Wise - reinvestment for sustainable growth

Stock Update - 2Q25 Trading Update

Wise reported a solid 2Q25 operational result with active customers up 23% to 8.9m, cross-border volumes rising 20% and underlying income increasing 17% to £337m. Improving operating metrics has helped ease some market concerns around competition and runway.

In our previous note here, we discussed managements agenda to building long-term, sustainable competitive advantages through scale economies. This is flowing through the numbers with the cross-currency take rate falling by a notable 8 basis points to 0.59%, while cross-border revenue rose 6%. Although near-term financials may remain lumpy due to price changes and reinvestment, Wise is continuing to grow underlying income at 15-20%.

Importantly, Wise is sustainably reducing take-rates having developed its own payments infrastructure, while competitors rely on partners such as CurrencyCloud or BankingCircle. As Wise scales, connects directly to more government payment rails and renegotiates better partner fees, its cost to serve declines. This allows them to sustainably lower cross-currency take rates while maintaining gross margins. In contrast, competitors will either have to dilute margins or maintain higher prices.

The strategy of returning scale benefits to customers is a path already taken by dominant giants including Amazon, Costco and Schwab. These companies are inherently customer focused and have built leading brands with high customer loyalty and strong word of mouth. The result has seen them scale faster than competitors - a critical factor for Wise as payments is ultimately a scale game. With a proven playbook and its leadership in the digital cross-border payments market, they are well positioned to be the dominant player long-term.

Wise CEO Kristo Käärmann notes, “These are important steps on our journey to building the fastest, most cost-efficient infrastructure. In the short term, our investments drive growth through a better proposition and sustainably lower prices, which we expect over time to take us from moving billions to moving trillions of cross border volume.”

From a financial perspective, Wise is well capitalised and continues to benefit from net interest income that flows directly to the bottom line. The company is generating £70m of additional interest per quarter, which is excluded from underlying results. Wise trades on a statutory forward FCF yield of 7% excluding net cash and has a net cash balance of £837m which is expected double in two years - creating a unique problem for the business.

The result was not all positive with the Business segment seeing a slowdown in growth. This segment has historically been more challenging for Wise, having run into issues around account opening and compliance in Europe that saw them pause new registrations. Management is investing to enhance its operational capability and product here and remain optimistic they can also disrupt this market which is 4x larger than Consumer and where share is under 0.5%.