TIP806: Wise PLC w/ Kyle Grieve and Daniel Mahncke

A valuation like that leaves zero room for error. And even if you continue to generate high profit growth, the market is very unlikely to maintain a multiple like that for a very long period of time. But if you strip away the noise of the inflated IPO price, what you find is a business that has been quietly compounding its fundamentals and executing at a very high rate.

Today, I'll be joined by my co-host Daniel Manka to take a closer look at WISE. We'll get into how the business actually works. While most investors have probably sent money overseas before, the specific mechanisms of just how that actually happens are probably going to surprise you. And where WISE has its advantage will surprise you even more, as it's very different from what most cross-border payment companies do, which is why WISE has some very unique advantages.

We'll also look at Wise's revenue streams, honestly assess their true competitors, and examine some CEO controversies that I think are worth understanding with some context. We'll also look at destination analysis, examining where the fundamentals of this business could be headed over the next few years.

This should give you a sense of what this business could realistically be worth. I think you'll find it's a very different story today than what the stock chart might suggest. Now, let's get right into this week's episode on Wise PLC.

Intended for informational and entertainment purposes only. All opinions expressed by hosts and guests are solely their own, and they may have investments in the securities discussed. Now for your host, Kyle Greve.

Now one thing that I followed from Daniel during his time co hosting the intrinsic value podcast is just how much he enjoys certain fintech companies like Remitly, Visa, PayPal and New Bank. And you know, granted some of them are fintech, some of them are more bankish.

But you get my point. So these businesses are all businesses that, you know, in some form or another either complement or compete with WISE on cross border payments. So I'm very happy to have Daniel here to provide his perspective.

Even if you don't buy the business, you end up learning a lot that can really unlock, you know, other insights later on down the road. Who knows, maybe five, ten years down the road when you're looking at another business.

Or, you know, when you have these businesses that we like, we just got off a call, for instance, talking about the intrinsic value portfolio and just seeing what prices are at and, you know, right now with the way markets are acting, there are some things that have dropped in price quite significantly that I think look really attractive.

And so, you know, if you just get this kind of base level knowledge of a business, you can really expedite your ability to be ready to make a purchase in the future if you feel you really, really understand it, rather than just, you know, understanding at a very superficial level where If the price drops, you're like, okay, well, that's great, but now I need to spend, you know, 40 hours trying to understand the business.

Sean and I will actually give a surprise stock pitch on stage, followed by a QA session and a private dinner for members of our Mastermind community, which is happening on Saturday. And while there will be some reserved VIP seats for members, There will also be free spots available for anyone at basically a first come, first served basis. So yeah, I think that, you know, I would love to meet as many people and listeners there as possible. I feel like

connecting with people is probably the best single thing that you can do about Omaha. And that's one thing that I, you know, just realized last year that you meet so many new people over there. And especially if those are people that you know because they're listeners of T I P, it just feels even better.

But maybe we should get to it. So why don't you start by discussing what problem wise actually solves for its customers and how it generates revenue doing that? Because there are so many payment companies and it kind of helps to just understand what this business is actually doing.

honestly not even really the AGM. It's just meeting all these really, really interesting, like minded people talking about, you know, Buffett or talking about W Berkshire Hathaway or just talking about just stocks in general or life in general and just meeting some really interesting people. So If you're gonna be there, I'd highly recommend trying to sign up for this event'cause I think it's gonna be a lot of fun.

So getting to WISE. So first off, full disclosure, I own shares in WISE PLC at an average cost basis of about 953 pounds. So I own the London Stock Exchange Shares and I'll discuss a little bit more on my strategy on what I'm planning on doing with this smaller position later on in this episode.

So WISE at its core basically allows an individual or a company to send money across borders as cheap and as fast as possible. So I first actually came across WISE when I started working with TIP, since that's how they send me my paycheck.

So I would fill in the fees that TIP had to pay in order to send me the money. And for many years, I just, you know, didn't really think that much about WISE and whether it was even a publicly traded company. But in 2025, I went to London, Italy, and France with my wife.

And so as part of that trip, I went to the currency exchange in Vancouver to get some Euros. And I figured that I would do that for the Italy and France portion, but for the London part, I use a mix of just my American Express credit card and tryout wise as well.

So part of what got me interested in trying WISE was just comparing the exchange rates that I paid when buying Euros with the Canadian dollar. So my mother-in-law, she actually works for Air Canada and gets these kind of favorable exchange rates from the local bouillon.

So when I look today, if I exchange about a thousand dollars Canadian at the Vancouver bouillon, I get about six hundred and ten Euros. But if I use Wise, I get six hundred and seventeen Euros. So yeah, it's a small difference, but you know, why not take it? Plus, you know, using Wise.

And again, I'm not an advertiser for wise in any means, but you get this digital and physical card for free. So, you know, you don't have to worry about even carrying cash around. And if, you know, your card gets stolen, well, then you can report stolen, but you still have the digital card on your wallet. So I really like that aspect of it.

So fast forward a few months and I came across a wise update in Long River Partners Fund where he actually outlined this kind of asymmetric investing thesis based on the company Y. And so just reading that, it was pretty short, but I was really, really impressed. And immediately I started to look into why's in a lot more detail. And what I found was really a business that appears to be following what Nick Sleep and K Sakaria termed economies of scale shared.

So this is a very, very unique business model where a company gets better as it scales. And instead of just keeping those scale benefits for itself, it actually shares them and spreads it across its customers to help benefit their customers at a very, very high level. But just to get back to your original question on revenue, so the business has a few primary revenue generators. So the first one is revenue generated from cross-border transactions.

Second is revenue from the use of WISE. So they have both a personal and business account. So users can kind of use them like they would a bank card. And so they earn fees based off of transactions. And then third is investment income off of their customer deposits. And then fourth is WISE platform, which allows banks to use WISE's API to tap into their system of both faster and cheaper international payments.

But I don't know a lot about it. So I know their CEO is Crystal Carmen and that he also was the co-founder of WISE. And maybe perhaps you can, you know, give us some more details of why WISE was founded and potentially also who the other co-founder was.

But they initially met at a party in London back in twenty eleven. So they found out that they were both Estonian and they were having problems with foreign exchange. So Tavet worked for Skype and he was living in London and he was actually getting paid in Euros.

Now London obviously uses pounds, so he had to convert them each time that he was paid. Now Christo was working for Deloitte and he was paid in pounds. But Christo had a home back in Estonia which required euros to pay for his mortgage. So Tevet needed pounds and Christo needed euros. Now as they discussed their problems further, the real friction kind of came to light. They were both just generally annoyed by paying these large fees just to exchange their own money.

So these fees could easily reach five percent, and it was just annoying to have to deduct five percent from your paycheck when exchanging between a UK and Estonian bank. So Tevet and Cristo came up with their own solution. So they had a day each month where they would each deposit the mid-market rate of their currencies into each other's bank accounts.

Tevet would deposit the euros that he was paid into into Christo's Estonian bank account, and Christo would deposit the pounds into Tevet's UK account. Both of them paid the mid market exchange rate and the transactions were fast and there was just no markup fee. So that five percent fee quickly eroded to something that was much more palatable for both of them.

Now, after seeing how successful this was, some of their friends wanted to actually try it out as well because they were running into very similar problems. So they then raised about one point three million dollars in seed capital and a business called Transfer Wise was born, which obviously eventually transformed into just WISE. So in their first year, they had about

eight million pounds in payment volume. Their business model was just very simple at the time. They would just charge basically one pound per transaction under 300 euros. And when you compare that to comparables of, you know, say fifteen euros, it obviously was very, very attractive.

Now, in an interview, Tavet said that in 2011, people were just so fed up with the traditional banking system that they were really willing to use a random internet website just to bypass paying these excessive fees. So he said that he felt people were kind of desperate at that time to find alternative ways to avoid being just gashed by the banks when exchanging currencies such as Euros and Pounds.

Now, this is a really powerful story because I think it really shows that Wise at its DNA was and definitely still is designed specifically to optimize their customers' ability to exchange money both as quickly and as cheaply as possible.

