Wise, Harsh Sinha (CTO) & Steve Naudé (Head of Wise Platform) — Building a leading cross-border payments network
In today’s episode, Kailee Costello sits down with Harsh Sinha and Steve Naudé from Wise. Harsh is the Chief Technology Officer, and Steve is Head of Wise Platform. Wise has built a leading cross-border payments network and processes £9B in cross-border payments every month on behalf of over 16 million customers. Wise’s IPO on the London Stock Exchange took place in 2021.
“We believe that we can build a network where pretty much all payments are within 20 seconds”
In the episode, Kailee, Harsh, and Steve discuss:
- Wise’s journey from money transfer service to leading cross-border payments network
Harsh: We started off to solve a problem that founders had around moving money across borders; we mainly started off moving money between the UK and Europe. What started off as a personal problem, they realized very quickly was a large problem for a lot of consumers. For the first eight years of our existence, we were mainly a money transfer service. We iterated from this, to solving the problem for consumers, to also moving to helping businesses (mainly SMBs) solve the same problem.
Over time, as we talked to our customers, we realized that there were other things they wanted us to solve for them, mainly around how they manage their finances across the world. We have now iterated our product to a place where we have what we call the Wise Account, which allows you to hold funds of currencies across the world and also gives you account details (the ability to receive money with local account details in nine different countries). So you could be sitting in Europe and have an ACH routing number and account number in the US where you can do business in the US, and receive funds and pay funds. Then on top of that, we also give you a Wise card, which is a debit card. Basically, it becomes a one-stop shop for you to hold, spend, receive, and send funds across the world.
Finally, our third pillar is Wise Platform, which Steve runs. Basically, we took the infrastructure we’ve built over the last 12 years, we put an API around it, and we expose that to other partners like banks and other service companies who want to provide cross border services. They can use the same infrastructure we built for our product.
- What Wise Platform does and how it originated
Steve: We power banks, large fintechs, and other enterprises who really want to embed best-in-class cross-border payment experiences, whether that’s sending or receiving or spending, into the products they have built. Basically, taking our infrastructure to where these customers already are, to the tools, the providers, the companies that they already use every day. It’s much more convenient to send money from your bank than it is to have to sign up to Wise
It started in quite a funny story, actually. We just launched in Hungary, a market in Europe, and we saw this massive uptick in customers coming from one bank, which was quite a small bank. It was nice, but a little confusing. So we called up the customers and said, “Why are you using us? Thanks for using us, but how did you hear about us?” Their bank, actually, was recommending them to use Wise. They realized their own offering was so slow, painful, expensive, costly to process that they said, “Just go to use Wise instead. It’s better for you, better for us”. So we called up the bank and said, “We should do something together. Thanks for sending us your customers. But actually, what made you do that? Why don’t we build a product with you so that they don’t have to come to Wise, and we build that in the app instead?” That’s what sparked this idea for Wise platform — exposing that API layer to make it easier for customers to do this in the tools they’re already using.
- How Wise Platform partners with enterprises such as Google Wallet and Xero
Steve: Xero is an accounting software. So if you’re a business, your accounting software knows everything about your financials, how much money you have, what you owe, who you owe. And historically, that’s kind of where it begins and ends — doing your finances. But what Xero have done is they know the bills you have to pay because you upload your invoices and your bills to the tool. And together, we’ve built a flow where you can actually now pay for that bill within the financial accounting software. So rather than having to go to your bank to send the money to actually pay the bill and come to your accounting software and click, yes, I’ve paid, you can complete that all from within Xero. So it’s a great example of that kind of convenience that can be generated. Google Pay is another great example. They have a lot of the customer’s financial life already through the Google Pay wallets and products like that. Adding cross-border products into that, powered by Wise, is a pretty cool way to expand that without having to spend the 12 years that we’ve spent building out that infrastructure. You get best-in-class through a single API, which is pretty exciting for them.
