We Study Billionaires - The Investor’s Podcast Network - TIP806: Wise PLC w/ Kyle Grieve and Daniel Mahncke

Episode Date: April 10, 2026

Kyle Grieve is joined by co-host Daniel Mahncke to discuss Wise PLC, a London-listed FinTech company that enables cheap and fast cross-border payments by matching local flows rather than moving money internationally through costly SWIFT networks. IN THIS EPISODE YOU’LL LEARN: 00:00:00 - Intro 00:04:45 - The clever mechanism Wise uses to move money without actually crossing borders 00:09:14 - Why two Estonians at a London party ended up disrupting global banking 00:13:44 - How Wise earns revenue from four streams 00:21:44 - Which of Wise's three competitor industries is the most threatening and why 00:26:04 - How fast payments have become at Wise 00:42:12 - Why deliberately lowering your own prices can be a sign of business strength 01:08:12 - The flywheel that makes Wise harder to beat, the larger it grows 01:10:35 - What to make of the CEO controversy 01:23:51 - How Wise's capital allocation stacks up against Buffett's ultimate litmus test 01:30:26 - What the numbers suggest investors could earn holding Wise Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences. BOOKS AND RESOURCES Join the exclusive ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠TIP Mastermind Community⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Learn how to join us in Omaha for the Berkshire meeting ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠here⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Kyle and Daniel use Fiscal.ai for every company they research — use their referral link to get started with a 15% discount! Read about cross-border payments 101. Read more on Wise, featured in Wall Street’s Blind Spots. Listen to a conversation with Wise’s CEO, Kristo Käärmann. Follow Kyle on ⁠⁠⁠⁠X⁠⁠⁠⁠ and ⁠⁠⁠⁠LinkedIn⁠⁠⁠⁠. Related ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠books⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ mentioned in the podcast. Ad-free episodes on our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Premium Feed⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. NEW TO THE SHOW? Get smarter about valuing businesses through ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Intrinsic Value Newsletter⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Check out our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠We Study Billionaires Starter Packs⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Follow our official social media accounts: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠X⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠LinkedIn⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Facebook⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Try our tool for picking stock winners and managing our portfolios: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠TIP Finance. Enjoy exclusive perks from our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠favorite Apps and Services⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Learn how to better start, manage, and grow your business with the ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠best business podcasts⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. SPONSORS Support our free podcast by supporting our ⁠⁠sponsors⁠⁠: HardBlock Human Rights Foundation Plus500 Shopify Netsuite Vanta References to any third-party products, services, or advertisers do not constitute endorsements, and The Investor’s Podcast Network is not responsible for any claims made by them. Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

You're listening to TIP. Over the last five years, Wise PLC has compounded reported profits at 90% per year. And yet, if you've owned this business since its IPO in 2021, your return has roughly been only 1% per year. So what exactly is going on? The answer, as it turns out, is actually pretty straightforward. Wise went public when the market was at peak euphoria. This euphoria created a price for Wise that was simply not sustainable over market cycles,

as it approached 390 times earnings. 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 as 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 us 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. Since 2014 and through more than 190 million downloads, we break down the principles of value investing and sit down with some of the world's best asset managers. We uncover potential opportunities in the market and explore the intersection between money, happiness and the art of living a good life. This show is not investment advice.

It's 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. Welcome to the Investors' Podcast. I'm your host Kyle Grieve, and I'm very excited. excited today to be joined by my co-host, Daniel Monka, to discuss Wise PLC. So Daniel's going to be joining TIP and me a lot more regularly here, which I'm really, really excited about, as I

always learn quite a lot from just listening to Daniel's great analysis. 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 a compliment or compete with Wise on cross-border payments. So I'm very happy to have Daniel here to provide his perspective. Yeah, and some of those companies worked out better than others, I got to say. But thanks, Kyle. I mean, I'm excited to be here as well. And I've heard so many discussions

about Wise in the last few months that I'm really eager to learn a little more about the business to see if I was missing out by not learning about it before. So first off, I just want to say I'm really excited to have this new co-hosted episode format with you. It's pretty exciting because I think both of us just love analyzing stock so much. And it's something that I know I enjoy immensely. And the beauty of just looking at a variety of great businesses is that 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, 10 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. That's one of the things that I love most about my job. I really just spend 80% of my time looking at businesses that I find fascinating.