So where a bank might take, you know, three to five business days and charge five percent, WISE has a point five two percent take rate and seventy-four percent of their transactions they consider instantaneous, meaning that they take less than twenty seconds to process.

Now, I had a really, really good time discussing this business on the TIP mastermind community. And one of the pushbacks that I got on the business was whether they were reducing their take rate out of a position of strength or weakness. One of the members brought up that, you know, Wall Street really hates the reduced take rate simply because it signals that a business is kind of being forced to reduce them just in order to compete with their competitors.

And while I agree with that premise, I think it's also really obvious that WISE is reducing its take rate because it's actually in the DNA of the business and they aren't necessarily doing it from a pace of weakness. So while I do agree that Wall Street might not like the fact that take rates are going down, I think that in the long run, it's actually in the best interest of the business to continue to reduce the take rates just as much as possible.

Why is it said that the long-term goal is to actually get transaction costs that are close to zero? And while that might not sound that attractive to a potential owner of the business, I think the business actually has multiple levers to generate revenue. And if they can get fees closer to zero, they're still really well set up to generate a much higher amounts of profit in the future.

Or one of the most central questions that you always have to answer with every payments company and even companies in other industries as well. I mean, I just recently talked to Clay about Amazon and Mercado Libre and those two companies are being punished by the market for their investments right now as well. And Just as with WISE, the market is questioning kind of whether these investments, especially in Melly's case,

are coming from a position of strength or weakness. And especially with payment companies, you have these difficulty that it's just a very competitive field. And when that's the case, taperates often come down due to competitive pressure. So It's really about whether a company is able to build an ecosystem of value added services or some other parts, you know, business units that can drive margin in the long term. And you said that wise has four primary levers to generate revenue.

And cross border payments were just one of them. So how about you take us through a scenario where basically cross border payments come down while they continue to generate more profit? How would they do that?

But then they had a couple of others. So they have customer deposits, they look at card revenue, and then they look at underlying income. So WISE is generating right now a significant amount of profits based on its own customers deposit. They generate this also in a very, very low risk way. So it's really, really important to understand this. Wise is not a bank.

It's really vital to understand that. So a bank obviously can take its customers' deposits, leverage up, and then lend it out at these much higher interest rates than they can offer their return to their depositors. Now, Wise just can't take that strategy. So they have very, very strict regulatory requirements on their customers' deposits, and they therefore have to focus on keeping the money in these kind of more low-risk, highly liquid investments.

So they're mostly in things like short-term bonds and money market funds. So these have these, you know, pretty low single-digit yields, but they end up supplying a surprisingly large amount of profits to Wise. So yields in the last two years for Wise have been about three to four percent.

So here's how WISE distributes the yields. The first 1% of interest income earned is retained by the company for reinvestment purposes. And then any interest income above that 1% is then distributed back to customers. But there's an important thing here, and that is that not all customers can actually accept this income. Either they have to opt in to accepting it or they're just not even able to opt into it due to regulatory reasons.

So WISE displays this underlying pre-tax income, which actually only takes into account the 1%. But if you look at their financials, their reported income and the income that they have to pay taxes on is actually far higher than this underlying pre-tax profit number, simply because they have to add back interest earned above the one percent and then remove any of the payments that are actually paid back to customers.

So just to give you a quick example to make this make more sense, if you look at the first half of 2025, they generated about$122 million in underlying profit before tax. But the reported profit before tax was two hundred and fifty four million. And that's simply because of the investment income earned above the one percent threshold, which was retained by the company.

So current margins are 72% on gross margins and about 16% on the pre-tax profit margin. So they intend on maintaining the underlying pre-tax profit margin in that 13 to 16% range. And then this doesn't take into account Wise platform, which they don't yet disclose as a separate business unit, other than saying that it's approximately 5% of cross-border payment value. Then they also have card revenue from both personal and business accounts.

So right now, cross-border payments accounts for the majority of the revenue at about 59%, but that share is actually declining as the business continues to lower its take rate as it was actually 63% in the prior year. So the current focus appears to be on attracting new customers, expanding their customer deposit base, and then earning more and more profits from card revenue and from interest income.

But I think there's always gonna be a place to earn revenues from cross border payments, especially if WISE continues scaling at its current rate. And I think this is gonna continue to be a really, really big revenue generator for WISE as well.

So let's look at five years time here. Again, you can obviously you can go further out, but I prefer to go a little bit shorter just because I feel like I have a little bit more accuracy on that kind of shorter time frame. So In five years time, I think that WISE can substantially grow its cross-border payment volume. So historically, it's actually grown at about thirty to forty percent compounded annually.

But I think it's slowly decelerating and I expect that'll probably continue into the future. But a good base case for them would be to get cross border payments of around four hundred and fifty billion pounds up from today at about a hundred and seventy billion pounds. So that would represent just less than five percent of global cross-border payment flows. And given their value proposition, I don't really think that's completely unrealistic.

Now, cross-border payments are going to be driven by more users with more personal accounts and more users with business accounts. And then they're going to continue onboarding more and more of these banks and other financial institutions onto the wise platform business as well.

So as take rates continue to reduce, I think the value proposition of using WISE is actually going to get better and better. I expect competitors will also be forced to reduce take rates as well, but that will probably come mostly from other fintechs, not so much from remittance companies and banks.

So if we look back since 2022, WISE has reduced its take rate by roughly two to three basis points per year. So I think probably 0.4% is a number that you could probably use for destination analysis in five years time. And that gets the cross-border revenue to about 1.7 billion pounds. Next, we can look at card revenue. So this has been a fast growing part of the business and I think will continue growing in the near future. So historical rates have been about 33%.

A good base case is that I think it compounds at about twenty percent over the next five years, reaching about one billion in card revenue across personal and business accounts. One very important aspect of this business is that it's adding about two-thirds of new customers from customer referrals. I don't know about you, Daniel, but it's really rare to have a business that is onboarding that many new customers at a really, really cheap price.

So I've personally even referred friends who travel regularly simply because I just think that wise is a really good way to travel and it's simply just cheaper and faster than a lot of the alternatives that you can use out there.

And since I don't think that's gonna change anytime soon, I expect WISE to continue adding more and more personal and business accounts and cards, which is just gonna serve to increase the revenue in this segment of the business. And since there'll be increasing card revenue, that also means that deposits should also rise.

Customer deposits have compounded at more than 30% as well. So we'll use a more conservative 20% growth rate here as well, which gets us to a customer deposit base of around 68 billion pounds. Now, depending on interest rates, obviously that's going to determine how much revenue they earn.

At two percent interest rates, that's about one point four billion pounds, which seems pretty realistic and is a haircut based on the, you know, kind of average post COVID rates that we've had over the last few years. So again, this assumes that interest rates are above two percent and that the difference is paid to the customers. So I think that these assumptions make sense. And if WISE continues on its current trajectory, they're very, very achievable.

What about twenty percent? Where do we land there? So I think that makes a whole lot of sense. And and you mentioned something that caught my attention there. You said something along the lines of competitors other than fintechs won't be able to compete with WISE on its take rate. Can you expand a little more on this? Because I assume the answer is embedded in Weiss's competitive advantages, right?

And this is, you know, any bank that you can think of. I'm with Bank of Montreal. If I wanna send money overseas, let's say to you in Germany, uh obviously Bank of Montreal will do it for me. But there's a problem and that's that I won't know how much it'll cost. And I won't even know where my money is once it goes out.

And then on top of that, I don't even know how long it's gonna take. So, you know, it's a little unnerving sending money that way because, you know, you could theoretically send large sums of money and have no idea where it is. So the second party I wanna go over is this fintech. So if you're in the US

You might use something like Venmo, which is owned by PayPal, which I know Daniel's very, very familiar with. So I have a pretty good story about Venmo. So I was in Utah recently visiting a member of our TIP mastermind community and we ended up going out for dinner. So my friend had a bunch of these Amex prepaid cards that he wanted to use and pay for the meal with.

So the rest of the group was all US based and they just basically all Venmoed him for their share of the bill. But being the only Canadian, I couldn't send him money using Venmo and so I just had to pay the bill myself. So, you know, I think this just kind of shows some of the limitations of something like Venmo. While it seems to be a really, really good app, it's really only a really, really good app if you're an American or have an American bank account. And if you don't

then you know, like in my case, it's pretty much useless. And you know, that means even if I'm not US but I'm traveling in the US, I still can't use Venmo. So that's just one point about fintechs I wanted to share specifically in regards to PayPal. So third here you have remittance companies.

