Wise Group plc (WISE) Earnings Call Transcript & Summary

Great afternoon, everyone. We'll carry on to the second last session. We are delighted to welcome Wise to join us virtually for the session on Beyond Cross-border Payments. Representing the company is Nilan Peiris, who is the Chief Product Officer. And before we get into the conversation, I just need to remind you that this conversation is not intended for the media and is off the record. Hi Nilan, how are you? Can you hear us? .

I can hear you. I can't see you, though.

Okay. I think that will get sorted but maybe to kick off, tell us a bit about yourself, your role at Wise. And then for those in the audience who kind of maybe are not fully familiar with Wise. A quick overview of Wise in the business model, please?

My name is Nilan Peiris, I'm the Chief Product Officer of Wise. I've been here for 9 years and look after the products, sales, design and analytics team here at Wise. Wise is a cross-border money transfer business moving at the moment of about GBP 9 billion a month. Growing still strongly between 30% to 50% year-on-year. We have 3 core products; money transfer products, multicurrency accounts and enterprise product called Wise Platform.

Great. So maybe I think one of the kind of unique aspects of Wise has been the mission statement, right, to essentially drive down the cost of kind of cross-border payments. Can you tell us a bit about this? And what's kind of the secret sauce and as you're kind of capturing share, who are you gaining that share from?

Wise ambition is to make the world's money move instantly, conveniently, at a very, very low cost. That mission comes from talking to consumers and businesses and understanding the problems inherent in cross-border money movement, which is it is slow today, it is expensive, and it is hard to do. And why we're set up to eradicate those problems completely. In doing so, we hope to build a huge business globally. In terms of market, we're looking at about GBP 2 trillion market on the personal side and it's about GBP 9 trillion on the SP side.

Okay. So I mean, I wanted to maybe take a step back and understand the tech and the platform because I think that's quite an important differentiator for you. So maybe tell us a bit about kind of how you built the platform, you clearly have a lot of scalability potential in it. And in full kind of been largely organically driven. And so how this differs versus perhaps banks to some of the other digital competitors out there?

It's a great question. I'm still missing the camera pic but I'll keep going. So from a tech perspective, banks -- some banks major large Tier 1 banks have invested heavily over the years in corporate FX infrastructure. It is the major Tier 1 banks that have FX trading this, especially and have build up corporate flows with corporate clients, have a significant investment in infrastructure and a broad range of correspondent banks. They used to spending money internationally, alongside their trade desks. The majority of banks, however, don't have access to infrastructure. They usually work with one of those tier banks as their partner. They use SWIFT to send as a messaging protocol for moving the money internationally. Taking a step back and looking at Wise, we spent over a decade investing in our infrastructure that moves money across borders very quickly and for a very low cost. That infrastructure ranges from 6 integrations directly into central banks throughout the world. And that's from Bank of England, Bank of Lithuania in Europe, Central Bank of Hungary, Australia and Singapore as well as over 100 banking integrations. What that means is when you're sending money, say from the U.K. to Singapore, it comes in by FPS to our bank account from the Bank of England and as soon as it hits that we do payout in Singapore. That gives us the lowest marginal cost of doing payments and incredible speeds. Last quarter, 55% of the volume on Wise was settled instantly, so available to spend within 20 seconds. And it's not just technology infrastructure. There are over 50 licenses that we have globally and real-time liquidity management and a global operations team. So you put all of that together, are you able to build this incredible product and deliver these experiences around the world.

Got it. So maybe can we take that one step further and talk about how you're leveraging a lot of modern technologies such as sort of machine learning, artificial intelligence for predicting kind of the liquidity needs, how to kind of potentially avoid any kind of money laundering or financial crime issues today?

So on the -- if we see at cost side first. If you look at our P&L, there are 3 broad costs on money transfer business P&L. There are operational people costs, harder fees and the costs of realized risk, which is predominantly FX exposure. We reduced this materially over time, can't disclose how much but quite significantly through investing in machine learning technologies that helps us understand where we're building up exposures and how and where to bring down hedges. We also use the same technologies to predict how much liquidity we need to keep in accounts around the world to enable us to deliver those instant payouts. And the final part where we leverage our machine learning platform is in financial crime. As we build up this large data set of behaviors we've seen, we have over 60 million customers now live on Wise. And we're able to create this catalog of good and bad behaviors that gives us an unparalleled data platform to enable us to spot money laundering before it happens.

