Great! Well, good morning, everyone. Welcome to the 2023 Barclays European Fintech and Payments Conference. It's great to have you back with us this year, back in a virtual format. It's my pleasure to kick off the day with Matt Briers, CFO of Wise, back with us again, and I think for the last time, unfortunately for us, with the Barclays Payments and Fintech Conference. But Matt, morning, and thanks so much for joining us.
Morning. Thanks for having me. You can always organize another conference for the next two months.
Well, perhaps we'll have you back as a sort of guest speaker in future years. Let's kick off with the macro environment and pricing. Get right into it. I know that you'll be in some ways hesitant to talk too much to the near term, but I think it's an interesting place to start, given the macro. Q1 was a very resilient quarter from a volume perspective. I think we saw a $1.5 billion sequential increase in TPV. The question is, do you expect further volume additions of this sort of magnitude as we go over the coming quarters? Or at least, can you speak to some of the high-level trends that you're seeing as we progress through your Q2?
Yeah, sure. So, thanks. Good, good place to start. So you're right, well, before we dive too much into the short term, like, like, what is fundamentally. And we spoke at the full year results, what's really driving our growth, is really just a compounding active, number of active customers that are active on our platform. We've seen that growing around 30% year-over-year. And, and over the very long term, we see that as what has been driving the volume growth and the income on the platform, and it, and will continue to do so in, in the future. You've seen over the last year, volatility, come through as to how much customers are moving on the platform. So definitely as we kind of look over the long term, we obviously expect sequential increases in, in volume.
We haven't seen any major shifts in what we're seeing in the macro, so, so the fundamentals that we've described are still the same. We're still seeing very healthy compounding growth in active customers, and no real change to the dynamics that we've been seeing, basically. So, we really focus on that because we know that that kind of massive market and compounding growth in customers into that is what's really, what's really helping us. Yeah.
That makes a lot of sense. So let's move to the VPC, volume per customer. We've been talking about this now for a couple of quarters. Obviously, in personal, there's been this effect, which has been well referenced by you, that dipped slightly further in the quarter. But it was also, for me, quite surprisingly soft in business, actually. I know there's some seasonality there, but nonetheless, in the quarter. So how much of the dip in VPC do you attribute here to factors such as mix? You know, Wise's expansion into other regions, and how much do you think is macro? And, you know, are we expecting to really stabilize from here?
Yeah, so as we've seen over the last many years, actually, like, VPC on a quarterly basis can be quite volatile, but it, over the very long term, like, if you look back over the last four or five years, it's relatively stable and has been mildly increasing, like, if you take the biggest picture view, and that really comes down to the product that we're building and relationships with customers. But it's always gonna be quite volatile in the short term, and as you know, the recent volatility we've seen is really by people moving fewer, larger payments, so that's definitely got something to do with macro. You know, this time last year, you know, we've come out of COVID, we've come out of very positive into a more conservative business and consumer sentiment.
And we've also seen, you know, this time last year, massive USD strength and FX volatility, all of these which are not here this year. They were here last year, and they're not here this year. So as we've talked about this, VPC's really the primary drop we've seen year-on-year is a function of, you know, less people moving really big payments through Wise. Will that come back? Well, we can conjecture and expect that the economy is cyclical, but we're not trying to time that or guess when the timing of that comes about. We did signal that we would expect Q-on-Q, a tick down, a steady tick down in VPC. We saw that in the first quarter, and that's a function of many things.
Yes, there's some regional mix as we go into different markets. There's also a dynamic around our accounts, as people move. You know, use the account much more often, but over a year, they definitely, over their lifetime, they definitely move more volume, but they have a different. You know, they're doing less one big one-time transactions and more regular use on the account. Which actually, this ongoing relationship with the customer, which is supporting the active customer growth and the services they take from us, is very helpful. So no real change. And I think on business, as you point out, like, there may be some seasonality, but again, there's just some noise relating to economy in here, and also just the real, the FX rates that we're seeing, playing through to the pound reported numbers.
Yeah, okay. That's helpful. It sounds like not any particular sort of, you know, regional development. So let's move to the take rate, which has been very strong. You know, it's ticked up, I think, sequentially one basis point. Year-on-year, up nine basis points.
Yeah.
Let's talk a bit about the drivers of that and, and maybe your expectations of, of take rate longer term, because we have, on the one hand, Mission Zero, on the other, we have the increasing prevalence of ancillary revenues, interchange, the assets products, et cetera. So it'd be helpful to deconstruct that a bit.