- Wise processes more than 50% of payments instantly. What friction still exists in cross-border payments?
Steve: The payments that are not instant are typically where there’s no instant infrastructure. Wise works by leveraging instant, real-time domestic payment schemes in the countries where we operate. That could be Faster Payments in the UK, FAST in Singapore, NPP in Australia, those instant schemes. Not every country has an instant scheme yet or one that supports cross-border fully. As that continues to grow and there are more countries that have rolled out these schemes, we’ll be able to make these payments faster and get that from 55% to 60% and ultimately up to 100%. So, part one is the lack of infrastructure in certain places.
There are obviously other points of friction, like compliance screening. We need to make sure the money that’s moving through our platform is good money and compliant funds. Sometimes, we need to pause money to run checks like any other financial institution. So, our job is to make those checks as automated, as fast, and as streamlined as possible so, to run those checks in real time and help make sure that money is getting to customers as quickly as we can. We’ve done a huge amount of incredible technical work over the years to allow us to process those funds, and run those checks in real-time, in milliseconds, to allow that to be processed instantly.
- What percentage of payments Wise expects to be instant in the future
Harsh: I think definitely we’ll have more payments instant in the future. As Steve said, the way we’re building this network is basically connecting local payment rails across the world. So naturally, as other payment systems in each country get faster and cheaper, we get those benefits. The classic example is the US. So, while the US is ahead in a lot of things, in payments, unfortunately, the US is pretty behind. We have RTP in the US and FedNow is going live this year. But generally, the prevalence of instant payments for a US resident is still a pretty big shocker, as in like, you’re surprised when it happens. And when it’s available it’s also pretty expensive still. So generally, I think things will improve. And as things improve in the US and other payment systems across the world, we should see more instant payments as a percentage of total cross-border payments, not only in Wise but generally, that’s the direction the industry is headed.
Also, looking at the ambition we have, we believe that we can build a system or a network where pretty much all payments are within 20 seconds. If you think about how the technology should be built and is built behind these payments, eventually these are just information, bits of information flowing across the network. And if you can send a much larger email, which has a lot more information instantly; payment messages are actually pretty small, there’s no reason why they cannot be done instantly. The friction is in things like what Steve said, the different checks you have to run, the compliance regime that we have worked through, the regulatory requirements we have. Those checks are the ones that usually slow other providers down. Along with the traditional system that exists right now to move money across borders is usually the correspondence system, where you have multiple hops across multiple banks. The more middlemen there are, the slower things are. So we hope to cut those middlemen out and build a closed network which allows us to then control the quality of service.
- The role that crypto will play in cross-border payments
Harsh: Crypto is definitely an evolving space. There’s a lot of news and stuff happening over the last few years on it. But generally in cross-border, the reality is we’ve seen crypto not be used really as a payment method, per se. Mostly, the people who are dabbling in crypto are still dabbling in it from an asset class perspective, and I don’t see that changing anytime soon. When I say soon, I’m talking about the next five to seven years.
If you take a step back, what was interesting was the experiment that was done in El Salvador. In 2021, the president made Bitcoin legal tender alongside USD. But if you look at the reality of what’s happened since then, is 80% of the businesses in El Salvador have still not done any transactions on Bitcoin or any other crypto. So, do we believe that there will be a global currency that will be a crypto-based currency that will be used for most cross-border payments? I don’t think so. Whoever controls the currency controls the monetary policy of the country, and central governments and central banks are not incentivized to lose control over that.
The other bit is around “can we use crypto as payment rails?” So, can we use crypto as the mode of exchange on the underlying rails, but then on top, you’re still converting back to USD or GBP or Singapore dollars. So far, what we’ve seen is that while some of the newer technology is being built on the blockchain and crypto settlements might be faster than say Bitcoin or Ether, the cost of converting on each side to move from crypto to fiat is still pretty high, actually higher than what we can do with just moving fiat to fiat. So for now, what we see is while things can change, you never know, but in the next five to seven years, I can’t see a single global currency that is all crypto-based moving across borders or having underlying rails running on all cross-border payments of crypto. There could be some use cases, especially in Africa and other places where the volatility is so high on the local currencies that people might hold their funds in this asset class and then they swap that asset across each other. But that’s a smaller use case of the total volume moving across the world.