So, you know, this might be a business such as Western Union that probably everyone's gonna be familiar with or Remitly, which Daniel's gone over here, but it's a newer business and maybe isn't so familiar to everyone. So these businesses specialize in just sending money, but they specialize in sending it in one direction, generally from a country where someone's working abroad, and then they'll send that money back home to help, you know, pay for bills and living expenses.

So now I want to go over some of the business models broadly for each of these industries. First up are the banks. So banks use this communication system called the Society for Worldwide Interbank Financial Telecommunications, which I'm just going to refer to here as Swift for the remainder of the episode. So a simple route for a payment that I might make with my bank using Swift is as follows. So first I send the payment from my bank in Canada to someone else, let's say Daniel in Germany.

So my bank is then going to send a swift message with payment instructions. Third, the German bank is going to receive the message and it's going to process the payment. Fourth, a series of correspondent banks physically exchange my Canadian dollars into euros and they're gonna transact the currency and eventually it's gonna reach Germany. But here's the thing with Swift. So it works, no doubt about it. It's got, I think, eleven thousand different financial institutions signed up.

But in terms of speed and price, it's really just god awful. First is price. So because the payment can utilize multiple correspondent banks from my money in Canada to Daniel's money in Germany. They all have to have their hands in the honeypot and they're all getting a small portion of these fees. And because you don't actually know what actual route that money is taking, the fees are actually unknown. And that's why they don't have the transparent pricing likewise.

So not only that, but then there's things like sending fees, there's foreign exchange spreads, there's correspondent bank fees, and then there's even receiving bank fees. So sometimes the FX conversion might occur after the money has been transferred to another country.

So my assumption is that the routes probably change. You know, if you have two people transacting money from one country to another country, they might take completely different routes to get there, in which case you might be, you know, transacting the same amount of money, but the fees end up being different.

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So if I understand it correctly, from a bank's viewpoint, it's not like WICE has a kind of counter positioning advantage over those banks. So I assume the banks are kind of unable to copy Weiss's business model. So they basically have to stick with the Swift model. And since the banks make all of their money using Swift,

they aren't also really incentivized to switch away from it. And, you know, so doing them would basically cost them a lot of money. And I noticed that when we started using Circle for the TIP mastermind community, they started utilizing Stripe as a payment method. And I realized that TIP was paying some sort of fee for the processing of the money, so basically the transaction. And at the time I think it looked pretty reasonable to me. I think it was a low single digit percentage.

So could you maybe tell us if Stripe is better than WISE or what exactly are the advantages that WISE has over other fintech companies? So for example, Stripe.

I did this specifically because we wanted to see if, okay, well, is there an alternative method? So looking at Stripe, this is how they kind of charge us. So Stripe charges about 2.9% of the payment plus a 30% flat transaction fee. So the easiest way to compare another fintech with WISE is just to really just plug some cash into one currency into another and just see what the fees are. So let's say I'm gonna send$1,000 to TIP using Stripe.

Obviously it doesn't really work that way because Stripe is it's meant for a payment. You know, if I'm just sending money, let's say TIP is my friend or whatever, I probably not gonna use Stripe, but just for the purpose of this example just to say that that's how it works. So Stripe is then gonna take about$29.30 from that transaction, leaving TIP with$970.70.

Now if I'm paying an international payment, Stripe charges even more at about 3.8%. So that would actually TIP would receive even less. But if I were going to use WISE, I can just go to WISE's website. I can convert$1,000 CAD to USD. I pay about$7.41 Canadian in fees and TIP would then receive about$992.59. So the reason a fintech like Stripe has these higher fees is that in many ways they're kind of similar to just using Swift. So they go through the usual payment route for online transactions.

And as that money moves, there's a fee that all the middlemen involved in that transaction must be paid. So, you know, you're looking at the issuing bank, you're looking at the network, the acquiring bank, and then of course Stripe also gets a portion of that transaction fee. And then on top of that, it takes one to three business days for that payment to settle.

Since WISE does not usually require money to cross borders, it avoids paying as many middlemen and doesn't actually make any money on the FX conversions for the most part. And since their settling system doesn't require the movement of money, They have this 74% number where their transactions are just basically instantaneous.

Now I will say that from getting paid by TIP, the business payments that I receive for them are definitely not instantaneous. They're fast. So for instance, on my last invoice, I looked it up in preparation for this episode. I saw that the transaction was initiated at about four thirty PM and then settled the next day around eight AM. So, you know, obviously still much faster than a banks, but not instantaneous.

But I will say, just going back to Stripe, that it has its own advantages. So like for instance, with Stripe, they're kind of a payment processor and they they're embedded into their customers' websites. WISE just doesn't offer this at this time, but they do have kind of a different version called WISE Platform, where platforms such as a bank can actually utilize WISE's basically infrastructure to send faster and cheaper payments.

So another fintech competitor is a newer business that I found when researching WIS called Airwalix. So Airwallox is very, very good. I'll say that. They appear to have a system that actually is quite similar to WISE. They've set up a number of partnerships with banks around the world.

that also enable very cheap cross-border payments at domestic rates. So their fees range from about 0.5% to 1% on foreign exchange. And as long as the two countries are pretty liquid, they're essentially treated as a transaction between domestic banks, which is essentially free. So if you exchange more illiquid occurrency, Airwallet will use Swift, which obviously brings the fees up considerably as well as the transaction time.

teased remittly. So how do you think about remittance companies in this context? In my pitch on Remittly a while back, I also talked about wise a little bit, just here and there, but I came to the conclusion that they mostly play a different game, so they have different customer bases, and with that obviously also comes a very different value proposition. So I didn't see them as immediate competitors.

So, you know, out of the three, I think remittance companies are probably the least likely to copy Wise's business model. So let's just say, for example, we have someone in the Philippines who's now working in Canada and they're gonna remit a part of their paycheck back to the Philippines.

So if we were to use a business such as Western Union, they have a flat rate fee of about five to twenty dollars, plus they charge a one to three percent foreign exchange market fee. So, you know, unless you're sending larger quantities of money, it just doesn't really make that much sense to use it given the other companies that you can use. So

If you look at something like Remitley, Remitley's just a lot better. They charge a flat fee, but it's much cheaper than Western Union at just about zero to four dollars. They also have deals for first time users so they can get them interested with zero fees. And then Remitly does charge an FX markup fee, but it's only one percent.

So the speed of both of these transactions is quite fast. Some transactions are instantaneous, but some can also take up to five business days. Remitly can send money using direct debit, credit cards, and bank transfers. So they are in some ways similar to Wise's system.

They have partner banks in let's say Canada and the Philippines, so they can transfer money without using Swift, which allows for faster transactions. Now the main difference between WISE and Remitly is that Remitly has more one-way flows. Whereas Yes can often match flows from one country to another using their business model. So Remitly doesn't really just have to worry about having two way flows.

So they're probably never gonna bother trying to get to the same global scale that WISE currently has or is WISE is continuing to build. So let me elaborate on this a little more as it's very important. So As I've mentioned, WISE doesn't necessarily move money internationally. Instead, what it really focuses on is matching flows locally. So let's give you a quick example here. So let's say there's a customer in the UK and he wants to send a thousand pounds to the US.

WISE receives the 1,000 pounds into its UK bank account. WISE then will pay the US dollars equivalent from its US bank account. Now this system works because WISE has these giant liquidity pools in local markets that help to match the opposite flows. The system is most powerful when flows go in both directions, just like the example above. You know, obviously maybe there's a thousand pounds coming to the US and then there's a thousand dollars going back to the UK.

So one country gets the credit, the other gets a debit, and essentially they just cancel each other out. This is why WISE just doesn't have to charge FX fees above mid market rates. But of course, there are gonna be flows that don't match, even for a company as large as WISE.

And this is where their scale advantage shows up. So so let's say the total volume for the UK to US corridor is$100 million. And for the US to UK corridor, it's only$95 million. So in that case, WISE is actually only moving about$5 million across borders.

