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Technology stocks have had a tough year. That includes fintechs, which combine brilliant technology start-ups with the financial services traditionally offered by boring old banks.
To be sure,
Wise
(ticker: WISE.UK) is a fintech company. It is based in the trendy East London district of Shoreditch. Top managers hot desk next to junior employees. The office is a former tea factory and has a sauna.
But their services aren’t nearly as edgy as those of their cryptocurrency-trading fintech cousins. Wise simply helps people transfer money between more than 50 government-backed fiat currencies at cheaper rates than what Main Street banks charge. It handled $76 billion worth of transfers last year and has more than 13 million customers.
London Stock Exchange
-listed Wise employs 3,368 people and has a market capitalization of 3.5 billion pounds sterling ($4 billion). In addition to offering cheap international money transfers, it offers debit cards that allow you to spend abroad without paying fees, receive local money payments and hold accounts in multiple currencies. Wise fetches 38 times this year’s expected earnings and is valued at a 90% premium to its peers.
The business started in 2011 when two friends from Estonia living in London got tired of the costs of transferring money between euros and pounds. Taavet Hinrikus worked for Skype, but was paid in euros, while Kristo Käärmann worked for Deloitte, was paid in pounds, but owed money on a mortgage in euros. They decided to take matters into their own hands.
Anyone who has moved money across currencies through traditional banks knows the frustration – the transaction can take a week to complete, you only know the exchange rate afterwards, and there are huge fees on top of the exchange rate the bank offered you.
Their solution was to change their business model. Instead of using the established cross-border banking services, it built its own infrastructure that enabled it to cut out the middleman. It also cut a lot of costs.
After slowly building the business, the founders took the company public in 2021 at £8 per share, giving it a market value of around £8 billion. The company has been profitable for four years.
Since then, the company has fallen on hard times. First and foremost, the broad market sell-off that hit technology stocks particularly hard. The shares are down 56% this year, trading at around £3.35.
In addition, co-founder Käärmann ran into problems with the tax authorities. He was on a public list of willful defaulters, owing more than £1 million in back taxes and penalties. The board investigated, and Britain’s Financial Conduct Authority said last month it had also opened an investigation that could potentially find he is unfit to run a public company.
Wise’s business, meanwhile, could prove resilient in an economic downturn. It accounts for just 3.5% of all cross-border transfers, leaving plenty of room for growth as people move more than $26 trillion across borders each year.
“We see no reason why revenue growth should not remain above 20% in the coming years as the group continues to take market share from the banks,” Numis analysts led by Kim Bergoe said in a June 30 note. “The company is both a profitable and cash-generating disruptor of a huge market.”
At the moment, Wise can only be a victim of the emotional fallout. But the business appears to be on solid footing, so investors will benefit in the longer term.