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.
Thank you very much for being here. Thank you so much.
Great. Maybe just to kick off, some may be familiar with Wise, some may not. Can you take us through the core offering of Wise? I know it has evolved over the last few years from being just a cross-border money provider to now providing a lot of other value-added services. Maybe outline the opportunity in front of you and where that revenue is coming from, who you are winning against.
Yeah. Maybe I start with our mission basically first, right?
Yeah.
Our mission is money without borders. 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. That's what we are doing. We seek to provide the services at the minimum fees, at maximum ease, and at the fastest transaction speed as possible. That's what we are doing. When you combine basically the infrastructure and the products that we offer, we really have a very superior customer product compared to the legacy banks. How does it translate in reality? First of all, you can see us as a network where we connect all the payments infrastructures together in real time. That allows us to transfer 77% of the transaction in Q1 were instant, so below 20 seconds.
When we transfer money from New York to Singapore or from London to Australia, it would take less than 20 seconds to arrive on the other account. 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. When you look at the opportunity in front of us, this is a massive opportunity. The market on cross-border volume is estimated at $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 cross-border volume was GBP 253 billion. You could say a drop in the ocean or a massive opportunity in front of us.
Because we offer the service like cheap, transparent, fast, and reliable, last year, 19 million customers used us, which was a growth of 21%. Overall, this is what we are. We offer cross-border volume services, but also others that we might maybe dig into.
Got it. Maybe just sort of digging a bit deeper into, I think there's the products, but I think the infrastructure is even more important. Maybe talk about the differentiation you have from a kind of tech standpoint versus, obviously banks, but also other digital players in the market. 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 for you going forward?
So, I just mentioned the global infrastructure that we are providing. This infrastructure is our own infrastructure. We developed it ourself. This is a proprietary infrastructure that we have been developing. That allow, as I mentioned before, to transfer the money extremely fast and extremely cheap. If you think about the infrastructure, I will highlight four points that I think are building this infrastructure. The first one is the connection to domestic payment.
Yeah.
We do this in two ways. Either a direct connection to the payment systems. As you know, we had eight, now we have nine direct connections. It would be the U.K., it would be the EU, it would be Hungary, Australia, the Philippines, Brazil, and lately we also connect to the Malaysian payment systems. So that is a direct connection. Where we do not have direct connections, we would work with partner banks, and we have more than 90 partner banks, so that we can connect to the domestic 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 assets 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 proprietary infrastructure that I mentioned or the tech that we have. This is our own and this is organic. We build it over time, over the last 15 years. Lastly, operations. So in order to provide this instant payment that transfers, you have to have a global service and a global treasury, a very strong treasury backbone 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. We think that we are really well-placed. As you said, more and more banks or partners are now using our infrastructure.
The reason is because we are building this over time, these nine direct integrations, and continue to build it. Also because we provide it at a take rate that is very attractive even for them.
Yeah. I was going to turn to the kind of platform business, which has been something you have talked about at the IPO, but now we have seen over the last couple of years some really big and interesting names. Now it is being visible in the numbers as well. Maybe sort of explain to us a little bit the fact that you have a competitive advantage. The banks know they cannot compete with you, so they are joining with you. How is the pipeline here? What has been perhaps the early experiences from those who have signed in the ramp-up? The kind of products and services you are offering with them?
You are right. The platform is for us extremely motivating and extremely exciting. We see a big opportunity there. As a direct listing, Platform was about 0% of the cross-border volume that you generated. Since then, we multiplied the cross-border volume by 3x. 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 is the ramp-up of partners that we already signed, and then there is the new partners coming or the pipeline that is filling, which is very attractive. Usually when we sign a contract with a partner, we have a ramp-up. We start with a bank with maybe one or two or three FX routes together.
We start slowly, and then over time, usually a contract is about two years or three years, where we monitor, together with the partners, the volume growth, and accordingly, we will also adjust the take rate. The ramp-up is, I would say, happening vertically. We add a lot of FX routes over time. Like three FX routes, another one, another one, another one. This is vertical development. Horizontally, we will offer new services. We start with the FX between currencies, and then at some point we might, for example, develop multi-currency accounts. That is why we are today 6% of our cross-border volume. Again, 3x from five years ago. We guide the market that we will be around 10% of the total cross-border volume within the next three years or so.
Got it. Anything you would sort of call out? Because I think one of the, I was talking to Steve earlier in the year, the head of platforms, that banks are used to the Swift 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 neobanks, they kind of run on modern infrastructure, so it's much easier. Maybe talk about some of the things you've done there to improve this.