And you learn so much when you do that, not only about the business, but about how different industries work. And also to some extent, how the word around you works when you look at all these, no, business in different segments and industries. Yeah. So speaking about analyzing businesses, I've heard that you and Sean are going to host a little mini conference in Omaha this year. Is that right?

Yeah, we will. I'm actually pretty excited about it because last year was my first time in Omaha and I really enjoyed it. But I feel like this year will be even better. The conference will be on Friday, May 1st at the Hotel Indigo, which is in downtown Omaha, and it will be from 1 p.m. to 4 p.m. local time. And basically, Sean and I will actually give a surprise stock pitch on stage, followed by a Q&A 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 surf base.

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 TIP, it just feels even better. But maybe we should get to it. So why don't you start by discussing what problem why is actually solves for its customers and how it generates where when you're doing that? Because there's so many payment companies and it kind of helps to just understand. than what this business is actually doing.

Yeah, absolutely. Before we get into Wise, I just want to say, I completely agree with you about Omaha. You know, Buffett's obviously not on stage anymore, so it's going to be a little bit different, but the past couple of years that I've gone,

the highlights of it, honestly, not even really the HGM. It's just meeting all these really, really interesting like-minded people talking about, you know, Buffett or talking about 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 going to be there, I'd highly recommend trying to sign up for this event because I think it's going to 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 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 try out 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 $1,000 Canadian at the Vancouver Bullion, I get about €610. But if I use Y's, I get 617 euros.

So yeah, it's a small difference, but, you know, why not take it? Plus, 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 don't have to worry about even carrying cash around. And if 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 wise. And so just reading that, it was pretty short, but I was really, really impressed. and immediately I started to look into WISE in a lot more detail. And what I found was really a business that appears to be following what Nick's Leap and Kay 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. That's already a lot more than I knew before because just like you, I first encountered Wise when I also started working for TAP and they used to send me my paycheck. I actually found out when I talked to Sean that he gets paid his money via PayPal. So it seems that Wise really is just the better option when it comes to international transactions.

And I've also heard a bit about the founding story of Wise, 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 give us some more details of why, Wise was founded and potentially also who the other co-founder was. Yeah, you're totally right there, Daniel. So, Christo is the CEO and the majority shareholder, but the origin story is actually really, really important, I think, for Wise's thesis. So Wise had two co-founders.

So like you said, Kristo-Karman was the other. And then the other gentleman was named Tevet Enriquez. Sorry if I get that wrong. But they initially met at a party in London back in 2011. So they found out that they were both Estonian and they were having problems with foreign exchange. So, Tevet worked for Skype, and he was living in London, and he was actually being 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 Tevette 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 5%, and it was just annoying to have to deduct 5% from your paycheck when exchanging between a UK and Estonian bank. So, Tevet and Christo 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. Tevette would deposit the euros that he was paid into Christo's Estonian bank account, and Christo would deposit the pound into Tevette'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 5% 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 $1.3 million in seed capital and a business called TransferWise was born, which obviously eventually transformed into just wise. So in their first year, they had about 8 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 15 euros, it obviously was very, very attractive. Now, in an interview, Tevette said that in 2011, people were just so fed up with a 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 his DNA was, and definitely still is, designed specifically to optimize their customer's 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 5%,

wise has a 0.52% take rate and 74% of their transactions, they consider instantaneous, meaning that they take less than 20 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 really. 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. What I find so interesting about the founding story is that they basically took this

