From Faster Payments to PIX: Wise’s infrastructure play

Hey!

I’ve been planning to write about Wise for a long time. Wise is a UK Fintech company (founded by two Estonians) that enables individuals and small businesses to send and receive money internationally at significantly lower costs than traditional banks. Wise competes with PayPal Xoom, Remitly and a bunch of traditional remittance companies.

However, under the hood, Wise is a totally different play pursuing a much bigger opportunity. In pursuit of its mission, making cross-border payments fast and cheap, Wise is building a global payment network, aiming to connect to as many domestic rails as possible and eliminate the need for correspondent banks.

In this respect, Wise is somewhat similar to Citigroup, one is one the largest correspondent banks in the world. Similar to Citi, Wise establishes a local presence, gets regulatory permissions, and eventually wants to connect to local rails. Citi’s network is its crown jewel. And Wise is replicating it. 

Now, imagine if Citi had the technological muscle and agility of Wise and could put its global network in the hands of consumers and small businesses instead of solely serving large enterprises and other banks. This sounds like a massive opportunity, doesn’t it? And it is an opportunity that Wise is pursuing.

Let’s dive in!

Jevgenijs

p.s. if you have feedback just reply to this email or ping me on X/Twitter

I think some of my readers might not be familiar with Wise $WIZEY ( ▼ 0.17% ), a cross-border payments company based in the UK. You might be familiar with its U.S. competitor, Remitly $RELY ( ▼ 2.27% ) , though. If you are not familiar with either of them, it’s even better! Just keep reading!

Wise enables individuals and small businesses to send and receive money internationally at significantly lower costs than traditional banks (Wise also powers cross-border payments for many neobanks, but more on that later).

At first glance, Remitly seems to be doing pretty much the same thing, with the key difference being its focus on individual consumers. As mentioned above, Wise serves consumers, small businesses, and even larger enterprises through its Wise Platform offering. Remitly just recently started exploring the opportunity of serving business customers.

Wise is a bigger player, handling significantly higher cross-border payment volumes than Remitly. Even if we focus solely on consumer volumes, Wise processed more than twice as much as Remitly in 2024 - $128.6 billion versus $54.6 billion. Including business transfers, Wise’s total cross-border volume in 2024 was $174.9 billion.

Wise’s revenue is well-diversified between the UK, Continental Europe, North America, and Asia-Pacific. Remitly has a higher geographical concentration than Wise, with the primary use case being customers in the U.S. and Canada sending money to India, Mexico, and the Philippines.

Wise also has a broader product offering, including Wise accounts (and debit cards) for consumers (“Wise Account”) and businesses (“Wise Business”). Wise customers can hold funds in their Wise accounts and use them to send and receive both domestic and international payments.

Actually, at the end of 2024, Wise customers held $20.8 billion in their Wise accounts, up from $16.4 billion a year ago. As can be seen from the chart below, Wise accounts are actively used by both consumers and small businesses.

However, I believe the key difference lies in Wise’s relentless focus on reducing the cost of cross-border payments for its customers. It’s not that Remitly doesn’t try to lower costs - they do. And the difference in the take rate in the chart below should not be read as “Wise is 4 times cheaper than Remitly”. The difference in the take rate, most likely, reflects the differences in their geographic focus.

However, Wise is taking the commitment of lowering the cost of international transfers to the infrastructure layer, meaning they are connecting to the domestic payment rails to bypass any middlemen in the process. They are already directly connected to 6 schemes (such as Faster Payments in the UK), and two connections are in progress (PIX in Brazil and Zengin in Japan).

So what does it mean in practice? When a Wise customer, let’s say in the U.K., sends money to an account in Europe, the payment is executed over domestic rails (SEPA Instant or SEPA CT in this case). You can think of it as if Wise Europe acted as a correspondent bank for Wise UK. The setup becomes even “cleaner” if that U.K. customer has a Wise account: in this case, the payment will be made from this person’s European account (and not from Wise Europe’s accounts).