Yeah. Clearly, we offer two ways to onboard a bank or a neobank. One of those is obviously the API. This is what we prefer because with the API, we can onboard a bank very quickly. The fastest we onboard a neobank was three weeks. So within three weeks, we were able to onboard completely. Usually, it depends of, I would say, the resource on the partner side, the roadmap, and also the priority that the bank will put in motion, and also the technology, obviously. From our side, we're able to onboard very quickly a partner, and then up to date, we didn't have any kind of limitation in terms of how many partners can we onboard at the same time in parallel. So the API is really making a big difference for the onboarding phase.
Got it. The other sort of, I guess really since the direct listing in London, Wise Account 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 Wise 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 cross-border business.
Indeed, we are coming from the cross-border product that we offer first. 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. 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 the different currencies. If you have 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 account. It is really like you can hold up to 40 currencies in your Wise Account. On top of that, you can earn money with us by interest that you can earn.
There are some exception here, and 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 ours, BlackRock, JP Morgan, and this is off balance, and then you earn a return on your deposit. The customers have been using the Wise Account. To the Wise Account, there is also a debit card attached to it that you can use. Then you benefit when you are traveling with the debit card, you benefit from the FX rates that we provide, so the low take rate that I mentioned before. More and more we can see that there is an adoption.
I think today the account adoption is by 66% of the retail customers and around 60% from business that are using us not only for cross-border, the original piece of the company, but also for the everyday account. More and more people are getting their salary paid on Wise and use it as everyday account for their life and also earning money. Today, as you know, the fastest-growing KPIs last year was the deposit of the customers that we have seen. At the end of the first quarter this year, we were at $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 doesn't stop here. Wise is known for innovating. 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 upcoming product releases?
Yeah. We develop a lot of new features. Not only we develop features, but we also roll out these features in different markets. As I mentioned before, for example, Assets, we need a license. To get the license in every single country, we launch it. So Assets, we launched Wise Assets in New Zealand this year, where now our customers in New Zealand are able to earn money on the deposit. We also launch a QR code payment in Malaysia with a partner called DuitNow, and we also launch from retail, the Wise Account bundle for travelers. So where basically you have a travel perk and also a travel lounge that you can use with a Wise Account, access in lounge at the airports and so on and so forth.
From the business side, 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 for different countries in different currencies, that's also a big advantage for the customers. What I'm very excited about is that we are more and more integrating with what I call local accounting champions. A lot of SMEs are not working obviously with our SAP Oracle because the systems are just too big for them. In specific countries, you will have the local champions in terms of accounting.
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. That integration will increase the stickiness of these small businesses. 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 diversification of revenues. So you saw at the end of the Q1, 51% of our net revenue were not cross-border revenue, which is a reflection of the diversification of the products that we offer.
Yeah. So maybe just on the cross-border business, the mission is obviously to drive down pricing.
Yes.
I know that maybe zero may not be the sort of the end journey, but it is interesting that you sort of talk about any efficiencies you get in the platform. I would like to know what those levers are and how that flows into kind of your pricing strategy with customers. There is often a misconception that this is a defensive move rather than an offensive move.
Yeah.
But when I look at your gross margins, they are 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.
We are constantly looking for cost efficiency within the company. This is a culture that we have developed over years. We are looking for a way to be more efficient as we grow and scale. I can give you an example, the cost of sales, where when we work with partner banks, as I mentioned before, for the countries where we do not have a direct integrations, as the volume grow, we go back to the banks and negotiate better terms, 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. That efficiency, and this is true for all the processes, we are looking at where we can be leaner and more efficient. 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 and so forth, or price adjustments. Because 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 we want to reinvest in pricing? Fundamentally, and we mentioned before the infrastructure, we believe that the combination of a global infrastructure where it is reliable, it is fast, combined with a low take rate, is basically the key to be the winner in this industry. Because at the end, price is what matters for every single customer, the retail, the SMEs or even the larger bank. That is why for us, the price is definitely not a defensive move. We do not really check what the competitors are doing.
We are following a philosophy of cost plus margin. We want to be agnostic of which rail or which products are we providing to which customers. We want to generate the same profit on all rails. For that, we have a very detailed cost analysis and cost allocation. So we look at every route, every customer profile, to understand how much profit are we generating. If we see that we generate more profit than the 50% margin that we are targeting, then we will consider to pass it back to the consumer or to the customers. This is a very detailed one. I should also say that we increase our price sometimes.
When we find out that the cost base is higher and we do not generate the margin, then we will also increase the take rate in a very specific customer niche or a fixed route.
Got it. You talked about investments. Your OpEx has been growing pretty substantially over the last couple of years. I know your objective has been to keep the margin fairly steady. I understand you still have very low penetration of your addressable market.
It makes sense to invest. Can you give us the sort of rough framework in terms of, A, where are you spending this money on? B, how you measure that return on investment. I think in recent quarters, we've actually seen a pretty healthy uptick in the number of customers you've been adding. How should we think of this spend framework and at some point, there's got to be operating leverage in the model.
