Wise Group plc (WISE) Earnings Call Transcript & Summary

Well, good morning. Good morning, everybody. Thanks very much for joining us today. I'm Martin Adams. I'm the Head of Owner Relations here at Wise. Following the release of our half year results this morning, we're now going to give you a short presentation. We'll take you through the strategic progress and the financial outcomes from the first half of the year. The presentation is going to be given to you by Kristo, our Co-Founder and CEO; and Matt, our CFO. If you have any questions as we go through, please do just hold on to them for the Q&A session at the end. And because we've got a hybrid format this morning with people in the room and some people on Zoom, then I'll just explain just before we head into the Q&A how that will work. And with that, over to you, Kristo. Thanks.

Thanks, Martin. Thanks, everyone, for joining us for the first time. We're going to be doing this every 6 months. So those who missed today, you'll have the chance next time. Thanks, everyone, for joining us on Zoom. We can't see you at the moment, but we know you're going to be there with us, and we're looking forward to you joining us for the Q&A. So just to kick off, I'm going to talk us through the progress that we made over the last 6 months, much kind of how our customers would view the progress that we've made. And then Matt is going to talk us through the numbers, the financials and the impact to the company. And then we'll have the QA. There's going to be plenty of time, don't worry. As we go into this, as a reminder of why I started this company with my co-founder 10 years ago is to make money work with our borders. And very specifically, in spite of country borders and national currencies, the world is getting more online, more connected, more digital, especially now. And we're expecting money to work instantly, conveniently, transparently and for less and less friction, for cheaper and cheaper cost across the borders as it works locally for us. Well, that's not the case today. Most of the money is moving sort of retail banks. It's expensive, slow. It's quite inconvenient to the level of unpleasantness. And I actually don't know what you think when you're being charged. And when we look in the numbers of this, it's GBP 18 trillion moving cross currency per year. Maybe even the more interesting part is the fee, so who's picking up the tab for this. It's more the businesses -- small businesses and the individuals. And some logic to this because most of these fees are not transparent. Most of this is just exchange rate markups that perhaps are not as easily understood by small businesses as they are the -- to the enterprise CFOs. But the problem to solve for the world is pretty enormous. It's GBP 190 billion in annual fees raked in by most of the retail banks. And back then, we started to address each of these fundamental problems of making something that is cheap, fast, convenient, pleasant and transparent to use across borders. And when we started working on this, we realized that we have to actually change the entire plumbing beneath. So we had to give up on the traditional corresponding banking model and completely build up our network. That's the reason why I'm going to start from that perspective. So here's a world map. With the countries in dark blue, these are the countries where TransferWise or now Wise is more embedded. We serve people sending money to this country and also from this country. So you can see it can go from the U.S. to Sweden or U.S. to Australia and from Australia to the U.S. The countries in light blue are the ones where we send money to, but we don't send money from these countries. So these are one-way routes for us. And now if we just take some examples of how we developed our own underlying network over the last 6 months, we'll see things like we launched in India. So we started serving transfers and moving money from India. We also added destinations like Fiji. On the side of operational efficiency, we improved the way how we monitor fraud and bad behavior in the U.S., how we negotiate banking contracts in the Nordics, and we optimized things that we do in Japan around safeguarding. So you're going to be hearing Matt talking through the operational efficiencies. These are just some examples that have given rise to that. On the other hand, some improvements in the network gave us a lot more speed. So that's -- that example is more Asia-focused where we're just able to move much more money movement into instant. And some of these improvements have been global. So things that we've done on treasury have actually affected all of the routes at the same time. So these are pretty sweet as well. Now when we look at what's come out of this, and starting to go into the fundamentals, and the first thing is we've lowered our fees for almost 2.5 million customers. And look, it kind of comes out in numbers as well where it used to be around 69 basis points bridge, and we brought it down to 62 basis points. This might be something slightly unusual for our company -- kind of an unusual achievement for a company to celebrate. But let me kind of take you through why we do. The lower transparent fees is the #1 reason, it's the #1 reason why people and businesses switch their international banking from their bank or from PayPal or from somewhere else to Wise. That's the #1 reason. Second, it's the #1 discussion topic when our customers recommend Wise to their colleagues, to their peers, to their family and friends. It's the #1 thing that they talk about when they talk about Wise. And perhaps kind of less obvious, it's also a big reason -- the Wise fees and the transparency around these fees, it's one of the big reasons why our integrated bank partners choose to integrate Wise into their own offering. For the neo banks, it's to -- for the neo banks or the challengers, it's basically to win the primary bank accounts from their traditional competitors. And from the traditional banks, it's more to fend against the challengers. So overall, we're setting the expectation by lowering these fees or doing it sustainably. Matt's going to give a little bit more color on the financials, how that's looking like. But this is a very, very central thing that makes Wise what it is today. And then moving on to other fundamentals. So the speed of transfers, thanks to many of our network improvements, is going up. Now 40% in the most recent quarter, 40% of transfers arrived in less than 20 seconds on the recipient's bank account on the other side of the world. So money leaving someone's account in one country, and boom, 20 seconds later, it's already there with the recipient. So that, of course, blows your mind if you're used to the 2 to 5 business days with your bank. But actually, it's also slightly cheaper for us to operate, thanks to the time-based cost that are involved in liquidity, FX exposures and such, and also, I should say, customer support because when the money is already there, can't really ask where's my money. Moving on from the fundamentals. It's really -- we've now been talking through moving money, and moving money is really kind of central to everything that we do. And the response to the problem, how we move money is our Wise Transfer product. But it's not just the transfers that customers use us for. Increasingly, both individuals as the Wise Account or businesses as the Wise Business offering use us for something more, something that does their entire international banking. And then this infrastructure that we built to operate these transfers to move money, to hold and receive money for our customers, we then