EXCLUSIVE: “The Rise of Wise” – Steve Naudé, Wise in “The Fintech Magazine’

British money transfer fintech Wise has enjoyed acclaim since it entered the market back in 2011. Steve Naudé explains the development of the company’s B2B Wise Platform and how it is embracing partnerships and diversification at home and abroad

In today’s digital world, people are moving around more. A lot more. Whether displaced by conflict or seeking new pastures in the search for economic stability
amidst a spiralling cost-of-living crisis, there has been a surge in digital nomads and economic migrants in recent years.

This means that whether it’s a migrant worker sharing their pay with family overseas, a small business paying its international suppliers, or a gig worker getting paid internationally, cross-border payments are increasingly important in terms of keeping the global economy moving.

According to figures from the World Bank, in 2022 total global remittances rose to $794billion, with the cash inflows accounting for more than 15 per cent of the GDP in 25 low- and middle-income countries. And global remittances are expected to hit more than $810billion in 2023.

Simply put, there has never been such a high demand for payments technology that enables fast, secure, and transparent money transfers.

“Customer expectations have really shifted in recent years, not just in payments but in many areas,” explains Steve Naudé, global head of Wise Platform at Wise. “If you order food to your home, you want it to be there in 10 minutes. You can get groceries in 10 minutes. So when you then send money internationally, and it takes three or four days, it’s a real disconnect from this kind of now, now, now world that we all live in. Speed is a huge part of customer expectations these days.”

THE AWAKENING OF A FINTECH GIANT

Against this backdrop, Wise has emerged as one of fintech’s leading lights. Launched in 2011 as TransferWise, and with the mission of making international transfers cheaper and fairer, the company was the brainchild of Estonian businessmen Kristo Käärmann and Taavet Hinrikus.

As the story goes, Hinrikus, who was the first employee at Skype, lived in London but got paid in euros. And Käärmann, who worked for Deloitte, also lived in London and got paid in pounds. But he had a mortgage in euros back in Estonia. In the search for a better solution than expensive bank fees and poor exchange rates, they came up with a simple, yet effective workaround.

Each month, they checked out the real exchange rate on Reuters. Hinrikus put his euros into Käärmann’s Estonian bank account, and Käärmann topped up Hinrikus’ UK account with his pounds. They both got the currency they needed almost instantly, and neither paid anything extra on bad exchange rates or unreasonable charges.

As the company developed from these humble origins, it realised that people needed more than just money transfers. It added a multi-currency account, a debit card, and a business account. In February 2021, it rebranded from TransferWise to Wise ahead of a direct listing on the London Stock Exchange later that year which saw the fintech valued at $11billion.

Today, Wise offers three main products: Wise Account, Wise Business, and Wise Platform. Its multi-currency account is helping around 16 million people and small businesses around the world to manage their money more smartly. But Wise Platform, it’s B2B arm, is perhaps the one to watch most closely.

“Wise has spent the last 13 years building some of the best cross-border money movement infrastructure in the world, and we’ve used that for our own products, for our own customers, whether consumers or businesses,” said Naudé. “And what we’ve now realised is that other large companies and banks were coming to us saying, ‘what you’ve built is pretty cool, actually’.

“So what Wise Platform does is take this infrastructure and let others build their own products, services, and solutions on it, to take to their customers.”

EXPANSION: HOME AND AWAY

Wise says its growth strategy of diversification and innovation is in response to people’s common pain points, and rising competition, in the digital remittance market. Much of its current focus is on partnerships powered by Wise Platform, which the company refers to as ’ Wise – but for banks, large businesses, and other major enterprises.’

This shift into the B2B space is enabling financial institutions to partner with Wise to offer faster, easier, and more transparent FX
products to their customers at a lower cost.

“What we’ve done is reverse-engineer all the payment schemes around the world, to understand what cut-offs they have, both at a payment scheme level and at an individual bank level”

In 2022, Wise forged a total of 15 partnerships, claiming it had opened up cheaper and more convenient international payments to almost 10 million people and businesses worldwide. This included a tie-up with financial well-being app, Wagestream, which has strengthened Wise’s impact on how people around the world are paid by their employers.

Wise Platform has also deepened the company’s footprint in Asia and North America, expanding in two areas in particular: investments and business
services. In June 2023, for example, the company announced its first Wise Platform bank integration in India with IndusInd Bank. Wise is working with the Mumbai-based private lender to provide remittance services from the US and Singapore to India with no hidden fees or exchange rate markups.

This is a prudent move, with a Capital Economic study showing that consumers sending money to India paid more than $2.79billion on FX fees in 2020, of which about $1billion was hidden. By making cross-border payments cheaper, Wise can tap into a huge market.