Of course, Wise is far from having this setup in all markets and transfer corridors that they serve. Thus, they rely on a network of banking partners that can facilitate local transfers. In addition, in many markets, connecting to the local rails requires having a banking license (e.g., the United States). However, as Wise connects to more and more local schemes, they will be able to eliminate such partners and the associated cost.

This approach contrasts with most of Wise’s competitors (including Remitly and PayPal’s Xoom), who rely on Visa Direct (and Mastercard Move) to move money across borders. Please note, that I would not be surprised if Wise also used Visa Direct on some of the flows. It least in 2019, they did (but I couldn’t find information about this relationship developing further).

There is nothing wrong with building a business on the Visa Direct network. It’s a great network that allows companies to quickly enable cross-border payments to a wide range of countries. However, according to Visa, the average cost of a Visa Direct transaction is 9-10 cents. Wise uses local rails to move the money, which typically cost under 1 cent.

Wise’s effort to build a global network made me think…of Citigroup. Citi’s global network is the heart of what Jane Fraser calls the “jewel” of Citi, Citi’s Services business. Over decades, Citi has established a local presence in 95 countries, getting local licenses and connecting to local payment rails. This network allows Citi to distribute payments to over 180 countries in 135 currencies.

Citi’s Services business serves two customer segments: large corporations and other financial institutions. Thus, it helps “80% of the Fortune 500” companies get paid, manage liquidity across their subsidiaries around the world, and make payments to suppliers and employees.

In addition, Citi enables 1,500 financial institutions in 149 countries to provide cross-border payments to their clients. Traditional banks, which Wise competes with, might very well rely on Citi to provide cross-border payments.

Does this sound similar to what Wise is doing? They also establish a local presence, get regulatory permissions and licenses, and plan to connect to the local rails. Citi focuses on serving large corporations, Wise serves private individuals and small businesses. However, per Wise’s estimates, consumers and SMBs actually move more money across borders than large enterprises.

And, similar to Citi, Wise serves the new generation of financial institutions through the Wise Platform! Wise powers cross-border payments for the new breed of banks: Brazilian Nubank, British Monzo, French Qonto, Dutch Bunq, German N26, and many more. They even partnered with Standard Chartered in Asia and the Middle East.

So, what if we think of Wise as Citi, but with the technology muscle and organisation agility to serve consumers and small businesses? I mean, Citi even tried building a global retail bank serving consumers and small businesses, but decided to leave this idea for someone else (Citi is still exiting its non-US retail businesses).

Is this an attractive destination? I think so! In 2024, Citi’s Services business earned $19.6 billion in net revenue (up 9% YoY from $18.1 billion in 2023). $13.4 billion came in the form of net interest income (you need to hold operating deposits to make payments), and $6.2 billion came in the form of non-interest fees.

In the same period, Wise earned $1.5 billion in transaction revenue (cross-border, card, and other fees), and $550 million in net interest income (remember the $20 billion in customer balances on Wise accounts? Wise earns interest on these balances).

Of course, the enterprise customers served by Citi have specific needs that consumers and small businesses don’t. On the other hand, I’d expect Wise to charge higher fees and earn better margins from consumers and small businesses than Citi does from its corporate clients.

In any case, I think it is clear that the opportunity is there. Wise is still far from having a truly global network - with only six direct connections - but it already processes nearly half of Citi’s cross-border payment volume. So maybe my thesis is not that hypothetical.

Wise will hold a Capital Markets Day next week (April 3, 2025). I am super excited to learn more about this fascinating business and hear about their plans. Will certainly cover that in a follow-up article. Until then…thank you for reading!

Cover image source: Wise

Disclaimer: The views expressed here are my own and do not represent the views of my employer. The information contained in this newsletter is intended for educational and informational purposes only and should not be considered financial advice. You should do your own research or seek professional advice before making any investment decisions. Read the full disclaimer here.