incredibly complex industry and then just have this very simple solution to the problem that the both of them had. But yeah, you basically mentioned 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 really, 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, Tate rates often come down due to competitive pressure. So it's really about whether a company is able to build an ecosystem or value-edded services or some other parts, you know, business units that can drive margin in the long term. And you said that wise as far 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? Yeah. So if we look at their last quarter, they disclose a few things that I think are really

vital for potential investors to understand. So obviously, yes, cross-border payment volume is going to be very, very important for them as a cross-border payments company. 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 deposits. 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 then 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 customer's 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 that 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 1% 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 $254 million. And that's simply because of the investment income earned above the 1% 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-porter 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 their 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 going to be a place to earn revenues from cross-border payments, especially if Wise continues scaling at its current rate. and I think this is going to continue to be a really, really big revenue generator for Wise as well.

That's a very interesting concept because I think Wise is just one of few companies in the payment space that really adopted this idea of, you know, scale economies shared. Another one of Nick Sleep's frameworks that I know you and I really like is the destination analysis. So if I were to ask you where the business will be in five years time, what would you answer? And perhaps we first focus on the KPIs that you went over above. So where do you see them moving? Yeah, absolutely, Daniel. So let's do some destination analysis here. So the KPIs that I'm most focused on are the cross-border volume, card revenue, and customer

deposits. So these three really encompass all of WISE as revenue streams, unless they maybe innovate and identify some other use cases that they haven't discussed yet or just haven't even thought of yet. 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 30 to 40% 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 450 billion pounds up from today at about 170 billion pounds. So that would represent just less than 5% 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 we'll continue growing in the new future.

So historical rates have been about 33%. A good base case is that I think it compounds at about 20% over the next five. years reaching about $1 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 going to change anytime soon, I expect WISE to continue adding more and more personal and business accounts and cards, which is just going to serve to increase the revenue in this segment of the business. And since they'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 right 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 2% interest rates, that's about 1.4 billion pounds, which seems pretty realistic and is a haircut based on the kind of average post-COVID rates that we've had over the last few years. So again, this assumes that interest rates are above 2% 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. I got to be honest, I didn't know

that Wise is still growing at these rates. I mean, it also makes a job, difficult to predict how they will grow in the next five years because you know that 30% growth is just very unrealistic to keep going. So you just say, you know, what about 20%? Where do we land there? So I think that makes a whole lot of sense. 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? That's right, Daniel. And this is probably my favorite part of the whole thesis. So

part of the reason that Wise is so good is that its business model is just really, really difficult for their competitors to replicate. So let's go over kind of the three primary industries that compete with Wise and cross-border payments. So first, you have banks. And this is, you know, any bank that you can think of. I'm with Bank of Montreal. If I want to send money overseas, let's say to you in Germany, of 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 going to 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 part of that I want to go over is a fintex. So if you're in the U.S., 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. to use and pay for the meal with. So the rest of the group were 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 pill 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 useful. but I'm traveling in the U.S. 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 going to 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 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 going to transact the currency and eventually it's going to reach

Germany. But here's the thing with Swift. So it works. No doubt about it. It's got, I think, 11,000 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

And 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. Let's take a quick break and hear from today's sponsors.

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TIP. All right, back to the show. I always get a bit of anxiety when I send anything through Swift. And by the way, I didn't even know what that acronym stand for. But you really just don't know what to pay. And as you said, as soon as I sent the money and it's out of my bank account, I kind of fear that it doesn't reach the person that I actually want to reach and you can't do anything about it.

So if I understand it correctly, from a bank's viewpoint, it's not like Wise has a kind of counter-positioning advantage over those banks. So I assume the banks are kind of unable to copy Wies as 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 so doing them would basically cost them a lot of money. And I noticed that when we started using Circle for the TAPE Massimine 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 the fintech companies, for example, Stripe?

