Wise shares tumble after forecasts disappoint

Shares in UK payments group Wise tumbled on Thursday after it revealed plans to increase spending in the face of growing competition for customers.

The group rattled investors after disclosing that it was aiming for an underlying pre-tax profit margin of 13 per cent to 16 per cent in the medium term, a new target and one that fell short of analysts’ expectations.

Kingsley Kemish, the group’s interim chief financial officer, said Wise would “double down” on investment in its payment infrastructure, an upfront cost that the group is betting will allow it to cut fees by making the processing of payments more efficient.

Kemish acknowledged that the new forecasts would be a “slight detracting factor” but insisted the investment would allow Wise to achieve its long-term ambition of becoming a global leader in cross-border payments.

Hannes Leitner, an analyst at Jefferies, said the forecast was “disappointing” and “created some uncertainty”, as Wise would rely on more investment to drive customer numbers and volumes.

Shares in Wise fell as much as 23 per cent at the start of trading, putting them on track for their worst day since the fintech’s landmark listing in 2021, but they recovered to trade down 12 per cent.

Wise was founded in 2010 by Estonians Kristo Käärmann and Taavet Hinrikus, who were exasperated by the cost of transferring money back to the Baltic state after the pair had moved to London.

Its decision to go public in London in July 2021 rather than New York was celebrated as a coup for the UK market. The company was valued at almost £9bn as investors were won over by its promise to undercut banks with a cheaper, easy-to-use, international payment service.

Over the past two years, however, Wise has been forced to raise customer fees, which it has partly blamed on volatility in currency markets. But increasing competition from the likes of Revolut, as well as major banks such as HSBC, which earlier this year launched a foreign exchange and payments app called Zing, has increased the pressure to cut fees.

The company did not give figures for its planned spending but said it would invest in “infrastructure and customer experiences”.

“You’ve got a double whammy where costs grow faster than revenue because they’re cutting fees slightly,” said Rupak Ghose, a former financials research analyst at Credit Suisse. “The question mark is, is that because of competition, or is that helping customers in the long term?”

The forecast came as Wise reported that pre-tax profits in the 12 months to the end of March jumped to £481mn from £147mn in its previous financial year. The group’s headcount climbed from about 4,400 to 5,500 in the period.

With Wise ultimately wanting to make payment transfers for free, the company has also been expanding its range of products and services in a bid to diversify its revenues. It offers multi-currency current accounts, business accounts, interest-yielding investment products and a debit card.

“We’re three years post listing the business, it has changed significantly as well as growing . . . we’re now more of a multiproduct business,” said co-founder and chief executive Käärmann.

Like rival fintechs, its profits have also been buoyed in the past two years by the interest income it generates from the customers’ funds it holds. Its interest income more than doubled in its last financial year to £120.7mn.

But with the European Central Bank having cut rates — and the Bank of England and US Federal Reserve expected to follow — the boost to earnings is set to fade.