Yeah. So, there's lots of things going on, interesting things going on in our, you know, what the income, revenue and income that we get from our customers. But Wise at its very heart started as with Mission Zero, saying, "Right, how do we offer the fastest, cheapest and best way to move money around the world?" And Mission Zero is: How do we make that as cheap as possible for our customers and save as much money versus [inaudible] ? And the big move in our take rate, one of the moves in our take rate, has actually been an increase on the cross, on the cost across moving money across borders over the last year.
If you look over the long term, it's come down, and if we look forward over the long term, we hope to continue to bring that cost down. But also at the heart of Wise is we believe in running a profitable and also a high-quality service. High-quality service to our customers and one that's profitable for our shareholders. These are non-negotiables. So as we've expanded, and as we continue to offer our services, we've actually added servicing capability to our teams, such that customers this year, at the end of this year, get a radically better service than they did earlier on last year. The response rate, if you need to call up for a problem on your account, is much quicker.
The email response rate, the call response rate, the ability to onboard customers faster in more countries has actually improved. And so this all reflects in actually the rate at which our customer base is growing. So if you see the compounding customer base at 30%, you can see that that's, as we know, two-thirds from word of mouth, and the word of mouth is really inspired by price, that's for sure. Do they understand what they're paying, and is it cheap? But also the service and the Net Promoter Score. So actually, these are investments which are actually driving growth.
And yes, we've got, you know, 5,000 or 6,000 people inside the house that are pretty religious about dropping prices and not proud of—you know, not happy we have to put prices up, but they're incredibly happy that we're able to offer a brilliant service that we're proud of, and that's what's driving our growth, and we're doing that profitably. Then, of course, trust us, we're working really hard to say, like, "How do we, how do we kind of bring that cross-border price back down again profitably, right?" So how do we engineer away these servicing needs? How do we any, any transactional costs? And then the second thing is, these customers that are onboarding, more and more of them are using these Wise accounts.
And when they use the Wise Account, they do many, many more things with us, as you know. So they might be using our card, they might be making domestic payments, they might be using our assets product. The relationship's getting deeper, but we're also getting more revenue from these customers. And that's also pushing up, and that's probably been the real big change if you look across two to three years. You know, since we listed, for example, that's been a big shift in the amounts, in the relationship and the revenue per customer that we're getting. What will happen going forward? Well, you know, as I said, we'll continue to put downward pressure in the industry, not just in Wise, on cross-border take rates. It's gonna be harder and harder to compete in this industry.
We'll also build stronger relationships with our customers, which will lead through to this, other take rate, net-net going up.
Okay. Understood, and let's maybe come back to some of those drivers of growth, but I think it's a good moment to talk a little bit about the interest rate dynamics in the business and where we are there. You've been much more explicit now about how Wise thinks about the additional interest and how that might drop through. I mean, maybe we'll start with a question on how successful you feel you are being currently in passing back the proportion you'd wish to pass back to your customers. And, you know, how is Wise continuing to increase that proportion as we move through the current Q2?
Yeah, so we have to look at this in the whole as to, like, either how much interest that we earn do we pass back to our customers versus what proportion of our customers can we give access to an interest-earning product? And it's slightly nuanced, but we're doing... I think overall, we're doing pretty well. So, you could see at the last set of results that we were passing, you know, an increasing share of this interest is going back to customers, but it's still way less than half of the interest. In Europe, we do a great job. We can, the regulatory regime means that we follow this framework that we've shared, where you can earn a really healthy cashback on your balances. In the UK, it's much harder.
We still, from a regulatory perspective, can't offer interest on your holdings, but we can offer you access to our assets product, where you can opt in and earn an amazing rate on your assets interest product. And that's been really popular, and it continues to grow really fast. So actually from a customer perspective, they've got the ability to earn interest if they're really sensitive to this. So from a growth and relationship perspective, this is excellent. And then in the US, we're somewhere in between, actually, where if you hold dollar balances, as many hopefully on the call, many of you know, you can earn, I think around 25 basis points short of the Fed rate, instant access on your balances with FDIC insurance as well.
And we're working hard at extending that to pound and euro balances for our US-based customers. So we haven't made massive changes this quarter, so I would still expect a significant amount of interest to be on our P&L. But we're definitely making progress from a customer perspective, where those that care definitely have the option to earn interest, which means their relationship with us is gonna endure.
