Wise is a great London fintech success story. It began life as TransferWise in 2011 and has since grown to a £7 billion market cap business, which today posted revenues of just shy of half a billion pounds, more than double where it was two years ago.
But the company finds itself in a very different environment from its foundations in 2011. For one thing, faith in the UK’s biggest banks was at an all-time low in the wake of the financial crash, and for another, interest rates were so low for so long that customers were open to shopping around for something new.
Enter Wise, Revolut, Monzo, Starling and others, who offered a new way to manage money on your phone that was way more slick than what the fusty old banks could muster.
Wise saw its profits almost quadruple to £194 million as it raked in cash from higher interest rates. But it is not passing a penny of that interest back to customers in the UK.
If any high street bank did the same, there would be uproar – but most of them are now paying more than 5%. Wise says it does not have a UK banking license, so current rules prohibit it from paying interest.
Wise has never pretended to be a bank, but over the years it has got closer to resembling one and further away from a simple money transfer app – it allows businesses to hold multi-currency accounts, customers can invest into money market funds, and it’s dropped the ‘transfer’ bit from its moniker.
To be fair to Wise, it does pay some interest in other countries where regulation is looser, and it also allows UK customers to invest in what it calls “Wise Interest” – a BlackRock-managed fund which holds things like government bonds.
But if – as BoE Governor Andrew Bailey wrote in the Standard two weeks ago – we should expect interest rates to stay higher for longer, will Wise lose its shine? Its strategy of being a bank-that-isn’t-a-bank could mean that people just move their cash back to the high street.
