Fintech-How WISE built a profitable real-time payments product without the real-time rails (RTR)

Published in

Sanjeev Arora

9 min readApr 4, 2023

Disclaimer: Opinions expressed are solely my own and do not express the views or opinions of my employer or any other institution. Any information shared on a publicly listed company or digital assets is for informational purposes only and is not a recommendation of an investment strategy or to buy or sell any security or digital asset.

My previous article covers — What are real-time payments and real-time rails (RTR)?

Note — I’m writing this based on public information and research available to outsiders and there may be internal systems or partnerships that Wise does not close. I am not affiliated with Wise and do not have access to any internal information on how the operate in each country.

What is WISE (formerly TransferWise)?

Launched in 2011, Wise was founded in the U.K. with the mission to make international money transfers cheap, fair, and simple. Wise helps individuals and small businesses move money across borders between their bank accounts.

Wise is not a bank but it is a licensed financial institution focused on retail payments
Wise serves 6 million customers and earned close to 1 billion (GBP) in total income this year
It offers significantly faster and cheaper international transfers than traditional banking routes using its innovative closed-loop system (more on that later)
Wise customers can spend and withdraw over 50 currencies at the live rate automatically
Wise also offers other innovative financial products such as multi-currency accounts (across 175 countries in 50 currencies) that allow customers to send, spend (using a Debit card with no transaction fees), pay international bills, and receive money like a local
Some of the prominent investors of Wise are — Richard Branson and Max Levchin (co-founder, of PayPal & Affirm)

FY23 financial highlights

Active customers Q3–5.8m
Active business customers Q3–320k+
Volume — £51bn
Revenue — £397m

For more on recent financial reports — https://wise.com/owners/

Overall, Wise is serving a colossal global market size which consists of roughly 2 trillion (GBP) of personal and about 9 trillion (GBP) of small businesses transferring money across borders. This market size leads to a potential future revenue line of anywhere between 100 million (GBP) and 200 billion (GBP) paid in fees by customers.

How did WISE offer instant money transfers across many countries without using real-time rails (RTR) in the early years of its inception?

Many countries now have live real-time rails (RTR) infrastructure like India (IMPS, UPI system), Singapore (PayNow), China, and Brazil (PIX payment system) but Wise did not use this RTR infrastructure to offer instant money transfers across many countries over the past decade. In the early days, it probably took 2–3 days to move the money across borders but it was still better than the current wire transfer (SWIFT) system. Even in the UK, where Wise was founded, it took them many years to get licensed and integrate UK’s real-time rails (Faster Payment System launched in 2008) as they are not a bank.

Wise solved the problem of instant international money transfer with an innovative digital product powered by the complex underlying technology that worked within the current banking system.

As mentioned above, Wise is not a bank, and they do not handle cash like other traditional banks or money transfer services like Western Union. Wise solved the instant money transfer by employing considerable ingenuity —

Innovation — Wise first established its own bank accounts in each country they support as they only focus on customers with bank accounts.
Complexity — Across the Wise digital product experience, it may show its customer (the sender where the transfer originated) that they completed an international money transfer but in reality, Wise sends that money transfer from its own local bank account to the recipient in that destination country. The deposit from Wise is treated as a local deposit instead of wiring money through the slow SWIFT network like the current correspondent banking system. For e.g. when I sent a money transfer from Canada 🇨🇦 to my mother in India 🇮🇳 during her recent visit, she instantly received those funds in her Indian bank account from another local bank account that is operated by Wise (which is operating in India’s Immediate Payment Service, IMPS RTR system).
Being local —Wise invested time and effort so it can be regulated by national authorities around the globe. By holding funds locally and operating local bank accounts in each country supported by Wise, it is able to move money and make deposits almost instantly in the recipient’s bank account. In addition, Wise was able to instantly take advantage of the real-time rails (RTR) when the country upgraded its banking system to use the real-time rails (RTR) without complex technology integrations. After a deposit is made, Wise then balances its own books as part of the accounting practice (relevant debits and credits) by each country and moves funds (where necessary).
Technology — using technology for strict KYC (know-your-customer) compliance, Wise is able to remove the intermediaries, lower the fees, reduce fraud, incorporate transparency via live foreign exchange rates, and most importantly achieve speed without the real-time rails (RTR).

Fun background story — originally from Estonia, Wise founders Taavet (ex-Skype) and Kristo (ex-Deloitte UK) build the company to avoid unexpected fees from incumbent banks while living in the UK. Watch this fun video on how solving a common problem for each other became a billion-dollar business.

The story behind WISE (formerly TransferWise)

What are the reasons behind the success of Wise?

Wise is an ideal example of Clayton Christensen’s “Disruptive Innovation”. It solved a problem in the international money transfer space by removing fees and by bringing speed and transparency where many incumbent banks are still not willing to act, as it cannibalizes their current fees and foreign exchange mark-ups.