But if we were to look at a maybe geographical flow for remitly, let's say US to Mexico, they might be sending a hundred million dollars in that flow. But if you look at Mexico to the US, I'm just putting an example out there. Let's say it's a million dollars. So There's just not that much to net against. And therefore the FX has to be paid on the$99 million, which is part of the reason they have that markup fee.

But I feel like I get a pretty good grip of what Yes is actually doing and how it's different from all these other payment companies. And again, beyond just the mechanics of sending money, we're also talking about a completely different customer base with completely different needs whenever we talk about pure remittance companies compared to wise.

I mean the people on the receiving end of a remittly transfer, for example, they often spend that money immediately because it's used for, you know, food, rent or other essentials. So a vital part of a midlease offering is actually what they call the last mile delivery. So money is not always sent from one bank account to the other bank account. In some countries people actually want cash delivered to their doorstep. This is for example what happens in the Dominican Republic in some cases.

Then in that case, Remitley makes sure that there is actually money arriving on your doorstep and not just in an app on your bank account. And then in other countries, money needs to be moved to mobile wallets, which for example in Southeast Asia is a huge thing. So There are things that we're middley is specialized in, but it makes no sense for wise to go after that kind of market because it's just

if anything, well metly it currently tries to go up market and kind of attract these at least micro and small businesses too because it's just a huge market. Up until now they had a TAM of about two trillion dollars.

if they go for these small and micro businesses, it basically gets to twenty trillion dollars. But getting back to wise, when I think about this business and what you just said, you know, saying they are in some ways competing with banks, fintechs and at least to some extent also remittance companies.

I think it's clear that they have a lot of competition. So this isn't some sort of monopoly that can do whatever it wants and basically rely on pricing power. And they're actively reducing their takeaway, as you mentioned before. So What would you say about the dubility of their competitive advantages?

And I just don't think Wise will ever be a true monopoly. And that's perfectly fine because I think it has advantages versus other companies. And I think these advantages are quite strong, as I hope I've made I've made clear so far. So I didn't really talk too much yet about the scale benefits, but basically the way that works, as they process more and more transactions, their netting should get closer and closer, which means even fewer FX fees are gonna be needed.

And it also means that they can get more of these direct connections around the world. So I haven't discussed direct connections yet, but what direct connections are are basically a way for WISE to access a domestic banking system of an entire country while allowing it to bypass Swift. So

They currently have eight direct connections. Now, these direct connections can be seen kind of as a form of corner resource, simply because they are licenses that just aren't really given out to non-bank entities, which wise is. So if you look at an example here, so Wise is based obviously in the UK and just for them to get their connection in the UK took five years.

So it's not a process that you can just, you know, fill out an application online and have it done by tomorrow. So just to give you an idea of where their other direct connections are, it's Hungary, the EU, Singapore, Philippines, Australia, Brazil, and Japan.

Now, if you take all these countries and collect them all up, they represent about a billion people, meaning that's a billion people in the world that it can essentially transact with as little friction as possible from correspondent banks and other third parties.

Now in time, I'm pretty sure that WISE is gonna continue to increase the amount of direct connections they have, which obviously increases the amount of people that are gonna be able to transact at very, very low prices. And that also is gonna continue to bring their take rates down.

That would obviously directly affect this underlying income growth and reduce the amount of money that they're making from their customer deposits. And that's been a really, really strong tailwind post COVID. The second one is competitive forces. So especially other fintechs, you know, we've already mentioned airwalls. They've already seen a large benefit from having a large number of banking partners, which allows them to take advantage of these domestic payment rails.

So if they continue to proliferate, this could obviously drop their own transaction feed and the speed towards what WISE offers and that could create a more commoditized product if WISE can't compete on those two things. So I'm a little less worried about banks or remittance companies for the reasons that we've kind of already covered here. You know, I think banks.

to be honest, are probably more likely to actually partner with a fintech company like WISE, which can use, you know, the WISE platform or just they're gonna just stick with Swift for the reasons that you mentioned. You know, they all have their hands in Swift, so they're all making money and developing something in-house probably isn't worth their time. And then the third one here is regulatory or licensing risk.

So if you have a country that WISE was in and obviously they had their licenses pulled, let's say it was a direct connection, that would obviously be horrible for WISE because then they'd have to rely on Swift or other payments rails that obviously just aren't as cheap or fast. So they also must meet all of these regulatory requirements and make sure that they don't get lazy on any of them because they're very, very important.

So that was what I basically presented to the community, but they also brought up a whole bunch of other risks that I didn't really think of. And I think they're definitely worth mentioning here today. So The first was that WISE obviously has this continued take rate compression.

Now, obviously we kind of spoke about this earlier. Generally speaking, investors don't like take rate compression because it simply means that a business is, for the most part, being forced to do so simply because of the massive amount of competition that they have in their industry.

So when investors see take rate compression, it's generally frowned upon on Wall Street. Now, my thoughts on this are that WISE has these take rate compression as part of its DNA. So yes, they will 100% continue to compress their take rate. But like I already mentioned, I don't think they're doing that out of a place of weakness. I think that that's just part of the mission statement of the business. You know, it's just really it's in their blood to get that take rate as low as possible.

Now another advantage WISE has is in its ability to reinvest its customer deposit base. So banks obviously have an edge on WISE here, but most fintechs and remittance companies probably don't quite have the same edge. So when a company sends money through a business like Western Union, the funds are physically moving from one person in one country to another person in another country.

And because they can't match liquidity pools, they don't have the customer deposit base to earn as much income from. And since fintechs cannot necessarily monetize their customer deposits, they have to monetize through things like transfer fees and foreign exchange spreads. Now when it comes to fintech businesses like PayPal, they do actually earn a small amount of revenue from customer deposits.

But transaction fees make up about ninety percent of their business. So value added service makes up about nine percent. And inside of that value added service is the float interest. So I don't know what it is, but it's not a very, very large part of their business. Now, the other issue that was brought up to me was regarding the foreign exchange derivative risk. So WISE hedges this using FX derivatives such as forwards and swaps.

Now the contracts are used to lock in specific exchange rates during the settlement process. Now when I looked at Wise's number, it was actually kind of scary to see the notational amount of their derivative instruments. So In full year 2025, it was 1.8 billion pounds. But it's really important to remember that these are hedged in both directions.

Which is what the derivative assets and derivative liability lines are for. So their carrying amount of derivative assets is just two point five million pounds. And when you compare that, they have 3.7 million for derivative liabilities. So the difference there is only 1.2 million pounds. So I'll briefly add that Wise also has some debt on its books here. So they have access to a revolving credit facility of about three hundred and thirty million pounds.

They've drawn on about 200 million pounds of that. They have a coverage ratio of about 25 times. So not super worried about them servicing their debt. Now WISE as a company just doesn't really require debt as a structural source of capital. The debt is simply used to help fund liquidity pools. And you know, just in general the debt part doesn't scare me that much as they also carry one point four billion pounds in cash on their balance sheet as well.

But because it is how wise basically doubles down on the strength of the business model. That is pretty difficult to copy for anyone else. Just for context, most payment companies, if the tape rate goes down, it actually is something bad because usually it happens because of competitive pressures. So, for example, if you look at PayPal, their take rate is going down a lot for many years now. And basically, what you have to do is you have to introduce value-added services.

to basically still make money. But that's kind of difficult because there's not a lot of loyalty with all these payment companies. So there are not a lot of companies I can actually only think of wise, basically, where they are deliberate about it and it strengthens the ecosystem that they take the takeaway down because it's

you know targeting the customer and they actually like the product more because of WISE. And that's because of taking the takeaway down. And that's how WISE benefits from it in the long term.

And that basically leaves them with the opportunity to create these much stronger competitive positions against all the other payment companies from which they have the opportunity to then monetize the business in other ways in the long run and also just build significantly more scale and while not becoming a monopoly.

still becoming by far the biggest and the the most important player in that industry. And having said all of that, it does seem like WISE is still pretty dependent currently on earning a yield on its customer balances. And while I don't know where interest rates will be at any point in time, It certainly does introduce some risk.