For instance, remittance inflows to India will reach $103.88billion this year, according to Insider Intelligence. The real magic behind Wise’s technology is its ability to bypass obstacles.

“Although half our payments are instant, some are not, and that’s limited by the infrastructure available in certain markets which maybe don’t yet have instant payment schemes,” explained Naudé. “So we’ve reversed-engineer all the payment schemes around the world, to understand what cut-offs they have, both at a payment scheme level and at an individual bank level.

“How long do we see banks take to credit customers’ money? How long do they take to receive it through the scheme? And when will that transaction actually get posted to the recipient account?

“We then run hundreds of our own tests. We get thousands of pieces of customer feedback, to tell us exactly when the money arrives. All of this, we then put together in this pretty awesome model that spits out that one number you see on Wise, which is, ‘your money should arrive… here,’ you know, ‘at 11am tomorrow,‘ yes, in ‘three hours.‘ It’s a very simple number, but the complexity behind calculating that number is enormous. We’ve had a whole team working on this for years, literally reverse engineering payment schemes and payment flows.”

In the UK, meanwhile, Wise is also focussing on making its product suite more appealing. It now offers customers a 4.12 per cent variable interest rate for pound sterling balances on its instant access accounts. Users can hold multiple currencies and also earn interest on US dollars (4.55 per cent) and euros (2.71 per cent).

Wise has partnered with BlackRock for the accounts and charges customers 0.29 per cent fees annually. The fintech’s higher savings rates are helping it to stand out from mainstream lenders offering weak returns in the UK – an environment in which politicians are criticising banks for not passing on higher interest rates.

THE OLD WORLD MEETS NEW

Wise’s biggest move this year is the new partnership with Swift that was officially launched at Sibos in Toronto in September. This landmark industry collaboration will help to increase the cross-border payment options for financial institutions and their customers, enabling payments sent securely via Swift to complete seamlessly over Wise with end-to-end transparency.

“Banks face huge challenges when it comes to enhancing their international payments, including that this often requires them to embed technology which is incompatible with legacy infrastructure,” said Naudé.

“By simultaneously leveraging existing payments architecture and optimising payouts using Wise’s network, we empower banks to innovate more effortlessly.”

Financial institutions seeking to improve their offering can now route Swift payment messages directly to Wise Platform through its latest Correspondent Services solution. This enables their end customers to benefit from the speed and convenience of Wise, and the breadth and security of Swift, without needing to implement any major changes to their systems.

Commenting on the partnership in a statement released at Sibos, Thierry Chilosi, Swift’s Chief Strategy Officer, said: “Swift has built an infrastructure that connects the world that is trusted and relied upon every day. Our collaboration with Wise illustrates how Swift can be the bedrock from which the whole industry can innovate to improve cross-border payments and enhance the options available for customers across the globe.”

Both parties have been keen to stress that this collaboration will be just the start of a broader relationship, with the new relationship conceived at a time when increased innovation and fragmentation in the financial ecosystem is creating more ways for money to move – and more consumer demand for choice.

Importantly, it is also directly aligned with both G20 and UN Sustainable Development goals on the speed, transparency, cost, and access of cross-border transactions. Customer experience and wellbeing is at the heart of what Wise is looking to accomplish.

“One of the areas of regulation that’s closest to our hearts is how customers see the fees when they send money internationally,” said Naudé. “We’ve been asking for years, and continue to ask, for stricter and tighter regulation around helping customers understand how much it costs them when they send money overseas. One thing we’re really pushing for, and asking regulators to do, is to bring more transparency to the industry, and help everyone work off the same level playing field. Then everyone will be able to have the same point of comparison and the same understanding of what the total cost actually is.”

With a laser-sharp understanding of customer paint points, an enviable roster of partners, and a rapidly growing footprint, the future looks bright for one of fintech’s biggest success stories.

Founders stories: Kristo Käärmann Taavet Hinrikus

Selected as one of the World Economic Forum’s Technology Pioneers 2015, Käärmann is still the CEO of Wise.

In May 2023, he announced he was taking a three-month sabbatical to spend time with his family and look after his new-born son, saying that his time off was ‘overdue’. Hinrikus stepped down from his role as chairman and director of Wise in December 2021, and was replaced by David Wells, the former CFO of Netflix.

Since leaving Wise, he has been working as a partner at Plural Platform. In 2023, both founders improved their positions in The Sunday Times Rich List of the wealthiest people in the UK. Käärmann was ranked 156th, worth £1.134billion, with Hinrikus ranked 197th with a net worth of £861million.

This article was published in The Fintech Magazine Issue 30, Page 28-30