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Shares in British payments group Wise tumbled on Thursday after it unveiled plans to increase spending in the face of growing competition for customers.
The group sent investors into a frenzy after announcing it was targeting an underlying pre-tax profit margin of 13 to 16 percent over the medium term, a new target that fell short of analyst expectations.
Kingsley Kemish, the group’s interim chief financial officer, said Wise would “double down” on investment in its payments infrastructure, an upfront charge that the group expects could reduce costs by making payment processing more efficient.
Kemish acknowledged that the new forecasts would be a “slight negative factor” but emphasized that the investment would enable 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 increase customer numbers and volumes.
Shares in Wise fell as much as 23 percent in early trading, putting them on course for their worst day since the fintech’s historic listing in 2021, but they recovered to fall 12 percent.
Wise was founded in 2010 by Estonians Kristo Käärmann and Taavet Hinrikus, who were annoyed by the cost of transferring money back to the Baltic state after the couple moved to London.
The decision to list in London instead of New York in July 2021 was celebrated as a coup for the British market. The company was valued at almost £9 billion as investors were won over by its promise to undercut the banks with a cheaper, easy-to-use international payments service.
However, over the past two years Wise has been forced to increase customer rates, partly due to volatility in the currency markets. But increasing competition from the likes of Revolut and major banks such as HSBC, which launched a currency and payments app called Zing earlier this year, has increased pressure to reduce fees.
The company did not provide figures on planned spending, but said it would invest in “infrastructure and customer experiences”.
“You have a double whammy if costs grow faster than revenues, because they reduce fees slightly,” said Rupak Ghose, a former financial research analyst at Credit Suisse. “The question mark is: is that due to competition, or does that help customers in the long term?”
The forecast came as Wise reported that pre-tax profits rose to £481m in the 12 months to the end of March, up from £147m in the previous financial year. The group’s workforce increased from approximately 4,400 to 5,500 during the period.
As Wise eventually aims to make free payment transfers, the company has also expanded its range of products and services in an effort to diversify its revenues. It offers multi-currency checking accounts, business accounts, interest-bearing investment products and a debit card.
“Three years after we listed the company, it has changed and grown significantly. . . we are now more of a multi-product company,” said co-founder and CEO Käärmann.
Like rival fintechs, profits have also increased over the past two years due to the interest income they generate from their customers’ funds. Interest income more than doubled in the last financial year to £120.7 million.
But now that the European Central Bank has cut interest rates – and the Bank of England and the US Federal Reserve are expected to follow suit – the profit boost is likely to disappear.