So why certainly needs to prove at some point that there are other ways to make a good amount of money that are not about take rates or yields on customer deposits. And while I'm far from being an expert on payments, despite covering some companies in that space,

I know that's not easy to do. Again, this is an industry where generally you have pretty low customer loyalty and high level of innovation and disruption. So think about Airwalls, for example. If they should get beyond the problem of scale. And it's cheaper than WISE or faster than WISE, people will use it. So there's no loyalty to the service of WISE just because they use it five or ten years, right?

Talking about disruption though, what do you think about the risk from, you know, the use of stable coins, which is this huge new topic in the last couple of years?

faster and cheaper, then yeah, chances are I I might jump as well. So it's definitely important that WISE continues to, you know, try to get as many advantages as it can. So the point here on stable coins that you made, great question. And that was actually also brought up by the community. So I ended up spending quite a bit of time looking at stable coins simply because they seem like a very, very good way to send payment across borders.

But once I looked into it a little bit more, I realized that it's probably not a huge worry at this point. So for listeners who don't know what stable coins are, let me tell you. So If you've ever heard of something called USD tether, that's a stable coin. So basically USD Tether is a currency that's completely tethered to the US dollar. So if you have one USD tether, it's worth one US dollar.

Now, stable coins are really cheap to transact and they have really high speeds, but they currently lack some of the very important characteristics such as regulatory clarity, liquidity, and global acceptance. Now the main problem with stable coins is simply the onboarding and offboarding process. So to transact with stable coins, you still need to move money from your bank account into an exchange, then you need to exchange your fiat currency into stablecoins.

Now once you send it, the receiver also has to exchange the stable coins to fiat, then transfer the funds to their bank account. Wise has already said that if they could use stable coins to send money cheaper than their current method, they'd be very willing to utilize it themselves.

But since they don't, it's currently not viable. So it's been nearly 10 years since I put money into a crypto exchange. But for memory, it still took a few days to transfer the funds from my bank to the exchange. You know, maybe you were looking at one to three business days on either end.

So, you know, the transaction time is just not really competitive. And as for fees, it's hard to say. Now I doubt it would be much, maybe a little cheaper than wise, but with the bottleneck there and the transaction speed, I just don't really see it as being much of an issue right now. So if stable coins can solve issues with regulators, liquidity, and get more widespread acceptance, it's still not even necessarily a threat to Wise as Wise could just use that technology themselves.

couldn't deliver that. I mean that could change now with the new regulatory framework that we see, for example the Genius Act and just, you know, a lot more capital in stable coins than ever before. However, I mainly think, you know, about the on and off ramping problem, which you basically described earlier. I think the stablecoin native challenges.

would only be as good as their ability to actually get money into and out of the system. And that's basically exactly what WISE's, you know, 70 licenses and a hundred plus banking partnerships give them a structural edge. And the same is true for Remidly. When I talk about the last mile delivery,

Basically they are the experts in taking money in and off ramping it again. So I feel like if anything they could save money on how they send money. For wise though, they don't even send that much money. So I don't think that stable coins will actually be a huge impact to their business. But I still feel like stable coins are a bit of an unknown. So to some extent, I kind of feel like they are two payment companies, what AI is to SAS.

So every SaaS CEO currently is saying that they will use AI and they will benefit from it, while AI native companies would actually say, you know, we will disrupt SAS. And the dynamic between stablecoins or crypto in general and payment companies to me kind of seems similar. So why is this also interesting? Because it seems like a bet with a lot of counter-cyclical properties. So most businesses, they, you know, tend to suffer during periods of high interest rates.

But WISE again takes a completely different approach and actually thrives even more in these high interest rate periods, as it's, you know, customer deposits yield even higher returns for both WISE and its customers. So perhaps you can go over how you think WISE would perform in both high and also low interest rate cycles in the future.

I remember reading many of the fun letters from managers who were actively seeking ways specifically to take advantage of this. Now I think the ways that I saw a lot of fund managers take advantage was just to play things like commodities, which has obviously worked out really well, especially for people who have held uh gold. But let's not go off on too big of a tangent here. So

I personally don't really pay too much attention to themes like this, but it's definitely top of mind when you think about whys. So I'm gonna preface this by saying, just like you, I have zero insights into where interest rates are gonna be next year, let alone five or ten years from now.

Now, I do think the consensus is probably that we will have elevated interest rates for the near future, just simply because of all the inflation that we have. But the consensus tends to get this wrong just as often as they get it right. So I really like how WISE is positioned because unless we go back to a zero rate environment, WISE will continue to reap a lot of revenue based on its growing base of customer deposits. Now is there a risk of going back to zero interest rates?

Yeah, I think that's always a possibility. But when you think of all the money that was printed to, you know, help solve the monetary problems with COVID, I would say the chances of that happening in the near to midterm are probably quite low.

So how does WISE perform through cycles? This is actually kind of tough to get numbers on, simply because WISE only has financials starting in 2021 after COVID. It would have been great to see them before COVID. But in those 2021 reports, we can actually see data from that 2020 downturn.

And they actually did quite well. So for the year ended March 2021, they ended up growing revenues by nearly forty percent and they actually doubled their net income. And that was during COVID when travel was suspended for many, many months. They didn't report underlying income at this time, I think because it was a negligible amount, which, you know, it would have been helpful to see that, but they started sharing data on underlying income as of about twenty twenty four.

Now, a zero rate environment obviously would not be good for WISE as that first one percent of investing income would disappear. But, you know, anything above one percent and they're still good on on their underlying income base, on their customer deposit base.

Since interest rates vary slightly across countries and customer deposits are going to be in different geographies, they don't necessarily have the same yields as those in, say, just the US or just the UK. So they report a blended yield that accounts for the yield differences.

In their full year 2022 report, their blended yield was very low at just 0.1%. So if you think interest rates are likely to get down to those post-COVID levels, the business becomes a lot less interesting. I agree with that, as that investment income will dry up.

I, however, think there's a high probability of probably similar interest rates to what we have now into the near future. So I don't know about you, Daniel, but you know, where I live in Canada, literally everything I buy is just more and more expensive and more and more expensive than it's ever been in the past.

And so, you know, uh just my general thoughts, if central banks want to rein in inflation, then I think pausing the printing press is probably a good start, which is gonna be good for interest rates staying at these elevated levels.

I think you can argue for both ways and generally you just want to own businesses that, despite what the interest rate is, they're still great businesses earning a lot of money.

So kind of to that spirit, you've mentioned about four different business lines with wise. So cross border payments, cut revenue, interest income on deposits, which obviously is mostly dependent on the interest rate. And then wise platform. And it seems like as this business grows, they're kind of finding more and more ways to monetize as they started with, you know, just the cross-border payments, but now they're diversifying into more areas as basically the opportunities arise.

That kind of leads me to my next question about these segments. So which of them would you say are the most attractive and offer the highest margins if, once again, destination analysis, we're looking out five years from now?

An underlying profit before tax margins have actually dropped from 21 to 16%. So let's go over there the underlying profit before tax margins because that's the number that I think management is very, very focused on. If you look at their presentations, every single one of them is mentioning this kind of 13 to 16% range as a KPI that they want to maintain going forward. So as you can tell, obviously this number has gone down.

But this was really done to improve the business. So I think wise could easily have reinvested less money into the business, which would have then shown a higher number. For instance, when they started showing that underlying profit before tax number in 2024, the twenty one percent number was a result of some cost cutting and saving. But at their investor day in 2025, they announced that they'd be quite aggressive on internal investments back into the business.

And this is simply why that number has shrunk. It's at the top of their target, you know, up kind of around that sixteen percent. And I expect it'll be maintained inside of that target range here for the foreseeable future.

Now this ability to reinvest back into the business is really part of their competitive advantage. Since investments into developing bank partnerships, direct connections, and marketing spend are run through the income statement, I think they're gonna continue to have these more depressed margins. But these investments are what directly improve the customer experience by decreasing prices and by decreasing their transaction times.

So, you know, there may come a time in the future when they have saturated enough of their market that they're unable to reinvest that much, but I don't think we're anywhere really close to that time. Now, another interesting point to look at when it comes to margins is just how much they spend on marketing as a percent of their revenue.