Got it. So maybe we discussed the kind of core infrastructure. While the majority of the business is still pure cross-border transfer, you have also started to drive the kind of Wise account for both personal and doing business. Maybe tell us what this is and what was the kind of the genesis kind of around what kind of Wise account.

Yes. So with the account, what we found with some customers is we were capturing all of the cross border needs. It simply was worth and while to download another app to do the kind of smaller transfers. And what we found when we launched the Wise account was we were able to support our customers with even more needs. Business is really not the Wise account, let me talk you through a while. If you're a business safe based in France and you have a customer in Australia, you only get paid from that customer in Australia, what you normally do is put IBAN on an invoice and send it to their customer. And maybe by 3 to 5 days later, you then having some euros in your account. If you wanted to get paid in Australian dollars, you actually need to fly to Australia, incorporates the business there and then going to an Australian bank. We give you an Australian bank account, then we set a tax map, you can invoice them in Australian dollars and the customer can pay in those. With Wise, you can get Australian banking details in a couple of clicks from wherever you are in the world. And this is an incredibly valuable businesses. It enables them to get paid like in local -- local currency, which they could keep a little currency if they have low payments to make. We also give them multicurrency cards, which are like expense cards and integrate into their accounting software. Majority of our business customers have now switched to using Wise account and we see strong growth from account at the moment.

Okay. Maybe we can touch around the sort of the personal side. And we've obviously got Wise account, where again as a consumer, you can pay like a local but I think one of the kind of the -- if you could give us a sense of in the context of where Wise account sits versus many of these other super apps that fintechs have created and again, apps like a Revolut started for cross-border -- cheap cross-border, but now almost becoming Neobank like. So maybe help us understand the positioning, the roadmap and then maybe if you have some case studies around some of your markets, and I know U.K., U.S., but Brazil is a new market event where there's been some significant traction with Wise account. So curious to get your understanding on that.

Great question. So when we look around the world, we're seeing emerging neobank leaders in every market. There's very few Neobanks that in multiple markets. Since a Monzo, which is the largest Neobank in the U.K., Revolut is what in some markets in Europe, a Neobank in Brazil, Chime in U.S., Up Bank in Australia. When we think of how the Wise account competes with these accounts, these are great domestic bank offerings. Some of them are still in central business model, some of them are heading towards profitability. The difference with the Wise account is Wise is being international from day 1. So on the day that we opened and we started doing GBP-Euro transactions, we were live in 2 markets. And today, we're live in over 50 globally. So the question became for us, when does being international be a competitive advantage from an account perspective? Our international infrastructure enables us to support the international segments of customers better than any other provider out there. And what that means is, if you look at the market, there is a portion of the market that is purely domestic and has no lead in cross-border transfer. The Wise account is not a suitable product for that. At the other ends of the market, there are customers who every single transaction involves a conversion. So a customer, for example, who gets paid in USD and is living in Switzerland and spends in [indiscernible]. Every single transaction is going for a conversion. And for these customers, the Wise account should be the best possible accounts out there, not only in terms of savings, but also in terms of features that we built to support. Overall, we're focused on both in our international infrastructure and taking it to market. One of the new features we rolled out recently, both for consumers and for businesses was our assets product, which enables consumers and businesses to under return wherever they are in the world.

Got it. So maybe one of the things you wanted to better understand, is the differences in terms of the needs of the kind of personal versus the business customers. I know you touched on some of the capabilities, but also in terms of kind of how you go to market because you've obviously got KYC and a lot of that, that you need to satisfy. So maybe just talk us through the sort of differences in those 2 segments and the momentum in both seems to be quite strong with the nuances.

Yes. So we've really SMB versus Peso, it's the same core features that are personal users know and love, the speed in payments, the cost of payments, the ease of opening an account, and businesses loved to but there's more of that businesses need. We had to build out the -- our business card proposition globally. It's quite unique. It's a multi-currency card, which means that if you spend and your spending in USD and you have a USD balance, use that. You're spending in Euros, you have the Euro balance, use that. If you have neither balance, it chooses which is the cheaper and use that. We've built our employee cards and expense cards, businesses as well. In one other feature that we're quite excited about our businesses that live in beta at the moment, is PaymentWise. And this enables businesses to request payment with a link and that payment could be through transfer or in beta now are live we're taking card payments internationally as well.

Got it. So now maybe when you think about sort of B2B, this is starting to emerge both in kind of enterprise, but also potentially is a sizable opportunity in SMB. What is resonating with customers? Are there any particular obstacles for you or your customers that are adopting B2B payments? And how significant could this be for Wise?