open as the platform to our bank partners, to our -- to other products that build into their own offering. We'll go through some more of those. First of all, you might remember, actually, perhaps because some of you might have had access to that, this concept of international banking, I never had it because I could never -- I was not in the group. It was there for the very privileged. It was available from the largest banking brands in the world. You could get multiple currencies, multiple bank accounts around the world. This is now in your pocket. It's there with a couple of taps. We completely democratized this concept of international banking. We brought it to everyone. We lowered the barriers for this. And guess what? This resonates with people. In the 6 months, the balances we hold for our customers or rather that they hold in their Wise Account has gone from GBP 3.7 billion to close to GBP 5 billion now at a rate that's pretty incredible. And this is partly thanks to the way we're able to move money around the world, but it's also these features that we've added to the Wise Account to make it a more complete international banking offering and a modern one. Now while people really like it, there's more features that we're adding, such as Assets. Assets is a feature we added only a month ago, and it's starting to roll out in the U.K. where we enable people and businesses holding their balance, not just as cash but actually hold the balance invested in the world stock markets. So they can choose to have their current account that still works for them. It's current account. When we put the debit card in the world, money is going to come out. But they get the capital gains from being invested in 3,000 of the world's largest companies. This just started rolling out in the U.K. Other components of the Wise Account are just -- are already there in many countries and rolling out around the world. Only today, we announced the Wise card launched in Canada to complete the Wise Account offering for Canadians. And then moving to Wise Business. While individuals really care about the Wise Account, they love it, about -- it might be around 50% of our businesses use Wise for more than just transfers. So they receive money with Wise, they hold money with Wise. They use the Wise Account for their international banking. And of course, for that, they benefit from a few extra features. How do they sync with their accounting tools, how do they manage their team on the Wise Account, a slightly more complete service for the growing complexity of the businesses that we're able to serve. And it does show 61% of growth, of volume increase for business volumes or volumes from business customers in our numbers that Matt is going to share in a bit later. And eventually, I kind of started talking a little bit when we talked about Wise Platform how that fits in. This is the place where we open our, let's say, network that we're building for our own tools. We open it up to our partners because we believe that to get the benefit of that new paradigm of moving money around the world and international banking, you shouldn't need to download the Wise app to be able to use it from where your money already is, mostly slightly in your bank. And banks get very excited about this. So the neo banks like Monzo and N26 use this as a way to lure customers away from their traditional competitors because they have so much better international banking experience built in than their traditional competitors can do based on their correspondent banking. But then, of course, the traditional players are interested in this for the same reason. And it opens up new avenues. We can imagine accounting tools and expense management tools taking care of your international payments in the future more built into your business processes. And these last 6 months, as you see again in the world map, we've kind of rolled these out from east to west, west to east, but also from more traditional players like Shinhan Bank, one of the largest banks in South Korea, to the more newer challengers like Fortú and OnJuno, but also tech companies like Alphabet integrating Wise into their Google Pay offering for international transfers in the U.S. Now following from this, just kind of thinking of using the Wise network as a platform or other companies, other bodies using it as a platform, we recognize that we are redefining the expectations of what people and businesses expect and how they can use money internationally. It comes from those instant cross-border transfers that blow people's minds. It comes from demonstrating that we can sustainably reduce fees. Guess what? That becomes an expectation. As we demonstrated this can be done, this is going to be expected from us as well as every other bank on the street. And we brought this international banking experience now widely to pretty much everyone in their pocket. And with that, we see that the industry or the other players in the market are taking notes. So banks are trying to figure out how to respond to this. They haven't given much love to their international banking services for decades now, but they will be because they see this happening. Incumbent payment providers are seeing that working with the cash and the manual processes is going to be expensive and people are not willing to pick up the costs. So they're moving more towards digital alternatives. There's digital challengers and different areas kind of starting to scale cross-border. And then there's a lot of excitement around decentralized clearing on blockchain or other means that are looking for use cases, for cross-jurisdiction movement of value. This is all in the making. And with the Wise Platform, we see ourselves helping many of them, like banks would have talked through a few examples where we do. Other -- especially digital propositions, we can help get to this new radically better paradigm. And other mechanisms, like we're integrating instant payment systems all the time. If there's more ways how we can move money, then you should expect us to make some of these new features available in our own network to our customers. So what we should expect from the next one? So we've had the first results meeting. And in the next ones, we're going to be talking about price, speed, talking about transparency because that's what really quite largely defines the expectations to international payments. And as we go on, we're going to be setting these expectations to this industry, and our customers are going to be voicing this to their banks and others. Because what we see today is we've talked a lot about our payments are getting faster, cheaper, pleasant and transparent, and we do measure this. We see that our Net Promoter Score stays at 75. We see that this word-of-mouth recommendation rate brings 68% of our new customers. So remember when I said -- talked about why we lower our fee base because that's what people talk about. And that's 68% that plays back here. And that goodwill advocacy is leading to more customers. So we see a 22% increase in individuals, 44% increase in business customers being active. And that, again, leads to scale. GBP 34 billion of volume moved through our network cross-currency. So that's cross-currency volume that moved across our network in the last 6 months, which is a 44% growth on a year-to-year basis, which gives us a nice boost to scale and being able to do more with the same assets and infrastructure that we built up. Matt now, I'm going to hand over to him. He's going to take us through what is this GBP 34 billion number really mean and give us in terms of the company financials. Thank you.

