- Wise (formerly TransferWise) will come to the London Stock Exchange via an unusual direct listing
- Investors include PayPal co-founder Peter Thiel, Baillie Gifford and bigger banking outfits like Mitsui
Anyone who has tried to send money abroad using the traditional banking route will understand the frustration when recipients sometimes received up to 7 per cent less than they had expected. A thicket of hidden charges, market-defying exchange rate spreads and, presumably, a handy charge for “extra trouble occasioned” has long given corresponding bank transfer services a deservedly bad name. However, where there is a need, the market finds a way, and investors will soon get a closer look at a properly big fintech company as money transfer specialist Wise (formerly TransferWise) comes to the LSE via an unusual direct listing.
Founded in 2011, the company was started by two Estonian entrepreneurs with a background in forex. The company has grown rapidly and has over 6m active customers and handles £4.5bn of currency movements a month. It has raised over $396m over five funding rounds, with secondary share sales in 2019 and 2020 bringing total capital raised to just over $1bn. PayPal co-founder Peter Thiel is an investor, while Richard Branson’s beard lurks somewhere in the background, as well. The investor list also contains specialist tech funds from the likes of Baillie Gifford, along with bigger banking entities like Mitsui.
Mass market versus niche
The service is undeniably good. The technology is easy to use via an app and you get a bankcard that can be loaded with currency for trips abroad. The charges are highly competitive – just 0.28 to 0.41 per cent for Euros depending on the amount, plus a nominal handling fee. No wonder then that it has proved to be incredibly popular with tourists loading up on Euros for their (postponed) summer holidays and digital nomads transferring salaries between territories.
It also services another less trumpeted niche. Post-Brexit it has become increasingly difficult for foreigners coming to live in the UK - particularly foreign students and gap-year travelers - to open standard bank accounts, so Wise has benefited from a “word-of-mouth” effect of incomers using it to circumvent bureaucratic barriers to banking services. In fact, nearly 70 per cent of its account openings originate via word-of-mouth recommendations. Interestingly, becoming a mass market currency dealer wasn’t part of the original business plan. TransferWise, as it was then known, was originally hailed as a “peer-to-peer” platform that paired dealers who had currency to trade – a bit like Betfair for forex – with the emphasis on the technology enabling trades at cheaper prices, not to fund trips to sunny Spain.
Does a great service make a good investment?
On an operational level, there isn’t much to take issue with. Wise claims to have been profitable since 2017 - pre-tax profits for the FY2021 doubled to £41m. It funds its expansion from its cash flows and says it has no plans to raise any more primary capital - so why is it bothering to list?
Further questions are raised by the way it is handling the direct listing. Without building a book and issuing new shares, the direct listing option will be relatively limited in how many shares it can offer. The company plans to offer shares, conditional on an investment, to its existing customers, capped at 100,000 customers per year, on a first-come-first-serve basis with the option of accruing bonus shares worth 5 per cent of the initial buy-in price if they are held for a minimum of 12 months – ownership for this length of time needs to be proved. Shareholders with time on their hands can look forward to the additional perk of taking part in Wise’s “Mission Days” (virtual participation also available.)
The initial founders’ grip on the company is secured by a ‘A’ and ‘B’ class share structure, with the non-transferrable class ‘B’ shares accruing 9 votes each. This means chief executive and co-founder Kristo Kaarman will retain one vote less than 50 per cent in circumstances that require a shareholder decision.
Share liquidity is ostensibly going to be a problem with such a rigid ownership structure in place. It may only be the staging post on the way to a larger transfer to the public markets, which is what Wise itself claims, but the offer still feels somewhat, underwhelming, after such a determined push by the government earlier this year to attract more fintech-style companies to the London market. Throw in a dual class structure that many shareholders simply find off-putting, and you have the ingredients for a sub-par offering with the major institutional investors staying well clear, despite the expected valuation of £5bn.
Overall, it might be better to simply use Wise, rather than own it. However, the fact that it is the only such service to achieve real mass market appeal in the UK is worthy of respect should it decide to launch a more straight-forward share issue at a future point. Await developments.