Yes. When we look at the market size, it's much, much bigger B2B than consumer what we see resonating and the really hard challenges around KYC in opening accounts for businesses, opening a business means usually verifying all sort of history of the business and should be interaction with the business. We want to find a same technology and our convenience to that problem globally and we're investing heavily in that. Businesses love this as well, as well as the receive in card propositions that I talked through earlier.

Got it. So obviously, in recent sort of 1.5 years, 2 years, we've started to see rates go up and Wise account balances are quite significant. You've obviously now started to offer interest rate product or an asset product to your customers in the U.K., U.S. and Europe. What were the challenges in building out such a product given the different regulatory frameworks across the geographies and the fact that you have any money license, not a kind of full banking license? And how has the uptake been since you sort of built these products?

Two questions. So in line with a variety of products, I will go into detail with enabling our customers to earn a return on their balance in Europe, in Singapore, in the U.S. and in the U.K. Obviously, let's just take a step back. Why are we doing this? We've invested in a balanced product. Firstly, why we offer our customers balances. We found if we offer them multicurrency balances, we capture more cross-border flows as the product becomes even more convenient. But the next challenge we found was that way unless we gave our customers a return on those balances, there's an opportunity cost to holding money in Wise and they would be sweeping the money out and sweeping it back in again. Hence, we've invested over the last 6 to 9 months in giving our customers the opportunity to generate a return. We've had to do additional -- and acquire additional licenses to do this around the world to enable us to do this and have a variety of products that enable our customers to generate a return. The same [indiscernible] products, transparency of price, fast and convenient. I just finish your question on uptake. We've seen significant uptake on this. Customers seem to love this. We haven't disclosed yet clearly what the different uptake looks like.

Obviously, we had the SVB incident a few months back. I guess since you're not a bank, could you help us understand how -- why is this safeguarding customer balances? What are the risks? And are there any differences if I have my money and kind of Wise assets versus Wise account?

Money is safe with Wise. It maybe even safer than the bank. To stay a step back when you deposit your money in the bank, banks may under their banking license can choose to operate a fractional reserve bank and lend out effectively some of that money, using it as dividends and ratios. In doing so, Wise is under e-money license, we safeguard all our customer balances. This is true on the cash side as well on the asset side. So for every pound that a customer deposits with us, we safeguard that out. And that money is held in a safeguarding account, which is outside of corporate funds and is ring-fenced within the institutions in which we hold.

Got it. So I wanted to come back to the sort of the third leg in the business you talked about upfront, which is sort of Wise for platforms. Maybe for the benefit of the audience, talk us through Wise's platforms? What are the key partners you have so far. And what are the kind of the use cases in which Wise for platforms leverages the infrastructure? And then I have a few more, but maybe we'll start with that.

So Wise platform. So what we found was that a step back, we don't believe everyone in the world is going to download our app. So we need to be within the -- embedded within the banks and within the applications that consumers and businesses use every day to manage their money. So we build Wise platform to solve this problem. What Wise platform does? Is it takes the infrastructure that we spent a decade building and exposes the same APIs we use for our own products, Wise accounts and Wise strengths are out in demand to our partners. We're live today with over 30 banking partners and nonbanking partners and have over 60 banks integrating at the moment. These range from -- in terms of banks, Monzo in the U.K., N26 and Up as well as an Aspire in Singapore. As a pretty large Neobank contingent on Wise, we have established banks. PPC in France offers Wise to their customers and there's a Shinhan Bank, the second largest bank in South Korea and Mandiri, the largest bank in Indonesia, as well as JUMO in Japan. So those are the established banks of Wise. Finally, in terms of nonbanks, there are a number of verticals in which Wise is integrated. This ranges from wallets, like Google Pay in the U.S. If you do an international payments, it's powered by Wise. Infrastructure companies like Stripe, use Wise as an infrastructure to facilitate cross-border payments. Accounting platforms like Xero and Intuit have integrated ways. With Xero, you can pay your invoices with Wise in one click and finally, we have trading platforms like Tiger brokers that have integrated Wise to offer cheap cross-currency to their end customers.

Got it. So I think you have something like sort of 70 partners on the platform. Today, it's still a fairly nascent business. I mean a very sort of small percentage of your volume. What have been the kind of the inhibitors around perhaps this business scaling? Is it say, integration because when you deal with kind of customers with legacy technology that can be kind of difficult to connect with -- has it just been kind of the consumption of the used cases in which while we use is just curious what is held Wise for platforms backhaul are we approaching some sort of inflection maybe in the coming periods that could see a ramp-up in this growth.

