Sending money to friends and loved ones is quick and easy in the digital age. Instead of going to a retail store, bank, or money-transfer service, all it takes is opening an app on your smartphone or a tab on your browser, and you can send money instantly from the comfort of your own home -- or anywhere else.
Wise (WISE +0.41%), one of the companies that makes this possible, recently went public. This young company has quickly risen through the ranks to become one of the largest money-transfer providers on the market, and it has a bold culture and strategy similar to that of PayPal (PYPL +1.96%). But can Wise be as lucrative an investment as PayPal has been?
Wise's origin story
The company, formally known as TransferWise, was founded in 2011 by two Estonians working in the U.K. who wanted a cheaper way to send money back home, across borders and in different currencies. Traditional banks will facilitate cross-border money transfers, but they charge high fees for the service.
Wise uses aggressive marketing tactics to attract customers, targeting immigrant populations such as exchange students, and offering users referral bonuses for getting their friends to sign up for the app. The company also targeted the human resource departments of companies by introducing the idea of allowing employees to take their wages through the Wise app.
Those tactics have worked. Wise quickly gained a following with immigrant populations in Western Europe, particularly in the U.K., where it was founded. Today, it enables people to transfer money to more than 80 countries, where about 85% of the world's bank accounts are housed. The company is one of the largest digital remittance businesses, and has maintained its fast-and-furious spirit as it continues to develop fresh fintech products.
Image source: Getty Images
Business model and financial results
Wise makes its money by charging transaction fees to facilitate transfers, and one reason for its popularity is that it's extremely transparent in its pricing. Additionally, it generally charges a fraction of what banks and other transfer services do. This has enabled the company to grow rapidly.
| Metric | FY 2019 | FY 2020 | FY 2021 |
|---|---|---|---|
| Revenue | 178 million British pounds | 303 million British pounds | 421 million British pounds |
| Revenue growth | N/A | 70% | 39% |
| Adjusted EBITDA | 26 million British pounds | 68 million British pounds | 109 million British pounds |
| EBITDA margin | 14.6% | 22.4% | 25.9% |
Data Source: Wise Financial Reports.
Wise continues to push into new geographic regions and spread its message, which should enable it to keep adding more users. Additionally, Wise is expanding into other financial services, starting with banking. While the company started by only providing money-transfer services, it has added the ability to store funds in a digital wallet and has partnered with banks to offer a Wise-branded debit card. What makes its banking service unique is that it allows users to hold funds in up to 50 currencies. Wise refers to this as a "multi-currency account," and it has proved quite popular among immigrants who frequently transfer money or spend in multiple currencies.
Its ability to cross-sell new products to its existing customers should also support its growth ambitions.
Parallels with PayPal
PayPal also started as a killer money-transfer app when it was founded more than 20 years ago. And similarly to Wise, it pursued an aggressive marketing strategy. Among other things, PayPal offered people $5 to $10 to create accounts with the service -- something that has become standard practice in the fintech industry. Wise, meanwhile, has brought the idea of paying users referral bonuses to fintech.
Although PayPal started as a money-transfer service, it has added a long list of additional services over time, and has become a true financial "super app." Wise seems to be following in its footsteps as it steadily introduces new services that increase the value of its app for its users.
While PayPal went on to create some of the foundational technology that helped e-commerce grow, it is unclear what the ultimate long-term trajectory of Wise could be. Over time, it can layer on additional services to broaden its appeal as a general-purpose digital wallet and banking service with a specialization in foreign currencies. Alternatively, it could double down on serving the niche market of immigrants, and provide higher-value services to them such as lending products or tax services.
It is exciting to imagine the possibilities for this promising new fintech company. Investors should pay attention to Wise; if it can follow in PayPal's footsteps, it could prove a profitable investment.