So I mentioned earlier that WISE gets about two thirds of new customers simply from referrals. And this lowers their customer acquisition costs, allowing them to invest more money back into the business to make a better product rather than reinvesting to just, you know, get more and more customers.

So if we compare that to Remitly or PayPal, you can really see the differences. So PayPal is obviously a much more entrenched and well-known business. So it doesn't have to spend a ton of money on marketing, but it still spends about six point three percent of its revenue on marketing.

Now Remittly, much younger company, very, very competitive industry, they're actually spending about twenty-four percent of their revenue on marketing. Wise, on the other hand, in the first half of twenty twenty six, spent about three point three percent of their total revenues on marketing. So

I'll reiterate again, this is a large advantage simply because instead of paying money internally to acquire new customers, they can divert that money into making their product much better than competitors.

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Amidler on the other hand, you know, they take kind of the opposite approach, which you just mentioned, but they earn incredible returns on that marketing span. So personally I consider that to be a good investment as well. But you know, there's no doubt that the best option that you have is to not have to spend a lot of money on advertising in the first place. So

Now getting back to WISE. What do you think about the scale benefits that WISE has? We mentioned it here and there, but I do believe that scale seems to be one of the very few and therefore also the most important competitive advantages that you can have in payments. And I think scale is to some extent why they bring down the take rate again and again to basically maximize the scale that they have. So, you know, how do you think about the benefits of that?

more profits that it can then reinvest back into the business. And its plan is to really share those benefits primarily with customers just by, again, by lowering the take rate and decreasing their transaction speeds. So there's really three aspects of scale that I think WISE really takes advantage of.

So the first is that the cost per transaction volume falls as the volume grows. This is due to the fact that WISE is continuing to add these partnership banks around the world and primarily through its direct connections. So simply put, the more direct connections that WISE can establish, the larger its bank of domestic payment partners that it has.

Domestic bank payments are quick and cheap. So as they scale up, they add more and more of these direct connections, and this will drop the cost per transaction in a more global sense. Now just to give you a sense of the impact of direct connections. So Wise's license in the Philippines for direct connections is called Instapay, and that went live last year in 2025.

These direct connections allowed users sending money to and from the Philippines to have ninety percent of their transactions completed instantly. And the cost of making a payment fell by a factor of eight. Meaning if the average transaction cost was eighty dollars, it's now ten dollars.

This is a very, very meaningful drop and helps improve the customer experience. Now, the direct connections, obviously they cost money, but they're a fixed cost. So whether they're processing, you know,$20 billion or$200 billion, the cost here scales very, very well.

WISE currently has these eight direct connections, which I already mentioned, and it's working on developing more. They have one right now on the pipeline with Japan, which should go live here imminently. Now the second aspect is in Wise's take rate. So not only does the scale allow them to have cheaper transactions, but it's also resulted in them allowing themselves to take a lower take rate.

Wise could theoretically keep the take rate the same and improve margins as they get scale benefits from increasing their numbers of direct connections, but they've chosen to, as they scale, not do that. And they're trying to just allow that take rate to come down and, you know, accept that, yes, we'll make a smaller amount of profits, but because of all the other levers that they have to pull with growth, it's well worth it.

So they've said that the goal is ultimately to have zero cost cross-border payments. So I assume they have no plans on halting this decrease in the take rate anytime soon. Now the third aspect here regards regulation. So the direct connections take a long time. As I mentioned, the UK direct connections take about five years. So management has said they currently have about 70 licenses, eight direct connections, and partnerships with over 100 banks globally.

So, you know, this just isn't a process that can be done overnight. It took wise fourteen years to establish these connections and these licenses.

you know, model of scale economies shared is so powerful. It's kind of like building an infinitely scalable flywheel, which is something that we like to see with so many companies that we look at. Would you say that is accurate in terms of wise, or do I kind of miss a point there?

Growing both card revenue and customer deposits, which is then invested by WISE to generate even more investment income. The cost of sales continues to decline as a percent of revenues, which is why gross profit margins have obviously expanded so much.

Now this is because they've been able to reduce fees with their banking partners, improving their hedging strategy, and lower their net credit losses. Even though cross-border volume has keggered at only twenty two percent, Wise's gross profits have keggered at forty-one percent. Now as WISE grows its profits, it offers the business even more capital to reinvest in making the product even better.

We can look at how much capital has been reinvested in the company simply by just looking at their retained earnings line on their balance sheet. So since 2021, they've accumulated about 1.2 billion in retained earnings. These reinvestments are into things like creating new direct connections, adding new product features, entering new geographies, and of course lowering prices.

Now, because the product has become cheaper and cheaper, the flywheel continues to function. Since reinvestment is helping make transactions cheaper, WISE is obviously able to attract more and more customers. Which obviously allows them to continue to reduce their take rate, which has gone down from point seven five percent in twenty twenty one to point five two percent today.

And they've really done a really good job at gradually decreasing this take rate. So as I mentioned, when WISE attracts new customers, they increase not only their cross border volume, but also the card revenue and customer deposits. So As those numbers goes up, the flywheel just continues to start up again and again.

With wise you have this extra level where it's not only about outgrowing the declining tapegrate, it's also that the business is fundamentally getting stronger because you take that tape rate down. For most other companies, D local included, you don't actually attract these smaller customers, or basically you're not a B to C company, but you're a B to B company. So by lowering the take rate, you almost always do that out of a position of weakness.

even though it, you know, in the short term helps the company. So with Y's it's really different because it really strengthened the company. And I think that's incredibly difficult to grasp, but also important to understand. And

Again, like flywheels are are such a powerful advantage. And if you look at a lot of companies, and just last year Sean and I looked at over sixty companies, you just seem to realize how important those are. One thing that I still want to talk about though, because we always do that when we look at a company, is the management team.

I've come across some I would say mixed signals. You know, looking closer at the CEO, Crystal Carmen. So can you go over some of your thoughts on management and whether those mixed signals actually matter today or if that's just, you know, note story?

And so what happened was Christo failed to respond to letters from regulators regarding this capital gains issue. And reportedly he failed to respond to multiple notices that they sent him as a result of having a demanding travel schedule. So this delay in his response cost him two separate fines. The first fine was in twenty twenty one for about three hundred and sixty-five thousand pounds. And that was for failing to notify tax authorities of the capital gains from the sale of the shares.

Next up in 2024, he paid an additional fine of about 350,000 pounds for breaching a senior manager conduct rule. So the second fine seemed to be from, you know, hair left over from the first one. The Financial Conduct Authority FCA characterized Christo's approach as careless as opposed to deliberate or reckless. And in the second fine, he was able to actually reduce the fine by just resolving the matter as quickly as possible.

Now, I can see how this might cause unease in some investors. You know, Crystal, after all, is managing a multi-billion pound business that touts transparency as one of its defining characteristics. But you know, when you look at this, this all has to do with his personal money and doesn't have anything really to do with running wise the business itself.

So, you know, when it comes to WISE itself, I wasn't really able to find too many big red flags. They do have some outstanding issues with being sued. You know, obviously they're a cross border payment company internationally. And I know this from owning Evolution Gaming that there's regulators all over the world, you know, they're very worried about things like money laundering. And so there's a case right now for wise in the US.

It's for a small amount of money. I think it was for like four to five million dollars. So obviously you can look at that as a red flag, but I mean, to be honest, if you're looking at

a big multinational corporation involved in money, there's basically always gonna be some sort of lawsuit out there. You kinda have to look at the size of them. Obviously if they're having a really, really big one, well, that's not so good. But, you know, if they have just a bunch of these smaller ones, I think that's honestly just kind of like a cost of business.

But as you just said, I think it's either about how big are these actually, like what's the size of the lawsuit. And then also if you actually think that there has been misconduct or somebody actually lied within the higher, you know, management team, which is something that I look out for. I don't think that's the case for wise. And also what you mentioned right now. Seems to me more like, if anything, a yellow flag, certainly not a red flag.

So now that we have some of those negatives out of the way here, let's continue to view what you see in management as a benefit to us because after all, this is still a founder led company, which is something that we like to see. So it assumed there are a lot of positives here.