Thanks, Kristo. Good morning, everybody. Nice to see some new faces and familiar faces. So I'll talk through the financial results, something close to my heart. Talk through 5 numbers in summary, and then we can kind of go into a bit more depth. Remember, we've done our quarterly updates, so some of these might be new to you. But I think looking at an aggregate [ concept ] and good context, we have GBP 34 billion, as Kristo said, grow 44% year-on-year. That's the absolute growth. There is significant volume to kind of continue growing through our platform. But actually, we -- our customers paid us GBP 256 million in fees or revenue as businesses like we like to call it, which is growing 33%. And remember, on these calls, we explained, the reason that's growing slower is we managed to drop prices because we could over this period, which means actually to move that volume, it costs our customers less. And that's partly because it costs us less [indiscernible]. So the new numbers we'll talk today around what does that mean for gross profit, adjusted EBITDA and then fundamentally as our cash flows for our business. We generated GBP 174 million of gross profit. That's grown 46% year-on-year despite these price drops. So if you think about that, we kind of got -- become fundamentally stronger over this period and that it costs us less to offer this service to our customers. We pass that back to our customers, but we still have this very healthy gross profit for our business. And as we explained in our listing, we invest this in a few areas. In addition to prices, we invest this in our teams, in our product, people in this building and the many offices we've got around the world. And we've grown our team. We've hired -- we've grown the team by over 30% over this period, and we're building the products -- the products you're seeing launch now is a function of what we've launched over the last -- we've invested over the last year, and actually, what we're investing in now. We'll continue to build product over the coming decade. Despite that, we have healthy EBITDA. We talked around maintaining and sustaining an EBITDA margin. We're not in the business of growing that yet. We want to invest rather in our -- in the long term. We hope to share that alignment with our investor base. But we still generated GBP 61 million. That's a 24% EBITDA margin for the period. But actually, if you look at the cash flow, we generated GBP 59 million, almost GBP 60 million of free cash flow, and that's growing nearly 40% year-over-year. If you look at the fundamentals of this business, growing volume is very healthy. Managing to offer that product at a cheaper price whilst still having a very healthy gross profit. We've ramped our investment with our engineering teams, our banking teams to launch our products around the world. We still have some healthy fundamentals. Right. Let's get into that. What's driven that volume growth? You've seen these numbers before. But remember, this is around growth in our customer base, personal and business customers. Look over this long period of time, the sustained growth that we're seeing over these periods. And this is partly because, remember, 2 and 3 of these customers were the people or businesses are coming through recommendations off the back of the investments we've made in our products. How much money they're moving? This is very stable over the long term. It's been a little noisy over the last year, maybe understandably, with the pandemic. But actually, the volume per customer is kind of back to pre-COVID levels. It's been growing slightly year-on-year as well, which has boosted our volume growth. So our volume is growing 44% year-on-year. And businesses, as Kristo said, the volume that small businesses are moving through us is growing over 60% year-over-year. Actually, in itself is a big business now, around 25% of our volumes. Let's talk about how that translated. And normally, people talk about revenue first. But actually, a car starts with this. This is our marginal cost, our cost of sales divided by the cross-border volume that people move through us. We think about this as our marginal unit cost. I think reduced. I think as Kristo spoke about, working hard, our engineering teams, our treasury teams to optimize the way and engineer away some of the costs or the friction that sits between us and our customers. It's gone from 31 basis points to 24 basis points. 4 of that came out of reduced bank and partner fees, and 3 of that came out of lower FX costs. We've passed that back to our customers. So you ask why did we drop our prices. Because we could. And in the long term, this is our strategy. And this is how we managed to do it. And these are the price drops that you see. But actually, when you look at the take rate, you can see actually didn't drop as much partly because those price drops didn't happen at the start of that given quarter. They'll flow through, and we'll talk about that a bit. But actually, this drop in the cross-currency take rate is a little bit offset by some improvements in other fees. So come back to the Wise Account, the products that customers are really using to that scale are spending on their card, doing domestic payments, maybe other account fees. There's a -- in the future, maybe Assets, but today, this is where these other fees are coming from. So you can start to see there that actually, there's other things that we've introduced and built that are starting to broaden the base of what customers are using us and paying us for. So this is our revenue growth, GBP 256 million, growing 33% year-over-year. When you look at gross profit, this is up 46% year-on-year to GBP 174 million. And this gross margin improvement is fundamentally -- but we've still got a very healthy gross margin, divided through a lower fee. We've had to charge our customers less to generate it, if that makes sense. So this has supported a higher gross margin for the first half of the year. That number is a little bit flattered in the sense that we made these changes to our -- for example, on FX. We made the changes, saw the benefit. So we actually saw a higher margin and then passed through the price drops. So it's a little bit higher than that we -- as you may know, we guided to for the full year. So what do we do with this? As we said in the listing, we may have spoken to some of you at the time, we've invested this in 3 areas with [ prices ]. But the other things we can invest in marketing, but importantly, investing in our products and our technology. We can also pass this through as margins, but that's not the point. That's not the chapter that we're in as a business. And we got a long way to go before we run out of things to invest in for our customers for long-term growth. So we've hired. We actually announced the other day, I think, that we hit over -- our 3,000 Wiser. But actually, by the end of the period, we're -- you can see the numbers here. And actually across the year, we've grown that number by 32%. That's -- continues -- so that growth has continued through the year. We said last year that our margins are a little higher because partly because of this. So we've hired. We're busy building product now, and this has continued into this period as well. And that translates through to some costs. If you look at our -- the kind of -- the sum of these 2, these categories of admin expenses, you can see that employee benefit cost is growing around 30%, roughly in line with our hiring trends. Other outsourced services are growing much faster. There's a few things going on in here. One is we actually have some costs. We did this time last year, we didn't -- we weren't traveling at all. And we weren't putting on -- doing anything like this. We weren't in our offices. So some of those costs, like I'm sure in your businesses, have started to come back now, which is good because we benefit from being in the same place as a team. We've invested in marketing, but also there's some costs associated with just being a public company as well that's ramped this number. But actually, when this is presented in aggregate in our accounts, you'll see that it's net of this capitalization. So we capitalize and have capitalized and the -- some of our engineering activities, essentially, we capitalized some of our expense. And then the rate at which we've capitalized has reduced in this period. So what that means is we follow the relative accounting standards when we look at each of the projects that we're working on. And given the scale and the way that the team has grown, let's take the engineering team, we've basically now capitalized less in this period than we have in the past. Look at [ Hash ] and his team are still working on building new products and features, but we're building -- we're iterating the products we have and building new products as well. There's no change in our strategy as to what we're investing in. But when we follow the policy, we end up capitalizing less. So that net has an impact that those costs appear to be growing and are growing faster on, including the capitalization impact. So when you flow that through as to what's happened to EBITDA margin, we have a 24% adjusted EBITDA margin, which is above where we've set expectations for this. Why is that growing? Well, actually, we spent a lower percentage on cost of sales at 32%. The employee benefit grew because actually the capitalization flows through that line item. And then we saw the faster spend in outsourced services. But still, a 24% margin for the period, which is more than enough that we need to generate the capital and keep our reserves growing, support our base as a business. So this is the -- it's growing at 20% year-over-year, in part because the -- a big driver is the change in capitalization's impact to that. So when you look at cash flow, this is growing at 39% year-on-year. And actually, the cash flow has converted 97% of that adjusted EBITDA in the period. And you can see this is a very healthy and solid growth, actually in line -- closer in line with how [indiscernible]. If you just look at the differences between the adjusted EBITDA and the free cash flow, actually, if you just add back the capitalization, you can see that EBITDA excluding that capitalization trend is still growing around 40% year-over-year. So coming back to where we started. We're moving an awful lot of volume now, but actually it's still a tiny share of this market, growing healthily at 44% year-over-year. We've managed to reduce prices, and everyone in this building is particularly pleased we managed to do that. But we've done that in entirely sustainable way. So we're still generating this gross profit. We still generate a healthy EBITDA margin in our products, which means we've invested much of that gross profit, and we will continue [ to ]. And as you hopefully understand, very strong cash fundamentals in this business. We're generating cash and capital at least at the right we need to. And we're essentially -- we're funding all of the things that we're doing on price and speed with some very strong fundamentals from a financial perspective. So on that note, I'm just one more page, is that we're 8 months into the year now. What does this look like? We've already spoken about gross margins. On the back of this, we expect full year at around 65% to 67%. Take rate, we actually -- those price drops that we've put through in Q2, we have -- only had a partial quarter impact. So -- and if we can drop prices, we'll continue to do this. But hopefully, you understand the sustainable manner in which we're going to be doing this. And then on revenue growth, as we get towards the end of the year, we can sharpen our pencils and we now expect revenue growth in the mid- to high 20s for the year instead of the low to mids. So thanks for your time. I'll pass it back to Kristo, and I'm sure we'll have questions.