Yeah. So great point there, Daniel, especially on the kind of counter positioning. I do agree with that. But let me get into Stripe here. So as part of my job with TIP, you know, we run multiple communities. I've looked specifically at different payment processors that TIP uses, mainly Stripe, because that's basically, embedded inside of circle, but I've also looked at using Y's and just try to see what the differences

are and also just using, you know, ACH or bank transfers. And so I did this specifically because we want 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 going to send $1,000 to TIP using Stripe. Obviously, it doesn't really work that way because Stripe is meant for a payment. You know, if I'm just sending money, let's say TIP is my friend or whatever.

I probably are not going to use Stripe, but just for the purpose of this example, just let's just say that that's how it works. So Stripe is then going to 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. and 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 4.30 p.m. and then settled the next day around 8 a.m. So, you know, obviously still much faster than banks, but not instantaneous. But I will say, just going back to Stripe, that it has its own advantage. So, like, for instance, with Stripe, they're kind of a payment processor and 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 Platform, 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 Wise called Air Wallachs. So Air Wallach 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 currency, Air Wallachs will use Swift, which obviously brings the fees up considerably as well as the transaction time. I've never actually heard of Air Wallachs before.

And I just actually checked my last invoice. and it looks like it takes about 12 hours until that money is sent by Vice. You also 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. Yeah, I tend to agree with you, Daniel. I mean, obviously these companies are both in cross-border payments, but I don't really see them as major competitors as well. But I just, I like bringing them up simply because I like knowing what the remittance companies business models are. So, you know, out of the three, I think remittance companies are probably the least likely to copy WIS business model. So let's just say, for example, we have someone in the Philippines who's now working in Canada and they're going to 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 $5 or $20, plus they charge a 1 to 3% for an 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 Remitly, Remitly is just a lot better. They charge a flat fee, but it's much cheaper than Western Union at just about $0 to $4. They also have deals for first-time users so they can get them interested with zero fees. And then Remitly does charge an FX market fee, but it's only 1%.

So the speed of both of these transatlose. 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 Wise wise can often match flows from one country to another using their business model. So Remittly doesn't really just have to worry about having two-way flows. So they're probably never

going to bother trying to get to the same global scale that Wise currently has or as 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 direction, just like the example above.

You know, obviously maybe there's a thousand pounds coming to the US and then there's $1,000 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 main market rates. But, of course, there are going to be flows that don't match even for a company as large as wise. And this is where their scale advantage shows up. 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 U.S. to Mexico,

they might be sending $100 million in that flow. But if you look at Mexico to the U.S., 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. This is also, and we will talk about that later, wide scale is so important in this business.

The way smaller competitor, like Wallachs, for example, might do a good job, but generally it just can't compete with the scale that Wise has. By the way, I got to say, you do a phenomenal job of explaining how this works. And the Sean is always saying that payments are so complex, but I feel like I get a pretty good grip of what Wise is actually doing, 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, completely different needs whenever we talk about pure remittance companies compared to wise. I mean, the people on the receiving end of a remitly 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 Vermidli's 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, remitly 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 middly is specialized in,

but it makes no sense for why is to go after that kind of market because it's just too small. If anything, we're admittedly, 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 term of about $2 trillion. If they go for these small and micro businesses,

it basically gets to $20 trillion. 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 at once and basically rely on pricing power. And they're actively reducing their take rate, as you mentioned before. So what would you say about the durability of their competitive advantages?

Yeah, you really nailed it there, Daniel. So Wise is definitely not a business. I could just sit back and rely on doing the same thing over and over again and expect any success in the long term. I think it has to continue building its business, trying to improve the customer experience. 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 clear so far. So I didn't really talk too much yet about the scale benefits.

But basically the way that works is they process more and more transatlantic. actions, their netting should get closer and closer, which means even fewer FX fees are going to be needed. 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 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 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 going to continue to increase the amount of direct connections they have, which obviously increases the amount of people that are going to be able to transact at very, very low prices. And that also is going to continue to bring their take rates down. Okay, so it's clear that Wise has some interesting competitive advantages, but on the risk fund, There are banks, fintechs and remittance companies that have a lot of money willing to put to work to basically improve their services. So let's get to some of those areas of wise that might be a little more fragile, whether competitive advantages or maybe the scale doesn't help as much. What do you think could really hurt the business if you think, you know, five years out?

