How Wise Has Turned a Profit for Four Straight Years

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Radek Zaleski

Updated Feb 21, 2024 • 12 min read
How Wise Has Turned a Profit for Four Straight Years

It’s estimated that financial consumers transfer more than $10 trillion around the world every year—and pay roughly $200 billion in bank fees for the privilege of doing so.

Despite the often-excessive costs of transferring money around the world or exchanging one currency for another, few companies have sought to improve how currency exchange works or how much it costs.

Wise (previously TransferWise) set out to revolutionize how we send and receive money around the globe. Since being founded in 2010, Wise has grown steadily to become one of the world’s most promising fintech startups. Besides tackling an aspect of the financial services market that the majority of startups and established banks have largely ignored, Wise has further distinguished itself in an increasingly crowded market by achieving profitability for several years running—a rarity in today’s fintech landscape.

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Here’s how Wise has succeeded where so many other fintech startups have failed.

Inventing peer-to-peer currency exchange

Like many of the most successful startups, Wise was founded in response to problems directly experienced by its two founders, Taavet Hinrikus and Kristo Käärmann.

Wise co-founders Kristo Käärmann (left) and Taavet Hinrikus (right). Image via Wise.

In 2010, Hinrikus and Käärmann were living and working in the United Kingdom. Both were frustrated by the costs of transferring British pounds into euros and transferring funds to their native Estonia. As a workaround to their problem, the two friends came up with a solution. Hinrikus would have his salary, which was paid in euros, deposited into Käärmann’s Estonian bank account. In turn, Käärmann would have his salary, which was paid in British pounds, deposited into Hinrikus’s British bank account.

This arrangement allowed the two men to handle their respective financial obligations in both Britain and Estonia without being hit by the excessive currency exchange fees levied by their respective banks.

It also gave them an idea: What if everybody could benefit from an arrangement like theirs?

This is how Wise was born.

How Wise works

In a typical wire transfer, funds are sent via the Society for Worldwide Interbank Financial Telecommunications (SWIFT) system. Money is wired electronically from one bank to another, and banks deduct a fee for facilitating the transfer. In 2019, more than 33 million fund transfers were executed via SWIFT every single day.

Wise is a peer-to-peer currency exchange platform. Rather than merely facilitating transfers and taking a cut, Wise itself maintains pooled bank accounts in countries around the world. Users then pay a small fee by credit or debit card to use Wise’s accounts to wire funds from those pooled accounts to the intended recipient.

This means that funds never actually cross international borders, eliminating the need to rely on the SWIFT system and allowing Wise to keep costs as low as possible—its primary competitive advantage.

Image via Wise

The peer-to-peer currency exchange model pioneered by Wise offers several other advantages:

  • Transfers are often executed extremely quickly, often in just a few seconds.
  • Recipients do not need a Wise account to receive transferred funds, only a bank account into which transferred funds can be deposited. This minimizes friction and allows Wise to compete with established incumbents such as Western Union.
  • Wise can offer users transfers at or near the true exchange rate. Most commercial banks purposefully obscure their rates by offering lower rates of exchange and advertising “zero percent” commission and other misleading incentives.

Leveraging trust and transparency as competitive advantages

Fast transfers and very low fees aren’t the only competitive differentiators that Wise has leveraged to great effect.

From the outset, Wise has committed to a culture of transparency in order to leverage trust (a rare commodity in retail banking) as a way of tempting users away from the SWIFT transfers offered by retail banks. The company has made raising awareness of hidden bank charges a cornerstone of its marketing efforts over the years, including its Stop Hidden Fees campaign in the U.K. and its #nothing2hide social media campaign in New York City, both of which were launched in 2015.

These campaigns weren’t just about raising awareness of the predatory practices employed by traditional retail banks. They were designed to attract new users at scale—something that hadn’t been possible for Wise initially.

Like many fintech products, Wise’s initial growth was driven almost entirely by word of mouth and the product’s referral engine. It was the company’s high-profile social campaigns, however, that drove strong growth, thanks to Wise’s smart positioning as an alternative to the opaque, high-cost model of currency exchange that dominated the market prior to Wise’s peer-to-peer model.