Thanks, Matt. So I talked a little bit about what we've been doing the last 6 months, particularly through the numbers. So I only have one slide left, which is to talk about the magic. And that is kind of reflecting on how those 2 things stitch together. So first of all, remember, I talked about this GBP 190 billion in annual fees that the banks rake in from mostly these in-fees that they take on the cross-border movements. This is enormous for the society. It's enormous problem to solve for assets and enormous opportunity. And we're 2.5% into this. So we're kind of nibbling on the edges of this. It's GBP 190 billion, which once we've done, it's not going to be GBP 190 billion, I can guarantee you that, but it's still going to be quite a lot. So this is a big, big opportunity that has to deal with how people and businesses use money cross-borders in the next decade. Now in order to address this, we, first of all, had to start from scratch because what we have -- what was there before clearly wasn't working. But that allowed us to build a radically different -- like fundamentally different experience when it comes to speed, at the cost, the price point that it is to offer that service, but also what the end customers are paying for this. It's creating something that's transparent and how to move the money. It's creating an international banking experience that is pleasant, in fact. And with that, we're now at the scale of moving GBP 34 billion in 6 months, but we're growing that 44% year-on-year. So we're at scale -- pretty decent scale already, even though that we're in the beginning, but we can grow this almost by half in a year. And where this -- I guess, the magic comes in is -- so when you listened to Matt kind of talk through how the financial model hangs together, you see that we're not really thinking of what to do next quarter because the model is going to tell us what to do next quarter. And we're going to -- we have a sustainable way how we take the benefits of the increasing scale that comes to our growth, in turn, which comes through that better experience. And through the financial mechanics, we can both improve that experience further, say, by reducing the costs and passing the scale effects on. We can hire more engineers and more people to build it even better, even pleasant -- more pleasant international banking experience that is available to larger and larger groups of people, more use cases, and get more out of that GBP 190 billion annual [ problem ] that's -- that the world is settled by today. So with that, just to leave that kind of framework with you, very happy to take questions.

