Wise Group's (WSE +0.81%) Nasdaq debut comes at an interesting moment for cross-border payments, a sector where Ripple and its XRP (XRP 6.19%) token have long promised disruption. The two companies rarely compete head-to-head for the same customers, but they do represent fundamentally different approaches to solving the same problem: moving money across international borders quickly and cheaply.
Wise's arrival on U.S. exchanges is a bit awkward for the crypto narrative.
NASDAQ: WSE
Key Data Points
Wise's surprisingly low-tech secret sauce
Wise built its business by creating a network of local bank accounts in dozens of countries. When you send British pounds to someone in Australia, Wise doesn't actually move your money internationally. Instead, it pays out from its Australian account while simultaneously collecting your pounds in the U.K., then settles the imbalance through its network later.
It's elegant, practical, and doesn't require anyone to adopt new technology. The company processed $243 billion in cross-border volume last year while charging an average fee of just 0.5%, compared to the 3% to 5% traditional banks typically extract.
I've been accidentally beta testing Wise's business model for a few years, by the way. Born and raised in Sweden, I have a professional translation side gig. Some of the translation services I freelance for are paying me via Wise. It's cheaper than wire transfers and faster than waiting for international checks. The money shows up reliably, the fees are transparent, and I can see exactly what I'm paying before I click send.
Revolutionary? Not really. But it works well, which turns out to be a surprisingly high bar in cross-border payments.
Procrastination as a business model
Here's Wise's not-so-secret weapon: I'm lazy about transferring money out, and stingy about service fees. So are millions of payment receivers.
Those euros and British pounds just sit there in my Wise account until I've accumulated enough to make the fixed transfer fee worth it. Multiply my laziness by 19 million customers, and suddenly, Wise is sitting on $39 billion in customer holdings. That's $39 billion of cash earning interest for Wise while customers like me procrastinate.
Last year, the company pulled in $800 million in interest income from customer balances. Not bad for a business built on human procrastination and the mild inconvenience of currency conversion. And it's all built on traditional banking channels, not stablecoins or blockchain ledgers.
Image source: Getty Images.
Meanwhile, in blockchain land
RippleNet promises to revolutionize cross-border payments through blockchain technology, with XRP serving as a bridge currency that eliminates the need for pre-funded accounts. It's technologically sophisticated, forward-thinking, and has been just about to transform the financial system for nearly a decade now.
I hope you weren't holding your breath all these years.
Meanwhile, Wise is over here running what amounts to a very fast, very cheap foreign exchange service with a nice app, and it's processing a quarter-trillion dollars a year. RippleNet is also active, but has only processed $100 billion of total payments since launching in 2012.
Blockchain promises vs. boring efficiency
The contrast is pretty stark when you think about it:
- Ripple built technology looking for a problem to solve.
- Wise identified a problem and built the simplest possible solution that actually worked.
- Ripple courts banks and payment providers with promises of revolutionary infrastructure.
- Wise just plugs into existing payment rails and makes them less terrible.
- Ripple's business model depends on financial institutions adopting new technology and potentially holding XRP for liquidity.
- Wise's business model benefits from people like me being too lazy to transfer money out immediately.
What Wise's arrival means for XRP investors
Wise's early Nasdaq performance offers a useful benchmark for XRP investors. The token's value proposition relies partly on financial institutions adopting Ripple's technology at scale and using XRP for liquidity. If Wise can continue growing its institutional business through the Wise Platform service while maintaining its consumer base, it demonstrates that traditional fintech infrastructure can compete effectively without blockchain or cryptocurrency involvement.
Wise's public financials and market valuation now give investors a clearer framework for evaluating what cross-border payment infrastructure is actually worth when it's generating revenue and profits rather than promises.
So XRP seems to have a new rival, and it's a big one. Will Wise kill Ripple and XRP in the long run?
I don't think so, because their use cases are not the same. RippleNet is an alternative payment rail for banks and corporations. Wise is a direct-to-consumer service, more interested in small business operations than enterprise giants.
One international payment system won't destroy the other, but they may limit each other's addressable market sizes in the long run. And nothing is stopping XRP investors from picking up a few Wise shares, too. There's nothing wrong with hedging your fintech bets.