Making currency exchange cheaper

In 2012, Wise charged €1 for transfers of up to €300, and slightly more for larger transfers. Although the company revised its fee structure to charge more in 2015, Wise soon began aggressively reducing its fees to provide better value to its customers. Between 2017 and 2018, Wise reduced its fees 27 times.

Although Wise could have made more money on each transfer by charging more, the company has borrowed a strategy employed by high-frequency traders. Rather than charging higher fees on fewer transactions, Wise has opted to charge lower fees on a higher volume of transactions. This creates a virtuous cycle in which lower fees attract more customers, which means greater transfer volume, which translates into more revenue for Wise—a competitive advantage that mainstream banks have yet to match.

Expanding internationally, affordably

International currency exchange providers live and die by the availability of various global currencies and the ease with which those currencies can be transferred around the world. As such, Wise’s gradual expansion to more and more countries worldwide has been as crucial to the company’s continued success as its low fees and commitment to transparency.

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Wise has been able to scale and attract new customers consistently by constantly expanding into new geographic regions and offering new currencies to its platform. Doing so hasn’t been easy, however. Currency exchange may be largely similar regardless of the country of origin or the currency being exchanged, but appealing to financial consumers varies widely from one country to another—even one region to another.

To overcome the challenges of marketing a financial product across multiple countries, Wise has partnered with challenger banks to gain footholds in new markets, such as Germany’s N26 and Holland’s bunq, among others. The company entered into a partnership with U.K. challenger bank Starling Bank in 2017, but this arrangement was terminated in 2018 when Starling launched its own international payments product.

The company has also joined forces with strong incumbent brands in the financial services sector, such as Mastercard, to offer new products like its borderless Mastercard debit card, which launched in 2018. Wise entered into an agreement with Chinese payments giant Alipay in March 2020, giving the startup almost overnight access to the extremely lucrative Chinese market, which some estimate to be worth as much as £54B annually.


Image via Wise.

Licensing to operate in new financial markets has long been a key consideration for Wise. The cost of banking licenses varies from one country to another, but between incorporation and annual fees, licensing requirements, tax obligations, and minimum asset thresholds, expanding into new financial markets can be a costly endeavor. However, Wise’s partnerships allow the company to pool risk, share costs, and leverage brand recognition to encourage adoption among new customers—all of which have allowed Wise to expand steadily and, most importantly, cost-effectively.

Competing with traditional banks

Speculation has been growing for some time about the likelihood of Wise breaking into commercial banking with current accounts and other mainstream financial products. Such rumors intensified in the summer of 2020 when the company secured permission to begin offering investment products in the U.K.

Wise’s forthcoming investment product mirrors other fintech companies, such as Betterment and Robinhood, who are expanding beyond their core businesses into tertiary financial products and services.

However, the company insists it has no plans to go head-to-head with incumbent retail banks. This isn’t just a matter of practicality, but philosophy. Kristo Käärmann has made little secret of his skepticism regarding retail banking, but this doesn’t rule out the possibility of Wise expanding into other financial services in the future.

In the right places, at the right time, with the right product

Wise has smartly capitalized on an enormous potential market in the financial sector by offering transparency around its product and the lowest rates in the business.

  • Wise solved a significant problem that costs consumers billions of dollars every year, and the company created a huge potential market opportunity by innovating in a largely stagnant area of the financial services sector.
  • The company leveraged trust and transparency to great effect by positioning itself as a consumer champion and utilized social media to drive awareness of the often-predatory practices of mainstream banks.
  • Its initial referral program drove strong growth inexpensively, and Wise’s brand-awareness campaigns supercharged that growth and allowed the company to scale quickly.
  • Wise consistently lowered prices for consumers, adopting a low-margin, high-volume model similar to that of high-frequency trading.
  • The company’s partnerships with emerging challenger banks and strong incumbents such as Mastercard and Alipay allowed Wise to expand into new international markets quickly and cost-effectively.

With more than eight million users worldwide, a valuation of $3.5 billion, and a monthly transaction volume of more than $4 billion, Wise is one of the most promising fintech startups in the world. It’s also a prime example of how a strong product and marketing messaging to match can propel fintech startups toward sustained growth and lasting profitability.

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Radek Zaleski

Senior Partner at Netguru
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