Okay. I can see hands going up. So I need a moderator probably. How do you want to work this, Martin?

Okay. Yes. Thanks very much. Okay. So we've got a couple of roaming mics in the room, Lauren and Claire, if you wouldn't mind bringing one of those forwards. Yes. If we start with Omar. Thank you. Omar, is it switched on? It is. Would you mind just introducing yourself? And what we'll do is to just kind of go around the room a little bit, and then we'll jump over to Zoom for a few questions from there as well.

Prices down in the cross-border transfer market. So clearly, you've got this platform that's very interesting, and you've got a number of institutions that have signed up. Can you firstly talk a little bit about the pipeline in terms of discussions with other technology companies and perhaps banks that you're having? And then just related to that, I think, currently, the volumes that are coming through Wise Platform are a very small share of the total, whilst you've already got some impressive names down there, Shinhan, Google Pay, Thought Machine. So what do you think needs to happen to take that to the next level? Do you think that you really need to get some of the bigger banks to try and give up their margins and sign up to that? And given your knowledge on the cross-border transfers market, do you think that's possible, let's say, the JPMorgan or Barclays of the world may run your product?

And of course, Credit Suisse. Don't forget. That's one of the...

Yes, Credit Suisse, too.

One of the targets. Thank you, Omar, for the question. For sure, the Wise platform is super exciting for us as we see the network that we built, the product that we built being available where the money already is in other banks. And we see how banks take this as a competitive advantage. So there's a lot of interest on the bank side as well. But just first of all, your question on -- of course, it's early days for such a relatively new thing for banks to give something that they used to be doing to someone else to operate. So this is going to take time as we go through this process. But also recognize that there's 26,000 banks in the world and it takes a while as we -- as the kind of the mass builds up so that it starts to show up in the GBP 34 billion that we moved in the last 6 months. So it's almost a little bit of the challenge of our volumes are growing so fast that even though this thing has to be growing really, really fast to -- and even then, it's going to take a little while to actually start showing up in the -- as a kind of percentage high enough that we should disclose as a share.

Laura Connell from Marcho Partners.

Yes. So I'll repeat it, just in case it wasn't hearable on the stream. So thanks for the question. First was, I'll get this accurate. So it was can you unpack a bit the guidance and revenue guidance for the full year? And then secondly, was explain a bit the gross margin guidance for the full year, particularly H2, does it appear a little bit soft relative to how we started the year? Yes, absolutely. So the drivers of our revenue are -- but it's not volume and price. So we've seen -- I mean, the first half of the year was a little bit of a tale of two halves or 2 quarters, where in the first quarter, we were lapping the first quarter last year, which was the COVID shock prices, when everyone disappeared and things stopped and then it got started again. So if you look at the growth rate in the second half -- the second quarter, actually, what we're seeing for the second, we're seeing this just solid momentum on volume, whether it's people and businesses. And actually, if you look at all jurisdictions around the world just -- yes, there's noise from this pandemic, but actually just pretty solid momentum going through that. And that's combined with what we've seen on price and take rates and that we see -- we've made some price drops. And we expect to see on the -- at least on the -- for the rest of the year, the team are working to do some more of this. It's hard to predict which ones will land at which point in time. But this we expect would have an impact as well just to kind of catch up of the full half year with the price drops that we've already done and maybe some others. So that's the revenue. It's just the zone that we're now comfortable with 8 months in, we should have a pretty good view on where that will land. And then on the gross margin, it kind of comes back to the same thing, which is remember, we explained that we did -- we could do this price drop because actually, we've managed to optimize -- I'll speak to our treasury team. They're really proud to say we've worked out that actually we can take less exposures because some product changes and actually manage those better. So we've got less FX costs. But actually, in the finance team, we'd sit and say, well, you don't -- you need to see some evidence over time, right? So actually, you have a couple of months where you see reduced costs, but we haven't dropped the prices yet. And that happened in the first part of this half year. So actually, the first -- the gross margin in the first half, we think could be higher than actually the run rate into the second half of the year. So -- and clearly, there can be volatility on FX. I'm sure the last few days have told us that nothing's ever going to be calm waters in this world. But actually, like this region, this range of the 65% to 67% kind of gives us confidence over that full year. Call these couple of months windfalls or whatever they are, but actually, it kind of reiterates interestingly that we drop prices because we can and when we have confidence that we can do it sustainably. We don't do it because we -- after all, we're not taking bets on that stuff.

Kim Bergoe from Numis. Just one question for me. If you go back to that world map you showed with flows sort of two-way flows or one-way flows, could you talk a little bit about the financials of that? I mean, what would that -- when it goes increasingly, I think it was dark blue for the two-way flows. When it goes like that, what's the financial impact of doing that? I guess you can internalize more? And how should we be thinking about that?

I'll talk about this quickly, and I'm sure Kristo can -- a couple of financials and then financial indirect, if you like. So the first thing is when we send money one way to a market, clearly, we need to exchange capital that goes into that market. We also may have some liquidity requirements in that local market as well. So when you actually end up with a two-way flow, technically, we don't have to exchange as much currency. So you can have -- see reduced spreads effectively on that route. So your marginal cost can drop, which means actually, we should be able to reduce prices on both sides. So actually, it gets -- you got -- you launch a great service at a lower price than -- if you're launching it one way. And actually, the service for the customers that are sending that way actually end up with a lot of -- can end up with a lower price drop. Because fundamentally, remember the way we price is we didn't subsidize. We didn't cross subsidize. So if the spread's on one route, the higher we charge the customers on that route, the higher spreads. Then there's a few second order impact, which is you end up with two-way networks and you end up with like kind of more of a compounding -- kind of more momentum in the growth. We know it works really well when you start sending money to and from a market. Just from a growth perspective, it's -- you end up with a better network of things happening.