Yeah, this is definitely where I think I've been spending a lot of time lately. So I had a really good feedback when I presented this to the TIP mastermind community. and we definitely discussed this exact kind of fragility factor in a lot more detail. So what I liked so much about that was I just got a bunch of perspectives. So when I presented it to the community, I listed three primary risks. So the first one, just short-term interest rates. If they drop below 1%, 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 air wallachs. 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 going and 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 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 with

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 90% of their business. So value added service makes up a 9% 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 they're carrying amount of derivative assets is just 2.5. 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 330 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 1.4 billion pounds in cash on their balance sheet as well. I think it's one of those things that if you just look at the balance sheet and you don't know how the company works, it's easy to get scared. But once you understand that, it isn't that scary anymore. And I guess I'm also not too concerned about the take rate decline either,

not only because it's deliberate, because that alone doesn't mean it's a good idea, 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 take 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 why's. 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 position 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 significant more scale and while not becoming a monopoly, still becoming by far the biggest and 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 it 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 what 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 Air Wallachs, 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 10 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. Yeah, thanks, Daniel. And to get to your point there about loyalty, I completely agree. So, you know, Wise, even if they have customers that are with them for a long period time, myself, you know, if I went out and saw air wallachs and, you know, it was faster and cheaper,

then, yeah, chances are 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, USC 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 stable coins. 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're 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 lot of. 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 stablecoins 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. I generally agree with that. I think it's much more likely that the dominant players in the payment space will utilize stablecoins themselves instead of being threatened by it. So for one, users are just interested in a product

works well and that has as little friction as possible. And for the last decade, I think cryptocurrencies and stablecoins just 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 stable coin 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 where Wise's, you know, 70 licenses and 100 plus banking partnerships give them a structural edge. And the same is true for remittally. 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 or how they sent money. For Wise, though, they don't even sent 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 there are to payment companies what AI is to SaaS. 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 SaaS. And the dynamic between stable coins or crypto in general and payment companies to me kind of seems similar. So, Wise is also interesting because it seems like a bet with a lot of countercyclical 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. Yeah, that's one of the things that I love about this business, Daniel, is that most businesses during high interest rate periods, that's bad, because if you have debt, obviously you're paying more to service that debt. But with Wise, it's just different. And that's one of the bigger advantages it has. So I remember coming out of COVID, one of the big themes that we were likely to be in a high interest rate environment. I remember reading many of the fun letters from managers who are 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 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 wise. So I'm going to preface this by saying, just like you, I have zero insights into where interest rates are going to 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, which is 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 financial 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 40% 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 2024. Now, a zero rate environment obviously would not be good for wise as that first 1% of investing income would disappear. But, you know, anything above 1% and they're still good 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 U.S. or just the U.K. 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 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, just my general thoughts, if central banks want to rain in inflation, then I think pausing the printing press is probably a good start, which is going to be good for interest rates staying at these elevated levels. Yeah, unfortunately, I have to say the same. Germany, everything feels more expensive than just five or ten years ago. I think it's just so hard to, you know, predict where interest rates will be. To some extent, you could also say that there's so much debt that but just, you know,

bringing interest rates down, you don't have to pay that much interest on that debt. But I think you can argue for both ways. And generally, you just want your own businesses that despite where the interest rate is, there's 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. 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 off of the highest margins if once again destination analysis, we're looking out five years from there? Yeah, this is definitely a tougher question to answer simply because Wise doesn't disclose the specific segments margins. I'm sure they know them internally, but they don't share them with shareholders. So, you know, just zooming out a little bit.

