DOI: 10.48370/ofd/j47jxt
title: PREFERRED BANK LOS ANGELES

description: Description Intro/Summary Wise is a cross-border company that is up about 50% in the last 6 months. Wise has been written up twice on VIC. Originally by Alejo Velez here, and then just over 6 months ago by tyro here (great timing). I’d encourage you to read both for a base overview of the business, I don’t want to repeat them. Another nice intro is ep. 99 of the podcast "Business Breakdowns" where James Revell of TDM Growth Partners explains Wise: Visit Podcast. Wise is a great company, set for steady compounding over the next decade, but how it’s going to grow from an £11 billion company to a potentially £100+ billion company seems to be either unsaid, or sort of hand-wavy. I think Wise is going to compound to a £100 billion company over the next 10 years and here I’d like to explain how. On tyro’s write-up, Coyote got to the heart of the problem in a comment about the true TAM, where they correctly point out that Wise Platform is the theoretical opportunity but it’s currently very small, how is it going to move the needle in the medium term? So far the partnerships seem rather unserious. Quote:  I am not saying Wise case won’t work. I am just saying the growth levers are not that crystal clear to me and that management is too vague extrapolating past trends into the future by stating the “Our trillion+ TAM…” The related thing I want to address that I see people do in discussions about Wise is that they point out that banks do the vast majority of cross border payments, and then they don’t really mention banks again. Instead they talk about Western Union, Remitly, Xoom, etc. None of which are banks, and none of which are £100 billion+ companies. Why isn’t anyone talking about the banks? Here I will try to situate Wise against the banks. Insofar as Wise is onboarding customers directly to Wise Retail accounts and Business accounts, £11 billion is a pretty rich valuation even for the medium term. Insofar as Wise gets real traction in the wholesale commercial market, I think it will outgrow that valuation a lot quicker than most expect. But that traction is going to be enormously more “lumpy” than direct signups for Wise accounts for the foreseeable future, even as it accelerates. Also, the pricing and speed Wise brings to the table isn’t a commodity. Insofar as it’s a function of scale, there are a few companies that will be able to match it. But it’s also a function of global regulatory and tech investment that maybe a handful of banking giants + Visa are interested in matching. In order, I’ll try to tackle the TAM, the Banks, and then global currency payment systems. TAM: How Big is the Market? Wise's primary market is cross-border payments. We can think about that market in terms of volume and potential fees, or the take rate, on top of that volume. Volume Wise presents their market as cross-border payments of £2 trillion retail (moved by people), £12 trillion by SMBs, and £13 trillion moved by large enterprises - for a total of £27 trillion of cross border payments. They cite an EDC (Edgar, Dunn Company) study as the source of these figures. EDC is a payments fintech consultancy, and that study does not seem to be publicly accessible. There are similar sorts of studies made by at least 2 other outfits: FXC Intelligence and Juniper Research. I'm not paying thousands for these studies, so their methodologies remain a mystery. But I think there are at least a few ways to sanity check these numbers. The first is with the 2022 BIS Triennial Survey (Bank of International Settlements). This survey is widely considered the most authoritative source for a general outline of the FX market. What we want from the survey is the average daily spot volume for non-financial customers, which is ~$150 billion.Annualized with ~250 trading days, you get about $37 trillion in annual volume. Eyeballing the exchange rate of USD to GBP from April 2022, about 0.78, we get approximately £29 trillion. That puts the TAM figure from Wise in the right neighborhood. The next method I found in a paper put out by JP Morgan and Oliver Wyman. They use the sum of global merchandise and commercial services exports reported by the World Trade Organization and foreign direct investment from the UN Conference on Trade and Development to get a figure for cross-border transactions ex-retail. Using the latest data from those sources, I get $32.1 trillion or ~£25 trillion. That matches almost exactly what Wise reports as their market ex-retail. Regarding the retail portion, the World Bank estimates global remittances in 2023 were $857 billion (£672 billion). I assume the main non-remittance component of retail is Consumer to Business payments encompassing everything from international eCommerce to tourism. So far as I can tell, there is no neat aggregate or proxy for the total of this. In terms of volume, I am happy with calling Wise's TAM numbers for cross-border reasonable. Where does that put Wise in terms of penetration? Wise is currently doing about £104 billion retail and £36 billion business in annual volume. That is about 5% penetration for retail and 0.15% for all B2B or 0.3% of what Wise estimates is SMB activity. Wise would appear to have enormous room to grow if they can take share. I think a lot of investors are skeptical that they can take significant share in the B2B space - in the quarter ending March 2024, Business volumes only grew 10% Y/Y. It was very “explainable” - a pause in taking new business customers while they invested in better KYC/UBO onboarding. In the most recently reported quarter, that growth rate is back up to 20%, but a lot of doubts persist. With sub 1% market share, it seems like a world beating company could easily be posting 50% growth rates. Fees There seems to be even less visibility for the fees on that FX volume. There is no trusted triennial survey equivalent and many companies do not disclose what they make in these fees, or even what would count as a fee (Wise would say any premium to the spot rate). In the JP Morgan Oliver Wyman paper about CBDCs they estimate $120 billion in fees for 2020 on $23.5 trillion in transfers, but it excludes "FX costs" which aren't defined and makes assumptions that all this is correspondent banking with a certain number of steps and fees along the way. In Wise's 2022 annual report, Käärmann says c.