Last week, I bought a UK stock for my ISA. It was Wise (LSE: WISE) – the international money transfer company.
I reckon this stock’s a little misunderstood by the market right now. And I believe it has substantial long-term growth potential.
A brilliant company?
I’ve always been impressed with Wise’s services. I transfer money internationally with the company all the time and the service is brilliant. Just recently, I sent some money from Australia to the UK using its platform. The cash arrived in my account within 30 seconds of the transfer and the fees I paid were peanuts.
Strong growth
I’ve also been impressed with the growth here. In April, the company told investors that 9.3m active customers used its platform in Q4 FY2025, representing growth of 17% year on year. Underlying income for the quarter was £350.4m, up 15% year on year.
“We are progressing on our vision to become the network for the world’s money, as quarterly cross-border volumes grew 28% YoY to £39.1bn,” said co-founder and CEO Kristo Käärmann.
Misplaced concerns
There were two main issues that stopped me from investing in the company in the past however. One was rival competition – I wasn’t convinced Wise had a genuine competitive advantage.
The other was the fact that the company keeps lowering its fees. This put me off as I generally like to invest in companies that increase them.
Now, I think a lot of investors share the same concerns over Wise. This isn’t a stock that’s owned by many professional (or retail) investors.
Looking at Wise differently
However, after watching a presentation by fund manager Andrew Hollingworth, who runs the VT Holland Advisors Equity Fund (and has a large position in Wise), I’m looking at the payments company differently. Today, I’m far less concerned about the two issues mentioned.
Let’s start with the company’s competitive advantage. What a lot of investors don’t realise about Wise is that in order to offer customers super-fast money transfers and incredibly low FX spreads, the company has established vast networks of bank accounts in the countries it operates in. These networks represent a competitive advantage – they can’t easily be replicated by a start-up in the payments space.
Moving onto the fact that the company keeps lowering its fees for customers as it gets bigger, this could well be a positive in the long run. While lower fees may put pressure on profits in the near term (scaring off institutional investors), they’re likely to help the company retain its customers and attract new ones longer-term.
It’s worth noting Wise’s business model could be described as a ‘scale economies shared’ model. This is where savings are passed on to customers as a company achieves economies of scale.
This business model was a favourite of legendary British investor Nick Sleep (who generated a 900% return for his investors between 2001 and 2013). Sleep had a lot of success here with stocks such as Amazon and Costco.
I’ve started small
Of course, there are still plenty of risks with Wise. One is a major consumer slowdown – this could see less payments made globally.
Given the uncertain economic backdrop, I’ve started with a small position. Over the next few months, I’ll buy more shares and build up my holding.