That's right.
When does that show through?
Yes, two years ago, we announced at Owners Day that we're going to accelerate our investments in OpEx. At that time, we mentioned GBP 2 billion over the next two years. Looking back at the time that you mentioned before, $43 trillion, while we just report GBP 253 billion of cross-border volume. You can see that there's a massive opportunity in front of us. What we decide to do is to invest, and I don't say spend, but invest in specific areas. One of those is tech and product, where 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 the servicing. We wanted to make sure that we serve this customer best.
That was also, in particular, the case for small businesses. To onboard a private customer is 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. We created a special department for proactively reaching out to businesses to make sure that we are part of their workflows. Then we invest in marketing. We tripled the marketing budget within three years, which was pretty low three years ago. We tripled it, but it's still a modest line in terms of the P&L. How we measure our investments in marketing, we will have some very strict KPIs that we want to meet. The payback time for private customers is 15 months. For businesses, we also have 22 months. We have our targets on CLTV and so on and so forth.
We put this discipline, which is we make investments very difficult for the marketing team. That is the kind of calculation and attitude that we have towards the investment that we are doing. This is paying off. Last year, our cross-border volume grew by 31% year-on-year. Our customers are growing by, in the first quarter, 21%. We can see the traction of this investment that we have provided.
Got it. Is there operating leverage? Clearly with where the gross margin is, it is a question of when. But should we assume that over the medium term, there is plenty of investment opportunity that you have identified that margin dynamic should stay?
We guide the market on midterms, right? In terms of margin, because we think that we have enough room to invest and a good return. We think that it would be probably a mistake not to do so.
The guidance that we gave in terms of margin is midterms for the next three years now, because we gave it in 2024. Long run, we think that it would be leverage for sure. One of those is in servicing area. We have been investing a lot in servicing in headcounts, while also deploying artificial intelligence. We think that at some point, you will have this operating leverage that you mentioned.
Got it. Maybe just on recent developments, can you update us on your U.S. strategy following the denied application from the OCC?
What updated framework are you targeting, and when can we expect a new application?
So maybe one step back. The U.S. is, for us, the largest single market in terms of perspective. This is why we have an office in Austin, as you know, with now above 900 employees. We have a small office in New York. We listed the company in Nasdaq to have more visibility, and we see the traction in terms of getting new customers and new businesses joining the Wise Platform. The OCC applications happened a year ago. Since then, we've been doing a lot in terms of the business matured a lot, the compliance departments have been also maturing. Looking back with some insight, I think we would have reconsidered the application that we made, because we were also facing a consent order almost at the same time in the U.S.
We resolved all the remediation from the consent order, and then we're waiting for the confirmation of the state that everything has been remediated. Also, I think the setup in the U.S. have been changing, and we were trying to access the payment scheme in the U.S. to a federal account. Over time, the OCC, but also the overall setup have been changing. Now we have this denial, we will reconsider to put an application. We get the green light from the OCC that we can do so. We still have not exact timeline on how we'll do this, but the new application will be under GENIUS Act.
That would be some consideration for this application linked to the stablecoins evolution.
Go ahead. The OCC specifically highlighted concerns regarding Wise's compliance controls, within that denial. What is your perspective on those findings?
I think in general, in a company like Wise, we are not the only one to face this kind of situation. While we are working on investing heavily on compliance and KYC, KYB for many, many years, the business is growing so fast that by nature, I think it is clear that the regulators will have more and more scrutiny as we grow.
For us, the remediation that we are facing, for example, in Belgium, the way in the press, is something that we will deliver by the end of the year, and then the regulators will come back to us after observing the remediation. We can see that other fintech companies in Europe are facing the same kind of wall as they grow, and remediation is part of, I would say, almost as the industry.
Got it. Maybe before we open to the audience, I just wanted to. There was a sort of stablecoin debate has been raging, perhaps diminished a little bit in sort of recent months. What is your response to how stablecoins can impact Wise's business model, and how do you think about also potentially working in the space with some of the stablecoin providers, given some of the infrastructure advantages you have, particularly on the on-ramp, off-ramp?
Well, I think the first thing our target, again, is to build the best infrastructure in the world to move money as fast as possible. If a technology will help us to achieve this and continue on the mission, we will onboard this technology. Today, I think that stablecoins are solving a problem that we solved already, for the last 15 years. I mentioned before, 77% of the transaction are instant, so it is not going to be faster than instant payment, and it is not going to be cheaper than the 50 basis points. That is why when we look at this from this point of view, from this angle, we think that the problem that stablecoins are solving, we already solved it. Then we look at our customers, and this retail, SMEs, or even partners, and there is no demand today from stablecoins from their side.
