Wise Group plc (WSE) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you for joining us for this session with Wise. We are delighted to have the CFO, Emmanuel Thomassin, with us today. Thank you for making the trip out again, Emmanuel. Really appreciate it.

Well, thank you very much for being here.

Great. So maybe just to sort of kick off, some may be familiar with Wise, some may not. Can you take us through the kind of core offering of Wise? And I know it's kind of evolved over the last few years from being just a kind of cross-border when you provide it, you're now providing a lot of other kind of value-added services. And maybe outline the kind of the opportunity in front of you and where that sort of revenue is coming from? Who are you winning against?

Yes. So maybe I'll start with our mission basically first, right? So our mission is a mission with money without borders. And in order to provide or to fulfill this mission, we are building a global infrastructure which allow customers to manage and to move their money worldwide. So that's what we are doing. And we seek to provide the services at the minimum fees, at maximum ease and at the fastest transaction speed as possible. So that's what we are doing. And when you combine basically the infrastructure and the products that we offer. We really have like a very superior customer products compared to the legacy banks. And how does it translate into reality? First of all, you can [ see us as a ] network, network where we connect all the payments infrastructures together in real time. And that's [ allowed ] us to transfer or 77% of the transaction in Q1 were instant, so below 20 seconds. So when you transfer money from New York to Singapore or from London to Australia, it will take less than 20 seconds to arrive on the other accounts. And not only we do this extremely fast or instantly, but also we offer the service for an average take rate of 50 basis points, which is also very attractive. So when you look at the opportunity in front of us, this is a massive opportunity. The market on cross-border volume is estimated at USD 43 trillion. This is the money that basically customers, small businesses and also partners or banks are moving within a year. Just like to recap, I mean, last year, Wise's cross-border volume was [ $253 billion ]. So you could say, a drop in the ocean or a massive opportunity in front of us. And because we offer the service like cheap, transparent, fast and reliable, last year, 19 million of customers, users, which was a growth of 21%. So overall, this is what we are. We offer cross-border volume, but also services, but also others that [ we ] might dig into.

Got it. Got it. So maybe just sort of digging a bit deeper into, I think, there's the products, but I think the infrastructure is even more important. So maybe talk about the differentiation you have from a kind of tech standpoint, versus, obviously, banks but also other digital players in the market and kind of that I know you talked about speed and the customer experience, and how does that sort of manifest itself not just to customers, but now increasingly competitors are becoming even partners you going forward?

So yes, I just mentioned like the global infrastructure -- of the global that we are providing. This infrastructure is our own infrastructure. We develop it ourselves. This is a property operating infrastructure that we have been developing. And that's [ allowed ], as I mentioned before, to transfer the money extremely fast and extremely cheap. If you think about the infrastructure, I will highlight 4 points that I think are building this infrastructure. The first one is the domestic -- the connection to the domestic payment. And we do this in 2 ways, either a direct connection to the payment systems. As you know, we have we had 8. Now we have 9 direct connections. I know it would be the U.K., it would be the EU, it will be Hungary, Australia, the Philippines, Brazil and lately, we also connect to the Malaysian payment systems. So that's a direct connection. Where we don't have direct connections, we will work with partner banks, and we have more than 90 partner banks, so that we can connect to the domestic direct payment systems. The second point is the licenses that we have. So we have over 80 license in different countries to provide our product domestically. To give you an example, if you want to provide asset product in Australia, you have to have a license. So we have more than 80 license across the globe. The third one would be this for priority infrastructure that I mentioned or the tech that we have, this is our own and this is organic. We built it over time over the last 15 years. Well and lastly, operations. So in order to provide this instant payment [ at ] transfers, you have to have a global service and a global treasury, a very strong treasury [ back on ] to make sure that the liquidity is available on the other side when you transfer money from one region to the next. So all of this is very unique. I don't think that -- we think that we're really well placed. And as you said, more and more banks, partners are now using our infrastructure. And the reason is because we are building this over time, these 9 direct [ integrations ] and continue to build it. and also because we provided as a take rate that is very attractive even for them.

Yes. So yes, I was going to turn to the kind of platform business, which has been something you've talked about at the IPO, but now, we've seen over the last couple of years some really big and interesting names. But now it's being visible in the numbers as well. So maybe sort of explain to us a little bit the fact that you have a competitive advantage, the banks know they can't compete with you so they're joining with you. How is the pipeline here, what has been perhaps the early experiences from those who have signed in the ramp-up and the kind of product and services you're offering with them.