But going into the future, if that guy has key man risk, there's a very good possibility that he's gonna leave. And therefore the fact that he's a founder doesn't really have as big of an impact. But the good news is that Christo is quite young. He's only forty five. So I think he has a lot left in the gas tank to continue scaling the business.

So what I really admire about Christo is his long term thinking. You know, it's entirely possible for wise to focus on the short term numbers and results. They could easily have raised their take rates and still kept a lot of the excess profits to go to the owners of the business. But instead of doing that, he's shared them with wise customers. And I think the reasoning for that specifically is because over the long term, he knows that's how to build the best possible business.

And when you read Chriso's commentary, he's constantly focused on the long term, especially through areas like vision and the framing of Wise's overall mission. So in the twenty twenty five annual report, he wrote Our vision is money without borders and we are building the best way to move and manage the world's money.

Minimum fees, maximum ease, full speed. We believe that our relentless focus on becoming the network of the world's money will enable us to move trillions around the world. And if you think investing in Wise's infrastructure is gonna stop any time soon, that's definitely the wrong assumption. So

Christo has said that they've already invested about three billion pounds into infrastructure for the business since its inception. And over the next two years, he's expecting another two billion pounds being put into infrastructure. So he added, We fundamentally believe that whoever has the best infrastructure in the space is gonna win in the long term.

Now, another way that I like to assess management is to look at some of their initiatives that they had a few years ago and just see how they played out. I tend to want to avoid managers who, you know, have a carousel of new projects simply to replace ones because they didn't work.

So I don't know about you, Daniel, but I prefer managers who have very few specific initiatives and then hopefully execute on them at a very, very high level and preferably hopefully can continue scaling up those initiatives. So one of WISE's founding promises was simply to just reduce cross-border take rates. And as I mentioned, I think they've done an excellent job continuing to drop this number. And conference calls back that up as a reduction in take rates are an explicit strategy.

And, you know, I don't think are being done out of any fear of competitors. So it's been five plus years of dropping take rates and it appears that they're likely to continue to go down over the next five plus years as well. Now another initiative of WISE from Inception was the speed of payments. So in 2020, they had 26% of their payments that were considered instantaneous. Today, 74%.

They've also improved payment in less than 24 hours, going from 71% to 96%. And one of their longest term goals was in building out their direct connections network. This has obviously been a goal that happened slower. Like I said, you know, these licenses can take five years to happen, but you know, they've consistently increased their number of direct connections. So back in 2023, they only had four of them and now they're up to eight.

They recently announced a conditional license approval for South Africa, and it looks like they're in the process of getting one in Canada as well. So, you know, while this process definitely is not going to happen overnight, I think it's pretty clear that they're moving in the right direction. So the last initiative that I'll mention is in Wise's partnerships.

So in twenty twenty three they had about sixty partnerships and by full year twenty twenty five they had eighty-five partnerships. On top of that, they have WISE platform, which is a relatively new concept, but it basically enables major banks to leverage Wise's infrastructure.

So some of these WISE platform partners are like Morgan Stanley and Standard Charter, who have partnered with WISE to use their platform, which just allows them to simply have cross-border transactions that are cheaper and faster.

And why is it basically doing the same here? But it's kind of a pattern that you see with most successful CEOs and especially founders, that they invest a lot of money back into the business because only that way you can actually build those flywheels, build those modes that everybody wants.

But they don't want to see, you know, the billions invested in those modes in, you know, the next quarter or the next two or three quarters. But it's something that you have to go through. I think it's also something that you only see when management is actually incentivized to do so and wants the best for the company long term.

One of the things that you can check for if that's actually the case with the company is insider ownership. So how many shares do insiders actually own in this company? And what are your thoughts about the overall compensation structure?

held them for multiple years, waited for them to invest a bunch of money in the market to be like, Why are you investing money to grow? And then just bought a bunch of shares at cheap prices and then just waited for them to stop spending as much money and let the benefits of those investments play out. So Again, could talk about that for an entire episode and we won't talk about that right now, but let's talk more about insider ownership. So

I completely agree with you. I love looking at insider ownership. I think it's very, very important. Generally speaking, if you have a founder of a business, they should hopefully own a lot of shares of the business, seeing as, you know, they probably

started with, you know, a hundred percent. In this case, you know, I would have expected him to start somewhere around fifty percent as he had a co-founder, but there are other investors involved, of course. So the numbers get skewed. But Christo still owns a significant amount of shares. So he has about 18% of the shares outstanding.

But Wise has a dual share structure. So Crystal actually has about forty nine point three percent of the voting rights. Now, approximately thirty three percent of the company's total shares outstanding are actually held by insiders. So the co founder of the business who is not active within the business also reportedly holds about five percent of the company's shares.

So on that basis, I would say insiders are very, very well aligned with shareholders. This isn't some dinky microcap. This is a ten billion dollar company. So that's really a meaningful amount of shares to see. 33%. That's a high number. So now let's look at the compensation structure. In 2025, Crystal had 197,000 pounds in salary with no annual bonus or long-term incentive plan.

So he actually elected to just completely abstain from both. His salary has slowly increased, but not by very much. So in 2022, for example, he was making 161,000. Now their CFO, Emmanuel Thomason, has about two hundred and eighty-four thousand in fixed pay, plus a restricted share total for about six hundred and seventy-one thousand pounds in total compensation. Now the structure for incentives is what I would consider decent.

They have three KPIs for the long-term incentive plan. The first one is relative shareholder return versus the FTSE 100 at a 40% weighting. The second is volume growth at a 40% weighting. And third is customer net promoter score, which is a 20% rating.

So the long-term incentive plan consists of performance shares and restricted shares. The performance shares are measured over a long period of at least three years. I like this as it hopefully reduces any, you know, short-term noise that management might take advantage of to just juice their incentives. Thomason received about two hundred percent of his base salary in both performance shares and restricted shares in the latest year.

Now just to give you an idea of what Christo is making versus Remitley and PayPal CEO, Remitley CEO's payment is actually quite similar to Christo at about two hundred ninety thousand. Remitly CEO is also a founder and he's also voluntarily foregone getting paid bonuses. Now PayPal CEO, different story. He has a total compensation of nearly seven million dollars in twenty twenty five. So to conclude about the insider ownership, I think I really like it.

I think that's a very high number to have. You know, you can make the argument that it can be bad because they have the majority ownership stake of voting rights and can therefore do certain things, but Chrisop I don't think he's really done much. It doesn't really seem like this is a business that would necessarily want to be taken private.

because they have this need for the liquidity pools. So they have some need to have that funded at all times. But I would say with the incentive structure, definitely not optimal. I would prefer it to focus more on internal business KPIs rather than on metrics such as total shareholder return.

So, you know, in a perfect world, I would see the total shareholder return metric replaced with something like customer deposits or even underlying profit growth. And then lastly, I wonder how this incentive based on TSR is gonna change once they're dual listed on a US exchange.

to have the right balance so you're not only you know incentivize for top line growth and then the margin will suffer, but especially for a company that has such a unique way of a business model with you know taking down the take rate with the way that WISE does, I feel like there's a way to incentivize it better.

Yet, you know, if I look at the insider ownership generally, if I think about that it's still a founder led company, compounding the way it has done, I don't see this as, you know, a yellow flag at all. Maybe just for the last topic that we discussed.

Let's shift a bit to the capital allocation. So Wise doesn't pay any dividends, but they have returned some capital to shareholders by buybacks, which is something that I genuinely like, if it is done at the right price. And it looks like they have a substantial amount of cash on their balance sheet as well. So how well or good of a job do you think they have done allocating capital in the past? And what are the plans for the future?

But during that time the share count has still increased at a two percent kegger. So, you know, it's somewhat of a dilution offset more than anything else. It's not really a been a giant value add by any means. And to your point there about the cash on the balance sheet, yes, they definitely have a lot. So when it comes to wise though, there's a small caveat. So if you look just at their balance sheet, their cash holdings are very, very high.

But there's a reason for that, and that's they have cash tied up in settlements and customer deposits, but that cash doesn't belong to WISE. So They made up another metric which they call corporate cash. And that's cash that actually belongs to Wise. And that number right now is at about 1.5 billion pounds. So looking at capital efficiency, I ran my own calculations on their return on invested capital.