Well it is not only still relatively small as a percentage of our overall value. And as the core business keeps growing strongly, we forecast it still to be a relatively small part for the next few years. However, in the future, as mid-to-long term, we see the majority of our body coming in through the platform. And to your question on what the challenges are with account for consumers and for businesses and for transfer wise predominantly of one in our business. Over 70% of our users come into the [indiscernible]. Wise platform, on the other hand, requires a sales motion and we have an enterprise sales team in Wise that used sale. So this is number 1 in terms of what slows down the speed in which we can grow. Secondly, there is an integration effort with Neobanks, it's quite late. We've seen Neobanks go live within 3 to 6 months. With established banks, it takes quite a lot longer usually around about a year in order to integrate why it to go live.

Got it. At this point, maybe if there are any questions in the audience, please raise your hand. We have a mic that can come to you. Okay? Well, we will pause, Nilan, maybe can you talk to us about the raw product roadmap going forward? You've obviously been launching a lot of products already, but there are features and then there's kind of brand-new products. So curious to get a glimpse of the roadmap, where do you see the most exciting opportunities? And how should we think about the rollout of sort of future product both on the consumer side and personal end of the business side?

Yes. So you publish roadmap, it's available on our website. So you can look at that directly. When you look at it, you'll see a bunch of launches we're working on in terms of expanding our footprint globally. There aren't any really big material markets left there apart from India and China, which are quite hard work to get into that. On the transfer side, you'll see us continue to invest in central bank integrations and other engineering projects that bring down the cost and improve the speed of papers. So expect to see needs to move over the next year as we continue to invest in these areas. And then finally, in terms of the account, you can expect to see us continue to build out features such as revenue assets product globally and taking that [indiscernible] as well as building out more features for our business customers around receive money proposition that I talked through as well as the business card.

Got it. So if I kind of tie it back, you talked about the mission to do fast the cross border or near instant cheaper, more transparent as well. And we look at that sort of banks, obviously, is where a lot of the existing volume is sitting, and that's moving. Number one, are the banks being kind of do anything about it becoming more competitive, whether it's on price or functionality. I know HSBC kind of launched a global kind of money recently. You've got the traditional kind of legacy money transfer companies, Western Union, et cetera and then you've got a lot of digital kind of native competitors. So as you look at the advancements on the front, how do you look at the kind of path going forward? Are the banks kind of ever going to come back and be at risk and stop you from taking more market share? Or are there some of your more digital native competitors that you believe could catch up.

Great question. Let's start with the digital native competitors. The metric that I said about is our cost of moving money as well as the speed. And what I benchmark comparisons against is what is their cost of money and their speed. And we're more interested in the rates at which are moving these down and where they're accelerating or not and the amount of cash flow and engineers that are investing in this area. We now have over about 600 to 700 engineers globally working just on this problem and bringing them the cost. The core thesis in Wise is that whoever gets to building this infrastructure and move money at the lowest marginal cost and a high quality will take the market. So that's why I assess about and monitor competition to get. Now let's talk about banks. What we've seen on the bank side and talking to large Tier 1 banks as we take Wise platforms market. Some of them have seen volumes switch away to fintechs. It may be Wise, it may be a competitor, it may be a Neobank. Some of the volumes are between 20% to 30% of that volume switch away. And usually, these are our most valuable customers to some extent. So what we see from banks is as these volumes begin to switch, then they're left with this cost base and these some lower value payments to support. They still retain the high-value corporate pace as well. And they're trying to think, how can we support these different flows through a heterogeneous architecture. And so we're beginning to see some of these larger banks begin to reach out to Wise to understand how we can support them with the lower ticket value payments.

Got it. So maybe just doing our last check, if there's any audience questions. Okay. So maybe kind of last question is, as you kind of look forward, what kind of excites you most in terms of the different opportunities in front of Wise? And where do you think from the outside in perhaps the market is kind of underestimating the potential for Wise to kind of markets to address or pain points.

So we see a lot of volatility in the short term in our volumes as market volatility and exchange rate volatility means that consumers and business. Consumers, especially will hold back on the semi transfers, it leads to some noise in the numbers. In the long run, whoever builds this low-cost infrastructure will win and will take the market. And as well as we keep doing this, eventually, the market will switch to Wise. And that's why I think it is the long-term value we're creating here for our customers and for our businesses.

Nilan, thank you so much for the great insights into the business and thank you for joining us virtually at the conference. Thanks.

Thank you very much and happy weekend.