We mentioned the cost, the efficiency, and the discipline. When we allocate our investments, we were looking at where should we deploy our money, and where there is demand from the customers. That said, you probably saw that we have digital asset managers that are joining the company, so we want to be ready if we see stablecoins getting more traction by our customers. Yeah, that is probably where we said we are agnostic, right? We onboarded last year, the Japanese payment systems.
For that, we were using a Windows 95 and a modem, and the whole documentation was in Japanese. If you ask our CTO, onboarding stablecoins should be by far easier than what we face with the Japanese system. From that perspective, we will follow the market. If we see that this is serving our mission, then obviously we will consider it.
Got it. We can open to the audience if there is any questions. Just for a sec, the mic is coming.
You already mentioned that you are spending 3x the marketing you were a few years ago. Do you think you are spending enough on marketing today, and could you further accelerate consumer adoption by spending more?
This is a very good question. I think within the constraints that we put ourself, I think we are investing at the right level because we feel confident that we get a return. I hope that we can be able to spend more in the future. We are talking about GBP 170 million that we are investing today, compared to GBP 66 million a few years ago. I think in the entire P&L, it is not a massive budget. We are putting a lot of constraints on the marketing team to find ways to invest this money at the same return as before, and I really hope that we can invest more to unlock physically the market that we have. Today, we are in a position where 70% of the new customers are coming because of other customers' recommendation.
Personally, I think there is probably room to invest a bit more, to gain even more or to foster the acquisition of new customers at a good return.
Any others? Maybe I will continue. Your cash reserves continue to grow pretty nicely, both on account of just a strong free cash flow, but also the dynamics around interest payments. What is the kind of capital allocation strategy? I know you have a buyback already underway, and that is still offsetting some of the stock option dilution. Also, you have obviously not done any M&A yet, but if you were to do it, what is the scope of that and why would you need to do it?
Well, the capital allocation, first of all, is we're really cash conscious. We generate a lot of cash every year. Cash conversion is about 100% or even higher. We generate a lot of cash. We are conscious about how to spend this cash. First of all, we are conscious that we have to satisfy regulatory requirements from the regulators. As we grow, the requirements are growing, so we want to make sure that we can face these requirements. Secondly, we want to be opportunistic. Depending on the projects or where we want to invest, we want to have the flexibility to be able to invest. But you mentioned we announced the largest share buyback program. It's over GBP 500 million that we launched, and we started to execute. In August, we bought 1 million shares back. That we will revisit every year.
Again, because of the flexibility we want to have, but you could see over the years that the share buyback is growing in terms of volumes.
Lastly, on M&A, this is not in our DNA at Wise, and I think we've done one M&A in the past, 2.8 million investments just for getting a license in India. That said, we're going to build a small team and look at M&A opportunities in the market, but that's not something that we expect to do for the next 12 or 24 months. We start to build the knowledge and look at opportunities out there.
Got it. Any more? Maybe I'll round out on the competitive landscape. There's obviously yourselves as Currencycloud. I think a few of the larger banks are trying to do this.
Yeah.
If I look at the platform wins, you seem to have had quite a successful win rate. How is that looking? Are there, we know the likes of Revolut, for example, use Currencycloud, but would there be any reason why they wouldn't use Wise in the long run? Maybe just touch on kind of what you're seeing out there in the marketplace.
Well, I think, first I start with Revolut. There's no reason in our mind that Revolut should not use us in 5 years from now. We're completely agnostic, and we don't ask for exclusivity. We don't dictate the price. They can charge whatever they want. The big advantage that we have is that we continue to build this infrastructure. I like to talk about the kind of equation, that if you look at the problem that the competitors will have to solve, they will have to invest massively to build this infrastructure, these direct integrations. One thing that surprised me as I started to work for Wise is that I had the impression that shareholders were underestimating the value of these direct integrations. The reason is that you don't see it on the balance sheet.
There's no goodwill, there is no value on the balance sheet for direct integration. A direct integration to our payment system takes years. Not in their connection, but to build a relationship. I mentioned Japan before. It took us four years to get to the point where Japanese authorities were allowing us to get access to the payment systems at the non-bank. So it takes years. That's something that you come by. It's not available on the market. When I look at the competitive landscape, I think more and more people realize that this equation is not to be solved unless you want to subsidize massively this market.
One bank tried two years ago and gave up after one year, because basically, you have to have a lot of investment capacities over time while offering a take rate that is probably not competitive if you want to break even. That is why, in terms of competitions, we do not look at Revolut as a competitor because we are not focusing on the same thing. We are focusing on infrastructure that we want to offer to every banks, including fintech companies like Revolut.
Got it. Well, I think we are on time. Emmanuel, thank you very much.
Thank you very much.
Thank you very much.
Thank you.
Thank you everyone in the audience. Thank you.
Thank you.
Thank you.
Thanks so much.