And they're very, very good numbers. So I had their return on vested capital at about thirty three percent. Now there's definitely a caveat here. So when you look at corporate cash, it has been swelling and at a pretty high rate. So a forty nine percent kegger since twenty twenty one. So The thing is is that Wise is a business that I think has to have an adequate amount of cash on hand to cover settlements and whatnot, but I'm not sure they require this much.

So this leads to my next point. I don't believe that WISE can reinvest all of its cash flow back into the business. While a 33% return on vested capital is great, I don't think they can reinvest 100% of their profits at that high rate.

But luckily, you know, they have plenty of places to continue deploying quite a substantial amount of capital, get buying these new licenses, more direct connections to improving their product development. They have something like eight hundred engineers, so they could theoretically continue scaling that up as well.

But like I said, part of that reason that the cash pile has grown is due to regulatory requirements. So it's a little bit muddled. If we look since twenty twenty two, wise has reinvested about eighty four percent of its capital, which I think is a really healthy number.

I expect that we're going to continue to see corporate cash continue to grow because they're going to continue to get new licenses, establish new direct connections, and I think regulators are going to require them to maintain very adequate liquidity buffers. That buffer will continue to go up, of course, as they continue to process more transactions and have more and more customers.

Now, another way that I like to look at capital allocation is through Buffett's$1 rule that basically states that for every dollar that a company retains, it should generate at least a dollar of value for shareholders. So since twenty twenty two, they've retained about nine hundred and forty two million pounds in earnings. And over that same period, they've created about three point four billion dollars in market cap value. So they've easily passed Buffett's one dollar rule.

Now, as mentioned, they plan to invest billions over the next few years to continue improving their infrastructure. So I think they can continue to earn very healthy, above average returns on invested capital. As, you know, they're pretty much going to be running the exact same playbook that they've been doing over the last 14 years.

one of its moods. I think especially right now, there are a lot of companies that sell off and that might be viewed in a more negative way than it should be.

When it IPO'd, it had a trailing PE ratio of about 300. And shortly after that, it actually increased all the way up to 390. Now obviously these are completely nonsensical values for this business, but luckily since it's now been public for multiple years, the earnings ratio has stabilized to a much more sensible level.

So if you look at the PE compression, it was quite scary. It declined again from that peak of, you know, three hundred ninety all the way down to seventy times by July of twenty twenty two. But over the last two years or so, it stabilized between just sixteen and thirty times.

Now this is a range that I think is much better to look out into the future about what kind of terminal multiples this business is gonna trade at. Now, investors obviously have to be the judge of what kind of multiple this thing is worth. I think some of investors may look at this business and assume that it's, you know, some sort of bank. And this might lead them incorrectly to apply very low multiples as, you know, a bank can regularly trade at a PE ratio of let's say ten to thirteen.

But as I made clear, I think WISE is not a bank, so I think it deserves a more premium multiple compared to a bank. Next we look at remittance companies. Now, these probably aren't the best comps for the reasons that I've already covered. And I don't think they really help us determining what a business like WISE is really worth. You know, Western Union is mature. It's a low growth business and it has a mid single digit multiple.

And then on the other hand, you look at Remittly, which is a high growth business. And, you know, I think it trades at a pretty reasonable 15 times forward earnings multiple. But, you know, it's also only recently inflected into profitability.

And its compounded revenue growth has been astronomical at 50% kegger since twenty nineteen. So while Remittly is certainly growing at a very nice clip, there are certain parts of that business that I don't think really can compete to WISE due to its structural advantages, but it also has this really fast growth rate.

So I'm not sure that you can really get too much out of the remittance companies to to find out how much WISE should be worth. And so that leaves fintechs, which I mentioned earlier are probably the best comparables for WISE. So I think the market is coming around more and more to the fact that WISE is a fintech, but more of a specialist inside of cross border payments industry compared to many comps such as, you know, PayPal.

The problem with a lot of fintechs is that they just aren't publicly traded. PayPal, while it has this cross-border angle, is also a massive business that is now growing its earnings in the low single digits, which is a far cry from how fast WISE is growing.

So if you just look at wise and you look at their numbers and also their growth rates, what do you think is, you know, pretty reasonable valuation for this company?

I think at that, you know, you call it terminal time in five years, it's still probably gonna be somewhat of a growth company. Is it gonna be growing as fast? I would say probably not, but it's I hope not gonna be in, you know, growing single digits. Additionally, you know, cash flow is actually not the best way to evaluate why's on like pretty much every other business because a lot of the cash that they have on their cash flow statement is tied into working capital due to regulatory reasons.

And so because of that, their cash flow numbers are just not a good indicator of economic reality. This is very rare for me to say because, you know, I think everyone's probably familiar that, you know, the income statement is more of an opinion, whereas the cash flow statement's more of a fact, but I actually think that's in reverse when it comes to Wise. So in Wise's case, I actually think net income is probably the best metric to use.

Now net income is gonna be harder to compute simply because it adds back interest paid above one percent, but it's probably the best way to do it without kind of overcomplicating things. So there's a path I think for wise to earn well above nine hundred million pounds in net income five years from now. So With a net trailing net income of around three hundred and seventy four million right now, that's a really, really big increase in profits.

So right now the business is currently trading at around 24 times earnings. And I think this appears to be a pretty fair multiple. If we assume a constant multiple, we get a value of 22 billion pounds, which implies an upside kegger of about 19%. If we assume some multiple compression, then in that scenario, the multiple, let's say it contracts to 20 times, we get a kegger of 15%.

Now, keep in mind that I'm using growth here that is completely in line with management's midterm forecasts of 15 to 20% growth. Profits have compounded annually at 90% over the last five years. So I'm also assuming zero scale benefits, which I think are pretty unlikely. And if the business starts showing some of its scale benefits, that multiple could easily expand.

So I was listening to some commentary from Alex Wood, the chief investment officer of Kernow Asset Management, and he believes the business could one day be worth a hundred billion pounds. So his point was that in America, there were fintechs growing at you know high single digits, trading at fifty to sixty times earnings. Now he didn't specify exactly what name he was referring to.

So if you apply those multiples to my growth metrics and project out an additional five years, a hundred billion pounds is possible. But, you know, I prefer not to think too far out and I'll stick with my more conservative approach and I'll welcome any additional upside.

I don't know exactly what payment companies he talked about, but I don't know that many payment companies, especially at scale, currently trading at at those multiples. You mentioned earlier in this episode that WISE is currently a small position for you, but that you intend on adding to it over time. So Can you maybe talk a bit more about your strategic thinking on this end?

by waiting, but I really like the business and I want to continue scaling it up. And the reason that I haven't is simply that I want to wait for it to list in the US where I can then I've been putting cash away into uh tax sheltered accounts and I want to just invest in that. So basically my plan is to just wait for the shares to list into the US, then I can then use money from my tax sheltered accounts to acquire more shares.

So I could theoretically buy they have I think they have there's an ADR and an OTC in um the North American markets. But I'd prefer to just have the normal one and just make it as simple as possible. Maybe it's not the most rational thing, but that's just how I'm thinking and how I'm viewing my strategy with this one going forward.

I think it's really unique competitive advantages and how just, you know, making a product that really improves the ability to move money across borders, you know, as cheaply and as fast as possible. Especially if you think about how this idea was basically just generated by two people

basically exchanging the salaries. And it's unusual in finance to find a business that is so active and actually trying to improve the customer experience. I think I mostly, you know, see banks as more like rent collectors. So, you know, they sit on their business models and they are content to give their customers A relatively mediocre experience simply because, you know, they can do so without losing many customers of their like highly valuable deposit base.

But it's kind of interesting to see a business like WISE offering its services to other banks. So I'll be curious to see how WISE Platform, which is something that we discussed a bit today, actually performs over the next few years and to kind of see what kind of adoption it can get from some of the larger banks around the world. I think this is a good place to end the episode now. I think we covered

A lot of ground. So yeah, thanks for having me on, Kyle. And I actually look forward to chatting more about stocks with you soon now that we ha kind of have this new concept going here.

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