Flyover Stock: Wise (WISE.L; WIZEY)
Reshaping Cross-Border Payments with Speed, Simplicity, and Scale.
15 years ago, when I worked in the UK, I regularly converted pounds to dollars to pay some bills back home.
This process was not cheap, transparent, or particularly easy back then.
Today, digital platforms have made the process a bit easier but it’s still not a straightforward or cheap process.
Due to the complex network of banks involved in cross-border currency transactions, regulatory costs (e.g. “Know Your Customer” rules), and legacy systems, there are multiple layers of costs involved in each transaction.
Conducting a personal transfer of GBP to USD using traditional banks, for example, costs between 2% and 5%, depending on the amount transferred and the speed with which you need the money (i.e. wire vs. ACH transfer). Included in that amount is typically a nominal fee from the initiating bank plus a markup on the going exchange rate, which is not always known by the transacting customer. This opacity works in the banks’ favor.
The less common the currency pair - say, Australian dollar to Polish zloty - the more intermediary banks are likely involved in the transaction and the higher the costs. The average global remittance - small amounts moved between countries, primarily by migrant workers - costs 6.6% according to the World Bank.
As you might imagine, in an increasingly globalized economy where trillions of dollars move between countries, cross-border transfers can be a lucrative business for the intermediaries. There’s little incentive to change or drive down costs.
Meanwhile, consumers and businesses doing the transactions pay the high fees as a matter of course and lack the knowledge and alternatives to demand a better deal.
Inefficient, opaque, and expensive markets overseen by unmotivated parties are ripe for disruption. Wise co-founder Kristo Käärmann is leading the charge to make it easier and cheaper than ever to transfer currencies and is employing a business model used by some of this generation’s best companies to get it done.
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Todd Wenning is the founder of KNA Capital Management, LLC, an Ohio-registered investment advisor that manages a concentrated equity strategy and provides other investment-related services.
At the time of publication, Todd, his immediate family, and/or KNA Capital Management, LLC or its clients owned shares of Amazon.
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