If we look on the margins of the business overall, they're very, very good. So gross margins have increased from 66% in 2022 to about 76% today. Operating margins have improved from 8% to 39%. And 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, 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 21% 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 is shrunk. It's at the top of their target, you know, kind of around that 16 percent. And I expect it will 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 going to 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 6.3% of its revenue on marketing. Now, remitly, much younger company, very, very competitive industry, there's actually spending about 24% of their revenue on marketing. Wise, on the other hand, in the first half of 2026, spent about 3.3% of their total revenues on

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. Let's take a quick break and hear from today's sponsors. Every business is asking the same question right now. How do we make AI actually work for us? The possibilities are endless, guessing is too risky, but sitting on the sidelines, that's not an option either because your competitors are already making their move.

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It's more time for growth. I love that over 10,000 companies from startups to big enterprises, trust Vanta to handle this stuff so they can focus on what actually moves the needle. Get started today at vanta.com slash t-y-p. All right, back to the show. That's just, you know, pretty impressive margin profile. And, you know, to simplify, as we all know, businesses that can continue expanding margins in the long run tend to make pretty good investments. And, you know, the word of mouth advertising kind of reminds me of a new bank, which is also a company that Sean and I looked a while ago. And this is a company that has also spent very little money on marketing, which is obviously a huge driver for a new bank.

you know, higher margins and also profits. Admittedly, 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, you're 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? I completely agree with you there, Daniel. I mean, the scale benefits are, they're massive. As the business scales more and more, business just gets better and better, not only for shareholders, but especially for the actual end user. So I already mentioned that

Wise is one of the few businesses that I've come across that fits very nicely into this model of scale economy shared. So while Wise continues to scale, it's going to to get a ton of 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 connection,

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 is licensed 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 have 90% 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 $80, it's now $10. 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 in 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, what they've chosen to as they scale, not do that. And they're trying to just allow that take rate to come down. 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 14 years to establish these connections and these licenses. It seems like Wise is really like the nightmare of any other company, just putting down tapeguid so much that it also, to some extent, just gets less exciting to even enter this business.

So you're basically coming up against a company that has huge scale and lowers the tapegrid so much that if you just enter it now, you basically don't make a lot of money, which is not an attractive place to get into, which is why this 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? Yeah, no, I 100% agree with you, Daniel, that they're building a flywheel here. So I think all three of the areas above provide wise this flywheel that continues to create this better customer experience, which obviously brings more business for Wise. So here's how it works. It starts with the cross-border volume.

So since 2019, this is compounded at about 22%. So as the volume increases, it drives up underlying income as it encourages more customers to join WISE, 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 kegared at only 22%, Wise's growth profits have kegared at 41%. Now, as Wise grows its profits, it offers a business even more capital to reinvest and 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 0.75% in 2021 to 0.52% 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 car revenue and customer deposits. So as those numbers goes up, the flywheel just continues to start up again and again. I feel like this concept is so important to understand. Maybe some of the listeners here, no company which is called Delocal.

And Delocal is growing a lot currently. The take rate is also going down. But the thesis there is basically that as long as the company is outgrowing, how the take rate goes down, you're still making a good amount of money and it makes sense to grow that business. With wise, you have this extra lever where it's not only about outgrowing the declining take rate,

it's also that the business is fundamentally getting stronger because you take that tape rate down. For most other companies, DeLocal included, you don't actually attract these smaller customers, or basically you're not a B2C company, but you're a B2B 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 the wise, it's really different because it really strength from the company. And I think that's incredibly difficult to grasp, but also important to understand. And again, like flywheels are such a powerful advantage. And if you look at a lot of companies and just last year, Sean and I looked over 60 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 out of mixed signals. We know, looking closer at the CEO, Crystal Carmen. So can you go over some of your thoughts? or management, whether those mixed signals actually matter today or if that's just, you know, note story. Yeah, let's dive into management here. So let's obviously start with the big elephant in the room that you probably came over,