And the growth perspective -- sorry, the growth perspective is clearly a word of mouth as in someone sending money to Brazil is going -- will have a network of people to send money from Brazil. So it kind of works where the math works both ways we've seen.

But ultimately, just think about that from our economics. It means we may be able to drop prices on our -- because some of the COGS with this friction goes away. So actually, we can offer a better service. Sometimes, we can see it move faster as well. And -- but still with a healthy margins.

It's Jonathan Tyce from Bloomberg Intelligence, please. You mentioned the GBP 190 billion and acknowledged that it's not a real number. Kind of in the new paradigm with margins where you intend -- sort of the market 5 years hence. And I think the other question is one of the issues covering, a company like Wise, is a lack of peer group newness and orthodox route to market. And if you look at an Adyen versus an Xe or something, there's not a great deal of sort of peer group. And clearly, things like PayPal and Worldline, their recent updates, you saw share prices down -- how are you intending to approach investor communication guidance? If I look at next year, they guide pretty tightly. Can you give us a sense of how you view your kind of role with the market and communication and that sort of thing as well because clearly, it's a reasonably unique business?

Yes, I'm happy to take the second question. Do you want to talk...

Sure. On the first one, I think we're -- so we make it really easy to compute our fees from volume, just multiplying by 0.62%. So that's the super easy. Banks, it's slightly harder. I think we kind of have a rough idea of their volumes through some research that McKinsey and friends have done. We have a rough idea of the fees, how exactly -- so basically, you can do the same about calculating the average. So I can't do it in my head, but dividing the GBP 190 billion with GBP 18 trillion, I think it was, that gets to kind of an average...

It's a few percent, and it's concentrated in people's [indiscernible], but it's a real number. I mean, it's a spread income that's...

No, I understand that. Barclays has broken it out this year and given us 8% of revenues. But the fact is when the new paradigm that you guys are driving to is here, that fee base is gone. The banks know it, which is why they're addressing it. But I'm wondering, do you have a sense it's more [ 50 than 70 ] or -- because it is an available revenue pool, 5 years down the line, even with the market growing at 4%, 5%.

It's a good question. I think we can try and do it mathematically and try and figure out, and I think that would be -- so just when you look at the enterprise versus business versus people, you'll see that the enterprise customers -- the ones with the CFO basically pay very little to the banks. Everyone else who doesn't have a CFO pay a lot to the banks. So I think the thing that's addressable is those who don't have a CFO basically, and you can't negotiate with the banks. And it's that fee pool, which is like the vast majority of the GBP 190 billion, is going to go -- well, if we get the share of that, it's going to go to 0.60% now, but then further down. I have my dreams and wishes of how much further down than 0.60%, but I can't really tell you today at what pace we're going to make that.

Can you give us a number on when you stop?

Zero.

So let me answer the question about peer group and then guidance. So you're right, part of the reason we're interesting is no one's done this. So we don't have an obvious peer. There are people in this space of international money movers. We operate quite intentionally quite differently to them. And then there are payments businesses that might be more enterprise or B2B. So I wouldn't -- we're the early -- we're at the early stage with a large opportunity where really we're focused on growing the volumes sustainably that customers are moving through our platform. So we focus on the fees, the fees that people are paying, which is a function of the volume and the price that we charge. So we've chosen to set some guidance around this. And then fundamentally, we're -- as Kristo said, like we're very focused on growing this significant -- against this opportunity, growing it significantly whilst investing in price and speed and convenience, but whilst sustaining a very healthy bottom line margin. Like rather than growing that margin, we're very much guiding to saying this bottom line margin, we're creating enough to try and raise enough capital, for example, to run the business. So really, these -- try and keep us simple. These are the two levers that we think is the way that we want to guide the market going forward.

Sorry, but just to push on that slightly then. Can you give us a sense at what point top line growth do you begin to start talking about margins and looking to grow EBITDA? So if it falls below 20% on the 2-, 3-year view, does it become more important then to drive EBITDA growth? 25%, you're happy to keep going and not worry about anything apart from reinvestment?

Well, if we run out of things to invest in and we run out of opportunity, like I think we're a long, long way from this today. So we -- if you think about this internally, we've got a long queue of things that we want to build in our many different geographies around the world. So it just feels like we're -- that is beyond the horizon for things. And actually, from an investor perspective, we resonate the most with our investors that share this long term -- very long-term vision. And so we just try to reflect to our potential owners how we're thinking about running our business today.

Hannes Leitner from UBS. Maybe on that point of the medium-term outlook, can you talk a little bit about did you model that price reduction on the back of a revenue acceleration and volume acceleration? Or is it rather more a defensive stand to keep that growth at that pace?