One, excuse me, I think very important, somewhat mechanical question off the back of this, something I discuss a lot with investors who want to look at the longer-term investment case, is the fact that this interest income has been such a big boost to your total income growth.
Yeah.
Over time, interest rate will normalize, clearly, and, you know, given the increasing proportion that you pass back, could even become something of a headwind to the business in terms of year-on-year growth from 2025 onwards. So I guess, the question is: How do you think about that in the context of your over 20% total income growth? So what gives you, you know, the confidence there?
So, I mean, fundamentally, like, what gives us confidence that we'll compound, and then I think we're then talking about the various kind of points of measurement, like where is the growth? And then I'll come back to that, 'cause clearly, that's gonna be like... There's been some very positive dynamics in the business over the last couple of years. So the fundamentals are, yeah, massive market opportunity. We've got a, you know, we've got these products that customers love, that are joining us, and they're compounding. You've seen the customers compounding, number of active customers compounding at 30% into a massive market opportunity. We've got a really healthy, a really strong infrastructure.
You know, you've seen in the media in the last couple of days, kind of, with Swift, et cetera, like, the proof points that show that what we're building is super hard to replicate, which gives us confidence over that 10 years, that our ability to win and compound, and we're doing that profitably. So like that, fundamentally, the question is, it gives us confidence to compound into a big opportunity. And then if you look at, like, this forward-looking what gives us confidence? And that is all of those things together. Now, clearly, as you look at, you know, even if you just look at this quarter. You know, last quarter's volume growth versus the year before, we're lapping very strong volume growth last year.
This year, we've got very healthy interest income dynamics. So we're gonna have to, at various points, for the period that we've set looking forward, we're confident that 10%, there will be periods like, where you'll be able to find this quarter versus that quarter, where we're gonna have to think about, fundamentally, what are the underlying growth drivers of this business? It's the compounding number of customers, it's the dynamics of the volume, the take rate, and the interest income. But these things give us confidence that if you look 3-5 years ahead, we're gonna have a business that's generating a very healthy cash flow, that will continue to allow us to continue to invest in these products and growing the customer base.
Like, no doubt, you'll have to think of smart ways to look at this. You, the investors on the call, are gonna have to look through some of these lapping issues, but if we look over the long, the longer term, expect to see these compounding, compounding numbers.
I think that makes perfect sense. I think it's just about being prepared for those lapping issues as opposed to-
It's on, it's on, it's on growth, and it's also gonna be on profitability, because, as we said, we're not gonna rush, and, you know, as we've laid out this framework for how we're returning this interest to our customers, we'll only do that responsibly. Like, if we were purely worried about the optics, we may have taken a different path. But like, we think about this as owners of the company and as responsible custodians of where this capital is being invested, and we'll consciously make smart decisions rather than just purely managing on an optic. So we're gonna have to look through those when we get to that point.
Very clear. You mentioned the Swift news flow. Perhaps a good juncture just to touch on that. I mean, one thing that we've often discussed on these calls is the platform proposition from Wise. It's been growing, but the rest of the business has been growing quickly, too, and I don't have the sense that it's become a hugely bigger proportion of the business since IPO.
Yeah.
There's a lot of potential there. We've talked about you trying to attack, attack may be the wrong word, but get into larger bank propositions over time as well, traditional banks.
Yeah.
I think the Swift news flow is perhaps a step in that direction. So is it worth elaborating on that?
Yeah, we're definitely not in the business of attacking banks. It's dangerous. They actually need a lot of help. So our platform, we said every time we say we've got over 60 partners, we've definitely announced another 10 or many more partners. So we're really focused on growing the number of banks and partners that are using the platform. That's continuing to grow at a very healthy pace. But we've been really focused on how do we get some larger banks onto this platform? And the challenge with if we go to a tech-minded, forward-thinking bank or platform, they're very used to starting from scratch and just integrating through APIs directly into Wise.
But actually, when you go and speak to Barclays, for example, you go, "Well, I think this might be useful. I'd like to test it." Or, "I'm confident, but I need my the governance and the company to see a test on this." There's a huge opportunity, but we'll roll it out slowly. But the barriers to actually integrating are quite high, right? So actually, what this Swift integration makes is wonderful is this, as a bank, you've already got this pipe that essentially. Think about it as getting onto a road network or a you know, you've already got an on-ramp that you're using that gets onto this network.