Disruptive innovation, a term of art coined by Clayton Christensen (Professor, Harvard Business School), describes a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up the market, eventually displacing established competitors.

Key characteristics of disruptive innovation —

Mission — unlike many other financial institutions, Wise actually has a mission to which they hold itself accountable. Their mission — money without borders. It means moving it instantly, transparently, conveniently, and — eventually — for free (yes, they mean free). Their dream is for people to live and work anywhere seamlessly. Learn more about their mission.
Instant Payments — unlike incumbent banks with their slow (up to 5 days), opaque, and expensive SWIFT payment network, Wise offers Instant payments for most countries — without using actual real-time rails in many countries they support.
Transparency — Wise is proud of its customer-centric experience and confident product offering that its users can not only see the savings on their foreign exchange rates but can also look up competitive rates from other providers including any competitor who might be offering a lower rate (yes, I know it sounds crazy but it is true). Check out compare rates by Wise.

This disruptive innovation model has worked well for Wise as by lowering international money transfer costs, Wise is gaining a higher average volume. Wise roughly has 5,000 (GBP) per customer per quarter in terms of volume, and they charge a 65 basis point (0.65%) take rate at a 60% gross profit margin to the customers as a cross-border fee upfront. In comparison, Western Union (in 200 countries and 600,000 agent locations) has about a 5% take rate at 40% margins.

(I don’t know about you, but I would rather be in the 60% gross profit margin business)

Who is competing with Wise?

Even though Wise is operating in a crowded space, they continue to make enormous efforts toward launching new, relevant product offerings to its customers. Some of the key competitors in this space are —

Traditional Banks through the SWIFT network and the current correspondent banking system in every country that is also supported by Wise
International money transfer apps — Remitly, PayPal
Credit card networks — new money transfer offerings like Visa Direct and Mastercard Send
International cash transfer network — Western Union, MoneyGram
New e-commerce and digital card entrants — Xare (with over $1bn+ transaction volume, 1.5m+ users)
There are more than 100 other players that you can find here — a list of cross-border payment companies by FXC Intelligence

Do I see any threats to Wise in the instant payment space?

Real-time rails (RTR) across the world were built to offer instant and irrevocable domestic money transfers but that could change to transfers across borders if countries connect their respecting real-time rails (RTR) network.

So, for instant payments across borders, there may be a potential threat in some markets across Asia where a few major countries with long-term bilateral trade and tourism may directly connect their respective real-time rails (RTR). This will allow businesses and consumers to move money across borders directly from their bank accounts as well as use their local debit/credit cards in the other country without transaction fees. They will still pay some low foreign exchange fees just like they would while using Wise.

This threat is real and is based on the February 2023 announcement — The Monetary Authority of Singapore (MAS) and the Reserve Bank of India (RBI) today launched the linkage between Singapore’s PayNow and India’s Unified Payments Interface (UPI).

How would it affect Wise, if UK & Europe also connected their real-time rails (RTR)?

What can Canadian 🇨🇦 fintech companies learn from Wise?

Build a fintech business based on a mission and not the latest hype that will help raise venture funding for a later acquisition.
Offer a product value that is 5x-10x better than what is available in the market. Within financial services, deeper product value can be created by re-evaluating the complexities of the current banking systems (technical or non-technical processes and arrangements) that are hidden from the customer.
Simplify customer experience (CX)and bring transparency to create a trust-based flywheel effect that brings more customers on every use to lower customer acquisition cost (CAC).
Build an embeddable service and white-label product offering which can be easily integrated by businesses in other verticals (healthcare, retail, e-commerce, supply chain, and more) to build adjacent revenue streams. E.g. — check out how EQ Bank, Canada is using Wise for its own international money transfers service.
Focus on growing the overall financial services revenue in Canada via continuous innovation and by bringing customers who may not be using the current service offering due to unnecessary friction and lack of transparency.
Finally, research and understand if there is an option to serve your customers with innovative financial products by being financially regulated, and licensed in your jurisdiction without being a bank.

In Closing

I follow fintech innovation very closely and try many of their services to better understand their value proposition. Based on my research, I can share that most innovative fintech products are built over many years with a clear path to achieving profitability (see Wise financial highlights image below). Such fintech companies continue to innovate across underlying financial systems as well as technologies. Disciplined fintech founders, serving the customers of incumbent banks, do not have to always rely on the only silicon valley formula of customer growth at any cost and figure out profitability later.

Note — I have been a Wise customer since its Canada launch in 2016 and can personally share that I have saved thousands of dollars in international money transfers, and by using their multi-currency debit card across the US, Canada, the UK, France, and Mexico. The result of this valuable product offering is clearly shown in their financial results below —

Image source — https://wise.com/owners/