U.K. fintech and cross-border payments firm Wise has enjoyed a jolt in its revenue for the past year, but it's also girding for changes that could threaten its earnings.
For the fiscal year ending March 31, the London-based fintech on Tuesday reported revenue of about $1.1 billion, up from around $712 million the prior year. Profit before tax tripled to $186 million, up from approximately $60 million in fiscal year 2022. Customer growth was up from about 7 million users to 10 million. Wise's stock on Tuesday morning was trading at just under $7 per share, or up 18%.
Higher interest rates have helped Wise, as the firm earns income from the interest on customer accounts. Cash balances reached about $13.6 billion at the end of March, up from about under $7 billion the prior year.
Wise said the interest income boost is an "unusual trend" that may be offset by a slowing economy. The company projects transfer volumes will fall later this year and transaction volume per customer is currently flat.
"The best way to prepare is to not become reliant on income from interest," said Matt Briers, Wise's chief financial officer, in an interview after the company released its yearly results. Many fintechs have struggled over the past two years because they had become reliant on short–term pandemic-era trends such as a rush of venture capital in 2021 or a boost in interest income from deposits in 2022 and 2023, Briers said.
To increase noninterest revenue, Wise is expanding its offerings and markets to reduce the influence of correspondent banks in cross-border payments — a market already being targeted by companies such as Ripple and PayPal.
The competition is coming amid relatively high interest rates. The Bank of England recently increased interest rates 0.5%, to more than 5%. The U.S. Federal Reserve did not raise rates during its most recent meeting, though it's expected the Fed will hike rates later this year with a target rate of more than 5%.
"Higher interest rates are definitely a benefit to any organization that has the ability to keep cash sitting still for any period of time," said Aaron Press, research director for IDC Insights. "With rates now at levels that can actually generate meaningful revenue, I think we'll see fintechs thinking a lot more about treasury management and how to keep balances on the books for longer."
In May, Wise released an interest-bearing account, enabling businesses and consumers to receive 4.13% APR on their account balances, with FDIC insurance provided through a partnership with JPMorgan Chase.
But it may not be possible to keep the APR that high. While policymakers in both the U.S. and U.K. have leaned toward keeping rates higher or increasing rates to manage inflation, Wise and any other fintech that's benefiting from the current high rate environment may need to pivot if and when rates start to fall to stimulate a slow economy.
Wise is prepared to adjust its own rates based on future fluctuations in central bank rates, according to Briers. "We try to share extra income with customers as much as we can, and if rates go down we share less," Briers said.
Wise has made moves to broaden customer relationships beyond rate-bearing accounts, such as
Cutting down the use of consumer banks for international payments is a long-standing goal for fintechs, since correspondent banks extend processing time and extract fees to manage foreign exchange. Wise is additionally expanding instant settlement as real-time payment schemes grow.
"A lot of these partner companies have integrated Wise through APIs and given our product directly to consumers," Briers said. "Some of these businesses are smaller today but they'll become larger over time and disrupt banks."
Wise's moves are investments in customer acquisition, and that customer growth should pay off in greater revenue, but any revenue improvements due to interest rate increases are not sustainable, according to Aaron McPherson, a principal at AFM Consulting.
"Wise recognizes this and has decided to reinvest the revenue they have been getting from higher interest rates into customer acquisition and service improvements, which is a wise (no pun intended) long-term strategy," McPherson said.
Wise also faces potential changes in its leadership. Briers plans to depart in 2024, and CEO Kristo Kaarman was fined about $460,000 in the U.K. for late payment on a tax bill of about $917,000 million, according to
"We have a stable, broad and capable upper management team, and have been together for a long time," Briers said. "I'm moving on by March and we'll take time to find a replacement," Briers said. "Kristo is taking a three-month break but will be back well before I'm gone."