£180 billion in fees, no source given. One thing that's really apparent in these estimates though, is that if they are even close to the reality, someone is moving a lot of money at a much lower cost than what is accessible to individuals, because these estimates work out to sub 1% fee rates on the total estimated volume. And we know who moves that volume at those better prices: it's the Corporates / Large Enterprises segment through the banks that serve them. These banks do not disclose the fees they make from FX conversions for their customers, even when they provide some commentary around it (we’ll look at that in a minute). Many don’t even disclose what kind of fees they are charging to their customers. Here is language from Bank of America's corporate and commercial deposit account agreement: If we assign an exchange rate to your foreign exchange transaction, that exchange rate will be determined by us in our sole discretion based upon such factors as we determine relevant... and is subject to change at any time without notice. ... We provide all-in pricing for exchange rates. The price provided may include profit, fees, costs, charges or other mark-ups as determined by us in our sole discretion. Those fee's are rolled up into a line item called something like non-interest income or commissions and fees. Our next section is all about the banks, but we can consider what Wise hopes its future looks like in terms of volume and fees. Today Wise's revenue from the volume it handles, or its take rate, is 0.59%. That is £830 million at today's (Q2 2025) annualized volumes. In Wise's Half Year Fiscal 2025 update released in November, CEO Käärman set out a very specific future vision: It’s reasonable to expect that in ten years, someone can transfer $10,000 across currencies for $10, compared to the current banks’ price of $200-$400. We intend Wise to be the one operating these transactions at that price point, with our cost base brought down to $5 or less. It will be profitable and very valuable, when the cross-border volume on our platform is in the trillions. Dreaming with Kristo here for a second, for every trillion in volume Wise would make a billion in fees, and presumably have £500 million in profit before tax. If Wise is moving trillions, they would have a base of a billion or two in pre-tax profit from cross-border revenues. Then we get to ask how much do the complementary services generate and at what cost? Today, 'Card other revenues' is growing exceptionally fast (~50% Y/Y). It is mostly interchange fees on the issued debit cards. There is also Wise Assets which is growing very quickly: £3.8 billion in assets under custody as of Sept 2024, up from £1.8 billion in Sept 2023. It will likely become a material source of fees in the medium term. These are billion pound businesses at other banks and financial service providers, they certainly can be at Wise. This is just to say that in “theory”, in the dreams of the CEO, IF Wise got trillions in volume, a big “if”, that there can be a few multi-billion complementary services layered in on top. The Banks As businesses grow in size and financial complexity, they generally develop a "treasury" function on their finance team. The treasury function makes sure the business has the money, in the amounts it needs, where it needs them, at the right time for the day to day operations of the business. "Treasury" is the business function that most FX volumes are embedded in. It's simply doing what businesses normally do plus the addition of cross-border: paying vendors, getting paid by customers, paying employees, financing subsidiaries, paying taxes, etc. Supporting this function is a core business for commercial banking. Many banks have a dedicated unit to serve the various needs surrounding these activities. In a positive interest rate environment, there is interest income on the deposits the businesses have with the banks and then there is fee and commission revenue from services and activities on those accounts. Various names are used to refer to this area of banking, sliced and diced slightly differently at each bank. Transaction Banking is one term for it, and that's the umbrella term that Coalition Greenwich calls it. Coalition Greenwich is the banking industry research, analytics, and benchmarking group that many banks, such as JPMorgan, HSBC, and Citi use for benchmarking their market position in various segments. According to Coalition Greenwich, the 10 largest transaction banking banks, in alphabetical order, are: Bank of America, Barclays, BNP Paribas, Citi, Deutsche Bank, HSBC, JP Morgan, Societe Generale, and Wells Fargo. It's a very fragmented space, so there are many more significant players globally and especially regionally. I’d also note that in the cross border space, Visa is also a giant - they are behind HSBC’s Zing app that the press acted like was an imminent threat to Wise. I think that also shows that many large banks don’t actually have substantial technology investment aimed at this space. There were 3 investor events from these large banks in the past year that were particularly useful for getting a feel for current state of things: BNP Paribas Deep Dive Corporate Retail Payments: Transcript Presentation JP Morgan Chase Co. 2024 Investor Day - Commercial Investment Bank Section: Presentation | Transcript Citi 2024 Services Investor Day: Event Page These banks see large opportunities to grow their market share, largely on the back of a big