which was back in 2017, Carmen sold shares worth about 10 million pounds. So this generated a capital gains tax liability of about 720,000 pounds. 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 2021 for about 365,000 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, Cristo, 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 regulars 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 U.S. It's for a small amount of money. I think it was for like $4 to $5 million. 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 going to be some sort of lawsuit out there. You kind of 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. I like the saying not to get scared out of good stocks that you own. And I feel like for every company of this size, you will find some lawsuits or some things that don't look great. 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 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 that company, which is something that we'd like to see. So I'd assume there are a lot of positives here. So, Daniel, I think you probably would agree with me that you like founders, also running a business. And I will say that if you like co-founders, I think this is a business that you should definitely put on your radar. The other thing I like about having a founder-led business also depends, obviously, on the

age of them. Obviously, if they're 80, well, then that's great because they've probably delivered, you know, who knows, 50 years of value to shareholders in the past. But going into the future, if that guy has keyman risk, there's a very good podcast. that he's going to 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 45. 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's 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 Crystal'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 2025 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 as infrastructure is going to stop anytime 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 with 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 going to 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 happens 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 2023, they had about 60 partnerships and by full year 2025, they had 85 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?

I think it's a bit of a paradox in the market that everyone wants these companies with very high modes, basically. But then when it's about actually investing money in the company, Wall Street doesn't like it, I think there has been somewhat of a narrative, especially in the last year, that companies that invest a lot of money, those stocks actually sold off. 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, 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 the billions invested in those modes in 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? Yeah, just to your point there, Daniel, about the internal investments. I mean, I think we could probably talk about that for hours. I think for me, I know personally, some of my biggest winners are businesses that basically I bought, 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 they probably started with 100%. In this case, I would have expected him to start somewhere around 50% 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 share. So he has about 18% of the shares outstanding. But Wise has a dual share structure. So Crystal actually has about 49.3% of the voting rights.

Now, approximately 33% 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 5% 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 $10 billion 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 is slowly increased, but not by very much. So in 2022, for example, he was making $161,000. Now, their CFO, Emmanuel Thomason, has about $284,000 in fixed pay, plus a restricted share total for about $671,000 in total compensation. Now, the structure for incentives is what I would consider decent. They have three KPI for the long-term incentive plan. The first one is relative shareholder return versus the Futsi 100 at a 40% waiting. The second is volume growth at a 40% waiting. 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 short-term noise that management might take advantage of to just juice their incentives. Thomas in received about 200% 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 Remitly and PayPal CEO, Remitly CEO's payment is actually quite similar to Christo at about $290,000. 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 $7 million in 2025.

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 Christo, 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 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 going to change once they're dual listed on a US exchange. I generally agree with your sentiment on the incentive program. I think it's okay. It's not necessarily great. I do like, especially for companies that compound the fundamentals as successfully as wise, to actually also incentivize on these fundamentals, right? You figure out what are the most important KPIs of this business, then you incentivize for those. Of course, you always have, do you 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 me taking down the tape 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 discuss, let's shift a bit to the capital allocation. So why it doesn't pay any dividends, but they have returned some capital to shareholders by a buyback, which is something that I generally like if it is done at the right price. And it looks like they have a substantial amount of cash on the 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? Yeah, I think they've done a pretty good job at allocating capital. as you've mentioned, they don't pay a dividend. And as a shareholder, completely agree with what you just said. In certain cases, yes, it makes sense, but for them, it doesn't make any sense. So when looking at the share repurchases, they've been pretty small. So 10 million pounds in 2023, 68 million pounds in 2024 and 72 million pounds in 2025. But during that time, the share account has still increased at a 2% kegher. 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 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 that 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 invested capital at about 33%. 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 49% kegerson to 2021. 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 investment 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, getting buying these new licenses, more direct connections to improving their product development. They have something like 800 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 2022, Wise has reinvested about 84% 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 2022, they've retained about 942 million pounds in earnings.