Yes. Thanks for the question. I think about this over like a 5- to 10-year horizons. We think about this. So if you think about where we are today and over the last 10 years, it's a function of being radically different on price. And in 5, 10 years, I'm sure people will be like, how on Earth did these guys -- how are they going to make this thing work? And actually, we've done this today. But the reason, as Kristo said, the people are joining us today is fundamentally, we've totally disrupted on price in this market. And we believe it's possible to do this again. But we're only -- so we'd rather think actually over a 5- to 10-year period on this. But actually, the only way to taking a radically different proportion of these volumes onto our platform would be through continued disruption, both on price but also on instant and speed. And the way we manage that is we -- that is a belief and an investment that we're making off the back of a fundamentally sustainable business model. So we're only doing this when we can afford to do it from a sustainability perspective.

Okay. And then the second question is just in terms of it feels a little bit contradicting that you, on one side, serving the banks, and on one, the direct-to-consumer. Do you see there also some -- I mean, what is the discussion with the banks on that side? I guess there might be some volume shift? Or do you expect there is some volume shifts over term, over the long term?

Sure, Hannes. Thanks for that question. I'm sure we can help UBS customers as well because the -- and there is a volume shift happening, like this GBP 34 billion that we moved in the last 6 months is coming from some banks. It's coming from Credit Suisse, UBS, HSBC, like all the banks of the world. That volume is shifting to Wise today, and keeps shifting at an accelerating pace. So that's the volume shift. So the volume shift that we're offering to the banks, we shifted back to UBS, back to Credit Suisse back to HSBC, so that it will happen on their apps. And that's what our integrated bank partners are seeing. They're seeing that their customers who then had a reason first to switch to Wise to -- for their international transfer, then their international banking maybe getting a little bit more of the things done that they used to do with the traditional bank started doing that on Wise. And if we give them no reason to switch over, the banks really like that. And that is kind of the biggest -- I guess, the most immediate thought process for them is like how do we stop that volume shift? And how do we shift what's already gone? Or can we shift what's already gone, either to Wise or there's next ones coming down the line one day, how do we shift it back to our own apps.

Thanks. We're just going to jump over to Zoom for a moment. So if we could pass over to Josh, please. If you'd like to unmute yourself, Josh?

So last month, Facebook announced that it will do a pilot for free cross-border transfers between Guatemala and the U.S. If Facebook were to expand this to other corridors, expand free transfers to other corridors, what would that mean for Wise's business model? How would you compete against free?

I think it's pretty tricky to compete against free. So it's a very good question. So I think this -- as we've discussed through today, like the cost of the service really matters. It's financial service. As long as it works, and people would like to pay less for it then the more it completely resonates with me. So therefore, I think the thing that I would look out for is what's free and what's hidden markups in the exchange rates. So I think we've seen quite a lot in the space where there is the offer of free but really -- and I haven't really studied the Facebook announcement or Meta announcement, so not commenting on this, but when you do study those things, please do pay attention to the hidden fees and exchange rate markups that might be the way how kind of banks get their revenue.

If we could go to James, please. James Goodman.

James Goodman from Barclays, and look forward to being with you in person next time. So a couple from me, please. Firstly, just on the capitalization point, Matt. I wondered if you could go into a little bit more detail why there's been quite a sudden change there in terms of no longer capitalizing so much engineering costs? And I guess as a sort of slightly sort of a follow-up question to that. I mean, if we look out, it's perhaps a 5 percentage point headwind to the EBITDA margin. I mean, of course, absolutely no change to cash at all. These costs are costs the business is incurring, and I think we understand that. But I guess the fact that you're still looking at the same medium-term EBITDA margin target would suggest that you're pretty comfortable with the sort of underlying level of cash profitability in the business, perhaps even slightly more so than previously. So any sort of extra detail around capitalization and how that changes come about would be helpful? And I guess somewhat related on the cost side, you flagged the outsourced services and admin up a lot year-on-year. Just wondered, a, is there anything in that that's not really going to repeat, perhaps? I know you had some exceptionals around the IPO. Are there some other sort of costs that are not really sustainable at all in there? Anything you can say on expectations around costs into the second half would be helpful.

Great. Okay. Just on the cost side, we do set our -- we have set our view on EBITDA -- adjusted EBITDA to be at or above this 20%, and we're happy with this for the rest of the -- or so for the year. So how does this -- what -- capitalization. So this is a follow-on accounting policy. You have a choice as to what you can capitalize based on a policy. And just the nature of our teams and what we're working on, this becomes quite distributed over the periods of time. So what that means is like as a public company where with accounting, you're following a set of policies. It's very clear on like -- and have a high threshold as what can you capitalize. So basically, when we look, we basically say we're actually -- we're comfortable capitalizing -- what are we comfortable capitalizing, basically. And we've just taken a view against the policy that that's now at this GBP 2.5 million for this period, which is reduced. And I expect us to take this view going forward. But you're right, James, that actually from a cash flow perspective, this is somewhat neutral. It is neutral from that perspective. So we're still spending the same -- or should I say, expensing our capitalized -- we're still spending the same money, if you like, on engineers. We're hiring more engineers. And they are still working on the same types of projects that are building the products for the future. But you're right, the way we calculate adjusted EBITDA, this does have a reduction in that adjusted EBITDA percentage over time. But still, like -- that's why we've always talked about free cash flow. We think this is an important measure for the business, or it's an important indication of like the health of the profits that we're generating. And hopefully, that stays clear. Just in terms of costs for the second half of the year, you're right that as we called out, we weren't traveling a year ago. We aren't traveling now, not as much as we want, probably. So this will continue to grow. But I'm sure it's similar to many of your businesses, too. But there are costs now, some onetime, but some ongoing related to becoming a public company. I think the best way to think about this is we'll share our cost base again in 6 months' time, and you'll see like probably more stability and -- but still, our guidance on EBITDA margin at the at or above this hasn't changed.