So actually, what the Swift integration helps us do is, we're using all of the existing pipes that the bank has in order to get onto the correspondent banking network, but instead of hooking up to a classic correspondent banking network, they're hooking up to Wise, right? So makes it really easy for larger banks, 'cause it literally is just repointing a connector from point A to point B, rather than having to really start from scratch. And actually, it works really well, because you still get pretty much the functionality of the Wise network, but it helps you really break down a lot of these barriers to start using Wise. That is not the only barrier, and it'll still take time, but it's also, you know, Swift is a pretty awesome network in itself.
So we can work with Swift, which, in effect, is working with banks as well. You know, it's kind of great, great thing for Swift, we hope, but also a great, great thing for Wise as to kind of give confidence in what we've built.
Yeah, absolutely. Let's come back to another point, just around the custodians of capital and how you invest. So, we've been pretty clear here on the proportion that you want to reinvest back into the business. We've seen hiring accelerate massively over the past 12-18 months or so. Clearly, you've benefited from this interest income, which wasn't in the original plan, perhaps. So I guess the question is: How are you ensuring that you're generating the same level of return from these elevated investments off the back of the interest income as to what Wise was previously investing in?
Sure. I'd maybe try and debunk a bit of a myth, though, if I can, or a couple-
Please.
So, fundamentally, we invest really at the rate at which our cross-border kind of payments volumes. That's the primary thing we look to invest behind. And really, this is the core driver of what really pays for our investment. And we hired really fast in our product teams, but really in our servicing teams over the last year, as you have seen. The good news is, we haven't had to hire as fast in some of those teams over this last year. And we definitely saw this change in volume dynamic over this year coming, and we're able to, like, manage our cut our cloth and manage our hiring appropriately.
So we still continue to hire, but actually, we've, we believe in being profitable and not hiring ahead, but hiring in line with, if that makes sense. And the this interest income that is coming through, we're definitely not funding growth teams and product teams with this interest income, as we said at the half year. Rather, like, this will pay for the economics of the the marginal economics of the product. We'll use 1 percentage point of interest for this, but we're really not becoming more and more dependent on that, right? We're not today investing significantly in product teams. We're not today using that for G&A.
So really, I think I can be confident, and you, as investors, can be confident that actually, like, we've got a, at its core, we've got a very profitable, but very resilient, volume-based kind of cash generator, which is funding all of our investment. And we'll invest behind products that continue to grow that going forwards. So actually, we're not becoming dependent on this interest income. So if you go then back to the question around investments, we continue to invest in things that solve this problem of moving and managing your money around the world. So we judge our products, and judge our investments by the number of customers and the impact that has on our cross-border volume, and the business that those customers are doing with us over time, rather than...
It'd be very easy just to build things that maybe attract more balances, attract more interest. That's quite a dangerous, maybe a more dangerous game to play, if that makes sense. And then, if you just look at the things we're building and look at the payback we shared, I think 18 months ago, you know, we spent GBP 300 million or GBP 400 million cumulatively over the last 10 years in our product engineering teams, and that's generated, at that point, a GBP 500 million annualized gross profit run rate. Now, that's grown a lot since then, and we haven't... Yes, we've spent more.
So the track record we've got in building products that are generating a really high cash generation is pretty good, and the principles and the formula for that, you know, isn't changing anytime soon.
Understood. That's helpful. I mean, if we were to look at the way your margin targets have developed over time, I think, you know, we could argue that we had an upgrade of sorts when you slightly changed the capitalization policy in the business. I think we could argue that we've had an upgrade, certainly when you moved interest income to total income, and it was over the proportion of it. Clearly, we're running ahead of the 1% at the moment, and you've been clear that as long as interest rates are above 1%, you're going to have more than 20% margins. What's the potential for Wise? And maybe it's a question for your successor, but to think about actually a medium-term margin target or guidance that's actually gonna be above the 20% that we currently see.
I mean, if my successor's got a more predictable view of long-term interest rates than me, I should go and do a different job. But, or he or she should go and do a different job. Don't know who that is yet. So... Look, and I think, I think what, what, what you can understand is, and, is you can understand that for every percentage point of interest rates that are sitting, you know, higher than 1%, there's gonna be an additional EBITDA. So really, like, giving a medium-term guidance for this interest rate is, is helpful—maybe, maybe it's helpful, but I think, I think, I think you can work through, like, what, what does that look like based on...