So you're right. I mean the platform is for us extremely motivating and extremely exciting. We see a bigger -- well, a big opportunity there. As a direct listing platform was about 0% of the cross-border volume that [ we ] generated. And since then, we [ multiple ] the cross-border volume by 3x, 3x. The platform moved from 0% to 6% today of the global cross-border volume that we are generating. Today, the ramp-up that you mentioned I would say the development is twofold. There's the ramp-up of partners that we already signed. And then there's a new partners coming [ on ] the pipeline that is selling, which is very attractive. Usually, when we sign a contract with a partner, we have a ramp-up. We start with the bank with maybe like 1 or 2 or 3 FX routes together. So we start slowly. And then over time, Usually, our contract is about 2 years or 3 years where we are -- we monitor together with the partners, the volume growth. And accordingly, we will also like [ addressed ] the take rate. So the ramp-up is, I would say, happening vertically. So we had a lot of FX routes over time. So like 3 FX routes, another one, another one and another one. So this is a vertical development. And residentially, we will offer new services. So we start with the FX between currencies. And then at some point, we might, for example, develop multicurrency accounts. And yes. So that's why we are today, 6% of our cross-border volume, again, 3x from 5 years ago. And we guide the market that will be around 10% of the total cross-border volume within the next 3 years or so.

Got it. Anything you would sort of call out, I mean because I think one of the [ talk with ] Steve earlier in the year, now the head of platforms, that banks are used to the [ switch ] system, and that's kind of how they've been connected. But you've also built some interesting tools to help banks, older banks perhaps with some very old IT infrastructure to make this transition a bit more -- obviously, when you work with [ Neo ] banks, they kind of run on more than infrastructure, so it's much easier. Maybe talk about some of the things you've done to improve that?

Yes. Clearly, we offer 2 ways to onboard a bank or a [ neo ] bank. One of those is obviously the API. This is what we prefer, because with the API, we can onboard the bank very quickly. The fastest were onboard a [ neobank ] has 3 weeks. So within 3 weeks, we were able to onboard completely. Usually, it depends on, I would say, the resource on the partner side, the road map and also the priority that the bank will put in motion and also the technology, obviously. So from our side, we're able to onboard very quickly a partner. And then we have no -- up today, we didn't have any kind of limitation in terms of how many partners can we own but at the same time in [ parallel ]. So that's -- the API is really making a big difference for the onboarding phase.

Got it. I mean the other sort of, I guess, [ really since ] the direct listing in London, why the count was kind of the product that really has taken off, I think you have a debit card. So maybe tell us a bit about what [ is ] account does? And how has that sort of been beneficial in terms of both customer stickiness, but also then opening up some of these adjacencies. And maybe to the extent you can talk about the economics of that versus the traditional [ use ] order business.

So indeed, we're coming from the cross-border product that we offer first. And over time, customers were asking us to hold money with us, not only to transfer money from one country to the next, but they wanted to hold money with us. So we launched the Wise account. The Wise account is, in many ways, very interesting. You can hold 40 currencies today with a Wise account, different currencies, you really have an account in a different currency. So if you -- if you've been onboarded in the U.K. and you want to have a U.S. account, you will have a real U.S. account. If you want to have a euro account, you will have a euro accounts. So it's really like you can hold up to 40 currencies in your in your Wise account. On top of that, we are -- you can earn money with us by interest that we -- that you can earn, there are some exception here in the U.K. is one of those or you can also put your money in what we call Wise assets, which will be invested with a partner of us, [ BlackRock ] JPMorgan, and this is off balance and then you earn an interest -- well, a return on your deposits. So the customers have been using the Wise account, to the Wise account, there's also a debit card attached to it that you can use. Well, and then you benefit when you're traveling with the debit card, you benefit from the FX rates that we provide. So the low take rate that I mentioned before. So more and more, we can see that there is an adoption. So I think today, the account adoption is by 66% of their retail customers and around 60% from business that are using us, not only for cross-border, the [ original ] of the company, but also like for everyday account. So you can -- more and more people are getting the salary paid on Wise and use it for the every day as everyday accounts for their life and also earning money. Today, as you know, like -- the fastest-growing KPIs last year, Wise, the deposit of the customers that we've seen. At the end of the first quarter, this year, we were at USD 41 billion of deposits from the customers invested in either interest or earning interest or in assets.

Got it. So maybe just looking forward, I think this does not stop here, Wise is known for innovating. And I think you've got a -- number of initiatives on both the personal and the SMB side. What sort of excites you in terms of kind of upcoming product releases?

Yes. We developed a lot of new features, not only with the lot features, but we'll also roll out these features in different markets. As I mentioned before, for example, assets, we need some license to get a license in every single country we launch it. So assets, we launched a Wise assets in New Zealand this year where now our customers in New Zealand are able to earn money on the deposit. We also launched a QR code payments in Malaysia with a partner called [ Do It ] now. And we also launched from retail, the Wise bundle for travelers. So where basically you have a travel perk and also like a travel lounge that you can use with a Wise account access in lounge at the airport and so on and so forth. From the business side, and I'm particularly excited about it. We are more and more integrating in the workflows of small businesses in the approval workflows. We are providing them with invoicing solutions where they can invoice in 23 different languages. Not only they can invoice in 23 languages, but they can also receive the currency and keep them in their Wise account as a currency. So when you work with different countries in different currencies, that's also like a big advantage for the customers. And what I'm very excited about is that we are more and more integrating with what I call a local accounting champions. So when you -- a lot of SMEs are not working, obviously, with our [ SAP ] because the systems are just too big for them. And in specific countries, you will have the local champions in terms of accounting and what we're developing is the integration to this accounting software so that their payments can be operated from accounting software or you can also reflect the payments that have been done directly in the solutions in real time. And that integration will increase the stickiness of the small businesses. And then we talk about the platform, so I don't want to develop too much on that because we talk about this. But this combined is driving our densification of revenues. So you see -- you saw at the end of Q1, 51% of our net revenue were not [ corresponder ] revenue, which is a reflection of the diversification of the products that we offer.