competitive advantage they have over their smaller peers: robust, global, cross-border capabilities. But Wise is coming for that share too. Wise aims to be an essential partner for every bank that isn't focused on maintaining a global proprietary payments network. Which is basically every bank in existence minus about 20 or 30. I will zoom in on Citi as a prime example of the phenomena of the major banks taking more cross border market share, also because they gave some of the most helpful data and anecdotes in their investor event. But they aren't alone: JPMorgan grew FX fees 20% YoY in 2023 and BNP Paribas is also experiencing a lot of growth. Citi handled $358 billion in cross border volume in 2023, up from $280 billion in 2021. Wise handled approximately $143 billion in 2023 (calendar year, not fiscal year), up from $97 billion in 2021. Wise has barely begun to compete with the likes of Citi for market share in any material way. And I don't expect that competition to really intensify until another couple of years. The reason I think that is the profile of the customers making these FX transactions. See the figures below. 2023 Citi vs Wise FX Payments Is Apple a good investment? Apple Cost of Equity Apple Cost of Debt How to Invest in OpenAI How to Invest in SpaceX - These are calendar year figures, not Wise's FY. - Wise reports in GBP, conversion to USD was using the IRS yearly average currency exchange rates. - Wise customers are for the quarter ending 2023-12-31. Annual active customers would show an even greater difference in volume profile (FY2024 ~12.8 million) but it is disclosed only for the overall business and FY. These businesses are currently serving distinct worlds. The situation is much the same at JPMorgan where SMBs represent less than 2% of their $18.3 billion in annual payments revenues. Citi's Transaction Banking clients include the likes of Microsoft, Alphabet and Walmart. Wise is not about to poach these clients - Wise isn't a bank and doesn't even aim to do a lot of the pieces involved in these relationships. But the cross border capabilities of Wise Platform will help other banks and financial service providers compete with the likes of Citi across at least the payments vertical. Wise Platform is already established as a serious partner for retail FX, especially for challenger banks serving tech savvy and wealthier clients. But the commercial market is 20x bigger. Massive traction in the commercial market is the only way Wise has a chance to be a £100+ billion company.With better and better pricing, more instant payments, and more useful features getting built, Wise can make banks and financial service providers dramatically more competitive with the global giants for commercial relationships that have cross-border needs. Wise is going head to head with the largest banks for these wholesale relationships. There was, I think, a thinly veiled reference to Wise in the presentation from Citi's Head of Payments, Debopama Sen: A large bank client had lost market share in their domestic market to rival FinTechs for their global payment flows from their retail bank. By partnering with Citi, they've been able to leverage APIs to power a truly best-in-class payments experience on their app and website, combined with leveraging our cross-border FX solutions to expand their currency footprint. Through this partnership, our client has managed to regain the lost retail flow market share. This is why our clients will continue to choose Citi. ... We are truly the bank's bank. So the question will be, can Wise's cross-border capabilities and cost be competitive with Citi? And then if you are a bank do you want to partner with Wise or Citi for FX payments? When Citi would also like to take all your largest commercial relationships? And what I’m saying is definitely starting to be priced into the stock ever since the announcement that Morgan Stanley has selected Wise Platform to enhance payment capabilities for corporate clients. In my mind, that is the first sign that Wise’s product/market fit might finally be ready to see some serious success in B2B, keeping in mind that sales cycles for these sort of relationships are multi-year and that such an announcement is no guarantee Wise actually gets real volume from the partnership. Early days. Not a Commodity: Payment System Integrations Wise's future lies in its ability to make more payments instantly, more cheaply, and to more geographies and customers. Insofar as they can do this, more and more customers with cross-border needs will choose Wise. At the risk of downplaying the importance of many other functions and risks, I'd venture to say this future depends mostly on their ability to integrate directly with payment systems so that they can be on equal footing with banks. Explain Like I'm Five is a popular subreddit where you can go to ask for a layperson-friendly explanation about anything. The Bank of Japan took this very seriously and produced some videos about its domestic payment system "Zengin": https://www.youtube.com/watch?v=8z6mPNPBdhg Not that VIC members need something explained to them like they are precocious 5 year olds, I still found it nice to have it laid out simply and slowly. While the point of payment systems are the same everywhere, which is to move money around, each currency has its own payments and regulatory landscape. And the differences matter a lot to the final user experience and the institutions that get to participate. But why is this essential for Wise? Wise wants to move money between accounts across the world. In practice that means touching these payment systems. If they do not have direct access to these systems, they have to rely on a banking partner in that country to do it for them. That increases costs and the time it takes to complete a transfer, and puts the risk of their access to these systems onto an external partner. The most important market access milestone