trace their roots to someone’s basement or kitchen. Kristo’s kitchen played double-duty as office space until January 2012, nearly a full year after its first employee was hired.

Within two years Wise was handling more than £1m a day in transactions and the company caught the attention of Sir Richard Branson and Peter Thiel who both became shareholders. By 2017 Wise was able to accomplish a rare feat for startups: turning and sustaining a profit.

By 2020 Wise was valued at £3.58 billion in the private market. Within one year the company doubled in valuation to £7 billion when it became a public company on the London Stock Exchange.

Is this a fair valuation for a company that is still relatively young? By comparison, Paypal Holdings is worth $333.74 billion (£238.5billion) so it is technically a drop in the bucket compared to one of the most recognized leaders in the global money transfer and exchange services business.

As part of the IPO process, Wise said it grew revenue at a 54% compounded annual growth rate from fiscal 2019 to fiscal 2021 while profit before tax more than doubled to £41 million from 2020 to 2021.

Looking forward the company expects revenue growth to moderate to a 20% compounded annual growth rate over the medium-term.

These are impressive numbers for a still-young company so a £7 billion company just getting started on its journey to challenge the status quo seems reasonable. It is unlikely that Wise will command a similar valuation compared to PayPal but even if it achieves 25% over the long-term it will imply a valuation of nearly £60 billion which would imply investors will see a fantastic rate of return.

Bottom Line: Wise Continues To Gain Attention

Wise still competes against big banks in the global money transfer services industry but it is showing no signs of slowing down. The company continues to innovate in the space and is investing heavily in technology, including artificial intelligence and to provide consumers with an even better experience banks can’t match.

By Boris Dzhingarov

© 2021 Copyright Boris Dzhingarov - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in