Yes. So maybe just on the cross-border business. The mission is obviously to drive down pricing. And I know that maybe 0 may not be the sort of the end journey. But it's interesting that you sort of talk about any efficiencies you get in the platform. And I'd like to know kind of what those levers are and how that flows into kind of your pricing strategy with customers. And there's often a misconception that this is a defensive move rather than offensive move. But when I look at your gross margins, they're still quite healthy. So maybe help us kind of close that loop and understand your pricing methodology? And how should we think of that going forward?

So we are constantly looking for cost efficiency within the company. So this is a culture that we have developed over the years. So we're looking for a way to be more efficient as we grow and scale. I can give you an example of the cost of sales when we work with partner banks, as I mentioned before, for the countries where we don't have a direct integration as the volume grow, we go back to the banks and negotiate better terms and better conditions. This is the same with Visa MasterCard, where we have been negotiating better terms and conditions because of the volume that you generate. And that efficiency -- and this is true for all the processes. We're looking at where we can be leaner and more efficient. And all this efficiency will drive margin and then we will consider to reinvest, reinvest in our business or in OpEx, which could be like servicing, product and tech, marketing and so on into fourth or price adjustments because we look at -- we consider pricing as one of the area of investments when we start the year or when we budget is like how much do we want to reinvest in OpEx, how much do you want to reinvest in pricing. Fundamentally, and we mentioned before the infrastructure, we believe that the combination of a global infrastructure where it's reliable, it's fast, combined with the low take rate is basically the key to be the winner in this industry, it's like, because at the end, the price is what matters for every single customer, the retail, the SMEs or even the larger bank. So that's why for us, the price is definitely not a defensive move. These are -- we don't really check what the competitors are doing. We are following a philosophy of our cost plus margin. So we want to be agnostic of which [ real ] or which products are we providing to which customers. We want to generate the same profit on all rates. And then for that, we we have a very, very detailed cost analysis and cost allocation. So we look at every route, every customer profile to understand how much profit are we generating. And if we have -- if we see that we generate more profit than the 50% margin that we are targeting, then we would consider to pass it back to the consumer or to the customers. So this is a very detailed one. I should also say that we increase our price sometimes. So when we find out that the cost base is higher and we don't generate the margin, then we will also increase the take rate in a very specific customer niche or FX routes.

Got it. So you talked about investments. I mean your OpEx has been growing pretty substantially over the last couple of years. And I know your sort of objective has been to keep the margin fairly steady now. I understand you're still very -- have low penetration of your addressable market. So it makes sense to invest it. Can you give us a sort of a rough framework in terms of, a, how do you -- where are you spending this money on? B, sort of how you measure that kind of return on investment. And I think in recent quarters, we've actually seen a pretty healthy uptick in the number of kind of customers you've been adding. And how should we think of this spend framework? And at some point, there's going to be operating leverage in the model. So when does that kind of show through?

So yes, I mean, 2 years ago, we announced at [ Honest ] Day that we're going to accelerate our investments in OpEx around -- at that time, we mentioned [ EUR ] 2 billion over the next 2 years. Looking back at the time that you mentioned before, [ $43 trillion ], while we just report [ $253 billion ] of cross-border volume. So you can see that basically, there's a massive opportunity in front of us. And what we decided to do is to invest, and I don't say spend, but invest in specific areas, one of those is second product, we know that new features will drive more demand from the customers and more interaction. We also considered very early on to invest in servicing, assuming that we will get more customers joining the platform and joining their servicing, we wanted to make sure that we serve this customer best. And that was also, in particular, the case for small businesses. So to onboard private customers, it's by far simpler than to onboard a business as we want to be part of their workflows. We have a lot of interaction with these businesses. So we created a special department for proactively reaching out to businesses to make sure that we are part of their workflows. And then we invest in marketing. We tripled the marketing budget within 3 years. It was pretty low 3 years ago. So it's not -- it's still like it's -- we triple it, but it's still like a modest line in terms of the P&L. And how we measure our investments in marketing, we will have some very strict KPIs that you want to meet. So the payback time for private customers is 15 months for businesses. We also have like 22 months. We have our targets on [ CLTV ] and so on and so forth. So we put discipline, which is we make investments very difficult for the marketing team. So that's the kind of calculation and attitude that we have towards the investment that we're doing. And this is paying off. I mean, last year, our cross-border volume grew by 31% year-on-year. Customers are growing by, in first quarter, 21%. So we can see the traction of this investment that we have provided.