The British fintech company Wise made a lot more money in the first half of this year, especially because of higher interest rates. In the six months ending on September 30, 2023, Wise earned £498.2 million, which is 25% more than the same period last year. If you add the money they made from interest, the total income for the company during this time was £656 million, a 58% increase from last year.
The profit before taxes, which is the money Wise earned after expenses, was £194.3 million, a huge increase of 280% compared to the previous year. Wise explained that the higher interest rates helped them make more money, continuing a trend from earlier this year when they were already earning extra income because of increases in interest rates.
Wise’s Financial Performance
The company now has more money from customers than it did a year ago, and this is because it has more cash that can generate profits, especially during a time when central bank interest rates are going up.
Analysts from Jefferies expressed in a note that, even though Wise made a lot of profit, they are still being careful about the overall amount of money being processed (total processed volume or TPV). They expect the situation to stabilize, but they think the amount of money per customer (volume per customer or VPC) might continue to be a challenge.
The analysts mentioned that the extra profit Wise got from higher interest rates is good for now but cautioned that it’s probably a temporary solution to make up for a slowdown in the overall amount of money being processed. They think this boost is likely not something that can be sustained for a long time.
Wise allows people to send money internationally at much lower costs compared to traditional banks. The success of Wise is closely linked to how well consumers are doing. In October, retail spending in the UK increased by only 1.2% compared to last year, marking the slowest growth since December 2022.
Wise’s Financial Milestones
Wise became a publicly traded company on the London Stock Exchange in 2021 and is currently valued at £7 billion ($8.7 billion). Despite a challenging year for technology stocks, Wise’s share price has gone up by 25% since the beginning of this year, showing a recovery.
Harsh Sinha, the Chief Technology Officer of Wise, has temporarily taken over as the leader of the company from CEO Kristo Kaarmann. Kaarmann, who, along with fellow Estonian entrepreneur Taavet Hinrikus, co-founded Wise in 2011, started a three-month break in September and is expected to come back in December.
On Tuesday, the value of Wise shares remained mostly the same.
Insights from Wise and Industry Trends
The recent results follow a challenging period for payment stocks, which experienced a significant decline in value in recent weeks. This decline was attributed to signs of reduced growth and a return to reality after the rapid expansion during the online payment boom of the Covid-19 era.
Simon Taylor, the head of strategy at regulatory technology firm Sardine.ai, commented on this, saying that the concerns about the downfall of fintech were exaggerated. He explained that there was a widespread belief that “risk assets” like fintech would suffer the most with rising interest rates.
However, the opposite has happened. The anticipated positive impact of “rate normalization” was expected to benefit traditional banks, but it turns out that fintech companies, like Wise, have gained more from higher rates. Wise has seen significant growth in revenue and market share, surpassing the benefits experienced by traditional banks.
Wise’s strong financial performance in the first half of the year, driven by increased earnings and a notable 280% profit surge, reflects its resilience amid a challenging market. Analysts caution about sustained growth, emphasizing the temporary nature of increased profits from higher interest rates. Despite industry challenges, Wise’s strategic position and recovery in share prices showcase its enduring strength in the fintech landscape.