You know, I think the ten-year gilt at the minute is 4.4% perhaps, on pound. And it's probably a bit higher on the dollar, a bit lower on the euro, right? So, you know, clearly, you know, if this plays out, then that would play through to higher EBITDA margins over time. So I think what we've given is a construct as to how to think that through and how to work that through, but I think predicting where those rates will be over that period of time is little value add, if that makes sense. Quite clearly, like, what it tells the street, if you step back, is, you know, we care about, we care deeply about profitability all the way down.
As you can see with, you know, even with stock comp, we care about the cash generation. You know, we care about paying for that, and, you know, we are bottom line profitable, which actually is a capital generating business at the most part, and that's, and that's been growing, as you, as you point out. But, but at the moment, like, understanding this fundamental kernel of profitability of 20% plus whatever impact from this interest is, should give people confidence that we, we can continue to invest down to that significantly, and we've got a long way to go, but we're gonna do so, you know, very, very profitably along the way.
Yeah. Thank you. Let's come back a bit to what you can control then, in terms of the growth drivers of the core business. And the one I wanted to touch on was geographic expansion. We recently saw a move into China for expats. So, you know, can you talk us through this and maybe any other plans for notable geographical expansion, where's left?
Yeah, China, China's interesting, very early. And anyone who's seen our... followed us for a long period of time know that when we get started in a market, typically takes a while, and we kind of-- we find our way in. So we've been sending money to China through various-- There's obviously a very complex all the markets, potentially huge, but very complicated. And just kind of need to find the right path in. We've been sending money to China for a while, but actually now there's a-- we feel there's a product and a market segment that we can serve reliably and competitively, which is expats in China, which is a very different focus from local players to the main population of China.
So we'll see how this goes. The product needs a lot of development and a lot of feedback from customers as it grows. It's very early days, so, like, don't expect next quarter for me to say, "Ah, here's some growth, and it's thanks to China." Like, so please, it's just—I think this is a proof point that there's many things in the very early stage of the company that compound over this medium term.
Outside of China, we continue to do the same work in India, which is very hard and long dated, but like, if you look in Brazil, like, we've been working there for 8-9 years, and you can see that really now bearing fruit, where you can see that's really impacting the customer growth that you... You only need to spend a little time on the internet to see how popular and loved the product is in Brazil, and how competitive and useful it is to the population. And, you know, we have a portfolio of these markets that we'll continue to work on, and this will compound over time.
Yeah, I was gonna touch on Brazil, actually, because that's, you know, clearly a region that's becoming quite material for the numbers. I guess the question I have off the back of that is, just coming back to this VPC topic and, you know, some of the complexities in the KPIs that we've had historically in your reporting, just the way those have developed. I mean, isn't it reasonable to expect users of the product in places like Brazil to have a lower VPC, and therefore, you know, my question is, over time, is it really right to judge Wise on number of customers and VPC, or should we increasingly focus, in your view, just on the overall volume development of the business?
I think it's nuanced. I think it's nuanced. Like, I don't think there's a right answer right now. So, like, really, like, what do we focus on? It's like the number of customers, there's the volume those customers move, and then the product economics or the unit economics of those customers as well. How voluminous they are, how much income they generate, and revenue and income they generate. So, yes, to answer your first point, yes, like, we do see different countries having different volume per customer. U.S. is very high, but Brazil is maybe lower than average, but still significant, right?
So I was very interested as to what impact this route mix is having on our VPC, and it does have an impact on it, but it's nothing like what we've seen from a lot higher, bigger and smaller payments over the last year. But it may be having mild downward pressure on VPC. That said, like, these customers are profitable. These customers are profitable. There's a huge market we're growing into, so it should continue to drive volume, and it will continue to drive revenue and income over time. The most important thing is we're acquiring kind of growing a customer base that is on a unit level very profitable, and that will continue to compound up over time. Like, it shouldn't have...
We're definitely very excited to have Brazil, and it's definitely a high accretive to the whole system. But yeah, so for now, like, we definitely should understand these volume dynamics, but also, you know, the revenue dynamic and the income dynamic as well. This is very important when you look over the whole base.
Yeah, it's clear. It's definitely very encouraging. And, look, we're going to leave it there, in the interest of time. We've got a tight schedule for investors today. I know Wise is doing other meetings over the course of the day, so lots of topics that we can dig into further. But, Matt, it's been a really great run through some of the key trends for me. Thanks for coming and joining the conference again. All the best.
Well, it's good to speak. Thanks for having me, James. See you now.