That's really helpful. And just a quick follow-up just on the phasing around the revenue in the second half. I know you're running the business for the coming 5 to 10 years, not for quarterly results. But nonetheless, just to sort of help investors just navigate through the second half of the year. When I look at last year, you had, I think, a much stronger Q3 than Q4, both sequentially and also on a year-on-year basis. And I just wondered whether when you look at your growth expectations for the second half, that's weighted to Q4 or it's more balanced between the coming quarters?

Yes. We -- I mean, the guidance for the rest of the year really talks to the momentum we have now. We do have like -- I mean, on a quarterly basis, we've always said that we can see some like volatility, like in rates. If you see a big shift in rates, you can see volatility in this. And actually, December last year -- December last -- this time last year, we managed to get Brexit done apparently, which moved the rates quite a lot. So we had a very strong December, which kind of looks at some of the upticks around how Q3 versus Q4 might move. But these tend to be driven -- the patterns there tend to be more driven by some of the events that have occurred to us in the last few years rather than like any obvious seasonality. So James, like to your question, that's probably driven more of the trend that we saw last year than anything else. The guidance is just what we're comfortable with the volume of the -- underpinning volume momentum over this period.

So back in the room.

[indiscernible] from [ UF Partners ]. I just have a question on the other fees in the quarter, something like 16% of your revenues. You go back a few years, it was low single digits. Maybe you could talk about the drivers of why that revenue stream has increased as much as it has? And where are you most excited looking forward in terms of product or capability where you can generate additional revenues?

Thanks for the question. I hope everyone on the stream heard that. So two questions there. I'll take the first -- so the first one is where is this coming from, what's driven that? And actually, Kristo, maybe you can talk secondly around what does that mean? So it's actually, I think, 13% my calc. But it's -- basically, it's just fees. So we have conversion fees. So if you move money in your Wise Account or send money, we charge you a conversion fee. But if you spend on your card or you send a domestic payment in some markets, so you pull money out of the wallet, we may charge you an account fee, like these are other fees that we would charge for this. And so why is this growing? Actually, well we've introduced new features to the Wise Account, but primarily there's the Wise Account adoption is growing. You've seen the balances continue to grow. So actually, this is a product, this is our product, really. And it just shows you a more -- people receive money, they hold money, they spend money, they send money as well. So this is what's driven it. And that's true for people and businesses as well. But I'll hand over to Kristo to say what might be...

Sure. So maybe just a simplification of what Matt said would be majority of the fee income is from cross-border and cross-currency activity. But international banking only really works if it's got some domestic banking built banking into this. So you could almost think of it as similar to domestic banking fees versus the international ones. That's the 13% of that. What I'm excited about is like I find it hard to find anything that I'm quite not excited about what we're building. So if we look across the board, the ability that we can sustainably bring the fees down, set the expectation to that, super excited about that. We see instant going up pretty fantastic. What we've done with international banking, it's never been done before. Putting the Wise platform inside other apps, again, it's a completely new paradigm for banks. And when we look at accounting systems, expense software, so again, this is -- this is quite new to how we use these tools and services. And it's -- I hope -- I expect that in 5 years' time, so a lot of these things that we're talking about today are going to be obvious, so very obvious. And we're kind of in the -- we're in the moment of kindling those. So it's pretty interesting. Thanks for the question.

It's Chris from Redburn here. A couple of questions just on your guidance, please. So you seem to become more positive about this year for your revenue guidance. And if I understand you correctly, a big proportion of that is you being more positive on your volumes for this year. Are you kind of equally as more positive on volumes for next year and the year after? Or is it all kind of one-off catch-ups this year? And then I guess a sort of a second question on your medium-term guidance. Revenue guidance is greater than 20%, I think, isn't it? So does that incorporate sort of assumed price cuts? So if you were to hypothetically have a volume midterm guidance, it will be greater than 20 plus a bit percent? And maybe would you consider tightening up that greater than 20% a little bit, there are kind of a lot of numbers above 20% for us to work with.

So I'll -- maybe predictably, I'll say I'm not changing my medium-term guidance announced. So if we do a good job, if we're successful, the volumes are going to grow faster than our cross-currency revenue and our revenue -- like cross-currency drives our income. And our -- these people have sat around like thinking like how do I do this? But I think what you've hopefully took away from today is that actually, fundamentally, we've got a financial model that's going to facilitate that in a sustainable, viable way and it's accompanied with a strategy and a plan to like how do we get our customers just as a question asked. So like do -- make the Wise Account more of a product that customers are doing more purely, but mainly for the purpose of driving this volume growth and getting people to come and use the Wise Account and move more volume and scale through the platform.

Okay. And maybe just to sort of slightly ask it -- ask it slightly differently. I guess, today, you're more positive about the year than you were on the 19th of October. Are you more positive about next year today than you were on the 19th of October?

I haven't talked about this yet, but I'm -- yes, you're right, we have more confidence this year than...

Any further questions in the room? So I think that -- just -- on Zoom. It might just still be raised from your earlier question.

Cool.

I think that's it. Thank you.

Thanks, everyone. Thanks for joining. That was a special one. That was the first one. Then we're going to be that special again. So thanks for joining us today.

And thanks to these folks who -- to get us all out. So thanks to the team, everyone, for helping today and people for organizing the event, and thanks for coming and seeing us. Like it's -- we're up north in short. I appreciate that -- appreciate the...

There's good coffee around, sort of your way. Thanks.

Thanks very much.