that Wise can achieve in a market is to have the same payment system access as the dominant banks in that market. But many country's regulatory systems do not provide for institutions that aren't banks to have such access. That is evolving across the world. Existing Payment System Approvals Wise is an approved participant for the payment systems in 8 different currencies: GBP (United Kingdom): Faster Payments System HUF (Hungary): Settlement Account with Central Bank; The central bank website is here. EUR (EU/Eurozone): For the purposes of the European Union, they are regulated by the National Bank of Belgium. And then they are a participant in the various payments schemes administered by the European Payments Council (the EPC) for the Single Euro Payments Area (SEPA): SEPA Credit Transfer (SCT) SEPA Instant Credit Transfer (SCT Insta) SEPA Direct Debit (Core - not B2B) PHP (Philippines): Instapay SGC (Singapore): Wise integrated with FAST in 2022 and with PayNow in 2024. Here is their license info at the Monetary Authority of Singapore. AUD (Australia): RITS BRL (Brazil): Pix - The Brazilian Instant Payments System JPY (Japan): Zengin Also worth mentioning that Banks can use Wise through SWIFT, as a sort of integration-light. Interesting to note that Visa is the only other payment company doing integrations with SWIFT as far as I can tell. Wise was the first non-bank to connect to the UK's system and to Japan's system. I bet they will be the first to many others as well. The Brazil and Japan approvals came in the later half of 2024 and are not yet live. Wise has guided that after approval, setting up the integration with these payment systems are 'typically multi-year projects'. But they reduce/eliminate bank/partner fees and enable consistently instant transfers. Gotta Catch'Em All Wise wants direct and full access to the payment systems for every currency it deals in. But the journey there is daunting and many times there is a lot of progress to be made that isn't the final destination. For instance, in 2024 Wise secured a new license in India which allows their customers to send greater amounts of money out of the country. Country specific legal frameworks, regulatory requirements, taxes, capital controls, and other concerns will make every currency its own journey - not to mention Wise needs to keep investing in evolving its regulatory compliance in every jurisdiction it already has approvals. The United States would no doubt be the most consequential market for Wise. It's the largest source of remittance payments and the world's largest economy. So what's up? Why hasn't Wise gotten access to the payment rails of the Federal Reserve? Well, it's not for lack of trying, but not being a bank has proven to be a problem. Here is the 2020 position paper of Wise: Fed Access for Payments Companies is Smart Policy. And if you really want to understand the issue in some depth, I highly recommend this letter: July 2021 Comments to Federal Reserve. In 2021, some of the big fintech companies, including Wise, Stripe, and PayPal, formed the Financial Technology Association as an advocacy group for their interests. One of the top goals of the lobby is to "Modernize Payments Infrastructure: Grant non-bank companies access to the national payments system and establish an optional federal payments charter." It remains unclear exactly how Wise will get direct Federal Reserve access in the United States, though I have no doubt they will do it. In the meantime, you can see here all the licenses they maintain by state. There are many other countries that Wise can make more progress on in the meantime and in multiple directions. I already cited the new India license as an example, but a whole other topic is getting licenses to offer local versions of Wise Assets, as it recently did in Australia. And there are countries where the regulatory landscape has changed, but the legislation takes time to come into effect. Building and rolling out a new payment system can take years. For instance, Canada is updating its payments infrastructure and it is expected that non-bank payments companies will have access as soon as 2026. You can bet Wise will be in the first batch of participants. Nancy Pelosi Stock Portfolio Nancy Pelosi Stock Trades Nancy Pelosi Insider Trading Is Apple undervalued? Is Apple a buy? Catalyst Commercial Oriented Wise Platform announcements: I think most retail oriented Wise Platform partner announcements are just noise. They are good, they are fine, I just don’t think they will move the needle very much. We want more Morgan Stanley selects Wise for Corporate Client Cross Border Payments announcements. B2B Wise Platform usage color in investor presentations or results. Signing partnerships is great, but if the product isn’t getting used materially, they aren’t going to matter. New B2B Products/Capabilities: I suspect that we will see additional innovation in product offering in the coming years and it will often be "co-creation" with Wise Platform customers (banks), perhaps in areas like trade finance. Announcements to this effect would demonstrate growing traction in the B2B market. Dropping Price and More Instant Payments. Yes, I drank from the kool-aid. Call me old fashioned, but delivering a better product at a better price seems like a cut-and-dry way to win. Wise will hopefully be able to drop their take rate significantly in the coming years. Unless they do that, they aren’t going to get the trillions in volumes that Kristo sees in his dreams. They will be able to drop prices as they get more volume, and as they get more payment system access in more currencies and so have fewer partner banks they have to pay. They recently dropped prices, and we are seeing a re-acceleration in volume because of it. I wouldn’t be surprised if another round of price dropping happened towards the end of 2025 or early 2026 as Brazil and Japan integrations become fully operational.