And over that same period, they've created about $3.4 billion in market cap value. So they've easily passed Buffett's $1 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 investment capital as they're pretty much going to be running the exact same playbook that they've been doing over the last 14 years. Those are excellent capital efficiency metrics. I think there's a lot of things that other, especially payment companies would do to have those numbers. But maybe one last thing that we should discuss too is the opportunity set for this

business. So do you think the market sentiment on this business is going to be aligned with, you know, reality? Or do you think that Mr. Market is having 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. Yeah, this is a business where the market, I think, has misunderstood it maybe closer to when it's IPO versus now. So if you look at Wise's stock chart, it just hasn't done much since its IPO date. But I think this is largely part of the timing of its IPO. So you can say that it was bad, but essentially they picked the exact right time to IPO if they wanted to money because they basically IPO when the market was incredibly euphoric. So when it IPOed,

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 a 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 390 all the way down to 70 times by July of 2022. But over the last two years or so, it's stabilized between just 16 and 30 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 going to 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 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, 10 to 13. 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 comms 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 Remitly, 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 2019. 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 find out how much WISE should be worth. And so that leaves Fintex,

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 fintech 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.

Yeah, let's hope that WISE will never have to say multiple that PayPal is currently trading at. I would say it's time to come to the segment that Sean and I in our episodes always love the most, and that is basically talking valuation. I think we see that if we just look at, you know, banks, remittance companies and fintech, it's kind of difficult and confusing to kind of, you know, guess what multiple wise should be trading at. So if you just look at wise and you look at the numbers and also the growth rates, what do you think is, you know, pretty reasonable valuation for this company? Yeah, that's a great point there. I mean, I think that it's convoluted, right? I don't know. I think you kind of have to just look at WISE on kind of its own individual basis and,

you know, factor in things like growth and go from there. So the general way that I like to price a business like Wise is to look about five years out. I think at that, you know, you call it terminal time in five years, it's still probably going to be somewhat of a growth company. Is it going to be growing as fast? I would say probably not. But it's, I hope, not going to be in, you know, growing single digits. Additionally, you know, cash flow is actually not the best way to evaluate WISE 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 going to be harder to compute simply because it adds back in. interest paid above 1%, but it's probably the best way to do it without kind of over-complicating things. So there's a path, I think, for wise to earn well above 900 million pounds and net income five years from now. So with a net trailing net income of around 374 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, 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 Kernau asset management, and he believes the business could one day be worth 100 billion pounds. So his point was that in America, there are fintechs growing at, you know, high single digits, trading at 50 to 60 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, 100 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 think those returns already look pretty attractive and 50 to 60 times earnings. 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 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? Yeah. So I don't think I mentioned this, but Wise is planning on a dual listing in Q2 of 2026 into the US, basically just to open up, I think, to more investors. And I think it realizes that the U.S. market is more attractive, I think, for a fintech business, which is pretty hard to argue. It makes a lot of sense. So basically my strategy right now, it's a small position. It's only, I think, about 0.5%

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 U.S. where I can then, I've been putting cash away into 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 U.S. Then I can then use money for my tax sheltered accounts to acquire more shares. So I could theoretically buy, I think they have, I think there's an ADR and an OTC in the North American markets, but I 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. Every time I talk to you or Sean or some of the friends in North America, I'm envy about their tax-shutted accounts. Unfortunately, I can't take any advantage of that. But this has been a fun discussion about a business within payments that I haven't yet gotten around to actually analyzing myself. And I think many members of our community have discussed this business in some detail. So it's certainly fun to learn a bit more about this business. And I think it's really unique competitive advantages and how just 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 they 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 kind of have this new concept going here. Likewise, thanks for being here with me, Daniel. Thanks for listening to TIP. Follow We Study Billionaires on your favorite podcast app and visit the investorspodcast.com for show notes and educational resources. This podcast is for informational and entertainment purposes only and does not provide financial, investment, tax or legal advice. The content is impersonal and does not consider your objectives,

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