Wise PLC

Wise PLC (LSE: WISE)

Overview

Before considering Wise as a suitable business to invest in, I was — and still am — a customer of its products. While planning a holiday to Turkey, I was searching for low-cost currency exchange options from CAD to TRY. As a customer, I chose Wise. Wise offers checking accounts for both individuals and businesses, primarily designed to facilitate international currency transfers.

Wise aims to offer the most cost-effective international transfer rates through a unique operational model: a peer-to-peer currency matching system. This model pairs customers who are looking to exchange currencies in opposite directions (e.g., a customer in Europe trading USD/EUR matched with one in the U.S. trading EUR/USD). This allows Wise to settle transfers locally without physically moving funds across borders. For such a model to function effectively, Wise requires three key components:

1. Regional treasuries in each country of operation.

2. A high volume of customers conducting bi-directional currency exchanges.

3. Robust digital infrastructure to efficiently and profitably match transactions.

   
   

As these components scale, the value proposition of the currency matching model strengthens. This further enhances Wise's competitive advantage.

Business Model

Wise offers three primary products: personal accounts, business accounts, and the Wise card.

• The personal account enables customers to send and receive money in over 40 currencies.

• The business account provides the same features along with additional tools like invoicing and merchant payment solutions.

• The Wise card is a multi-currency debit card that allows users to spend in the local currency wherever they are, helping them avoid excessive foreign transaction fees.

  
  

All of these services are powered by Wise’s proprietary cross-border infrastructure. At the heart of this system is the peer-to-peer transaction model, which enables a localized approach to international money movement. Traditional international transfers are expensive due to intermediary fees, regulatory compliance, and legacy banking systems. Wise's infrastructure is built to bypass these inefficiencies.

The greater the number of participants using the Wise network, the easier it becomes to match opposing transactions — which, in theory, drives costs even lower. However, the model isn’t without risks.

Shared Economies Scaled

Nick Sleep and Qais Zakaria coined the term "shared economies scaled" in reference to their investments in Amazon and Costco. The phrase describes businesses that consistently share efficiency gains with their customers, thereby reinforcing their competitive edge.

Since their inception, Amazon and Costco have relentlessly reinvested operational efficiencies into lower prices, building formidable infrastructure and customer loyalty over time.

I believe Wise’s operating model strongly aligns with this philosophy. Consider this excerpt from Wise's CEO at a conference:

“So the approach we took in terms of unit economics is cost plus pricing, famous from Costco, meaning we track costs closely, charge slightly above, and reinvest to continually lower fees and improve efficiency.”

This approach — passing cost savings back to customers — enhances long-term competitive advantages and builds trust. That said, it requires rare discipline from management to forego short-term gains for long-term value creation.

And while many investors describe themselves as “long term,” few are truly comfortable owning businesses that don’t immediately convert added value into near-term profits. Wise, by design, may test that patience.

Risks

The most significant risk to Wise’s business is large-scale volatility in foreign exchange (FX) markets. Since Wise offers transfers at the mid-market exchange rate, it uses derivative contracts to lock in FX rates at the time of each transaction. These contracts are then offset once a matching transaction is found.

During periods of heightened FX volatility, if Wise is unable to successfully hedge its exposure using derivatives, transaction costs can increase sharply.

For example, two months ago, the unwinding of the yen carry trade caused the USD/JPY rate to fall by 6% within a week. During this time, Wise introduced a dynamic pricing surcharge on all JPY transactions. While this was a necessary risk-mitigation measure, it illustrates how Wise's transaction volume or customer satisfaction could be affected during turbulent currency markets.

Platform Expansion: Wise Platform

Beyond consumer products, Wise has recently introduced Wise Platform, an infrastructure-as-a-service product that allows banks and businesses to use Wise’s cross-border payment technology. This positions Wise not just as a consumer brand, but also as a B2B infrastructure provider — effectively increasing its scale, reach, and relevance in the global payments ecosystem.

Disclaimer

The information provided on this website is for informational purposes only and does not constitute investment advice, financial advice, trading advice, or any other sort of advice. Qashco Adivsors LLP is not a registered investment advisor. All content represents our views and opinions and should not be relied upon for making investment decisions. We recommend consulting with a licensed financial advisor before making any investment choices. Investing in securities involves risks, and past performance is not indicative of future results.