- How Wise’s cross-functional teams operate
Harsh: Our goal is that every team runs as a small startup within Wise, and they have a specific mission and a vision, and they have specific KPIs that they’re chasing. This is a fully cross-functional team, so you have engineers, product, design, and analysts. If they need lawyers, they can go hire lawyers. If they need compliance people, they can go hire compliance people. And all of that budget and all of that resourcing more or less comes from the same pool. The idea here is that the team should be fully staffed and equipped as a vertical unit to solve the problem for the customer. For example, if you are the team responsible for launching and iterating Wise in Australia, your key performance indicator would be how many new users you bring on every month, and then how much volume are you generating for the product for Australians. They’re fully allowed to bring in new payment methods, to do integrations directly into NPP, as Steve was saying, which is the faster payment system there. And they decide their own trajectory and what they want to invest in.
This has been true since we were four or five teams. And now we have over 100 teams. This has scaled pretty well, and we don’t see why we would not continue to scale in this way. This allows the teams to hire smart people and apply themselves to a problem. They’re very clear about who their customer is, and they have a direct relationship, getting feedback from their customers and iterating the product. From a setup perspective on engineering specifically, we have gone much more distributed. We are across the world; we have seven engineering offices. And again, the key here is we feel while about 70% of our product is global, so we built a lot of the stuff in one way. about 30% of our product is very localized. So, if you go to Asia today, Asia’s so far ahead in QR code payments and different payment methods. While if you’re in the US, people are still stuck on cards. So that’s a very big nuance. And if you don’t live in Asia, you will never understand how the payments ecosystem and the economy is moving along. So that’s why we want to hire engineers and builders in these different locations so they can bring us that local flavor and continue to evolve the product.
- How Wise is able to achieve such low transaction costs
Harsh: There are many things that drive that operational cost to be much lower. One definitely is the tech that powers Wise. We started off much later than the other banks, so we are not saddled with legacy technology. We are building cutting-edge services and we are pretty lean on how we’ve built a better infrastructure. But the second thing is our investment and obsession, I would say, in going deeper into the big markets. So, for example, we became the first non-bank to connect to UK’s faster payment scheme. We did the same in Hungary, in Singapore, and soon we’ll be there in Australia. Every time we remove middlemen. Usually, most payment providers use other banks to get access to the scheme, and obviously, if you have a middleman, then they will charge you a fee for this access. By being directly integrated, not only do we get the instant payments we’ve been talking about, but also really, really low fees, because these schemes are pretty efficient at the scale they run. Then we take these savings and we give it back to our customers. To give some context, by the time we connected directly to the UK FPS, we were doing about 35 to 40 pence on our transaction using partners. Once we’re running our own direct connection, we will spend about four pence per transaction. So it’s a 10X difference. That also gives us independence in the market, so that we now control our destiny in this market. And then we turn around and give those savings back to our customers; we can drop fees. So we don’t believe in this idea of building loss-leading products or cost subsidizing because we don’t think that’s a sustainable way to build a business. So, we really drop prices when we figure out how to drop costs.
We are much cheaper than banks because we have built a global network. With the data sets that we can see across all the routes that we have money moving on and how our customers are onboarding, we have a very large global data set on top of which we can run ML models. Whether it’s our treasury business, or whether it’s our financial crime fighting teams. they have access to all this data versus usually if you, let’s say, are moving money even between a large bank like HSBC, they have different branches, and data is actually trapped in these different systems in their own silos; so you can’t run the same operational efficiencies and make the same decisions that we can because we have this global view of the data. So, over time, I think Wise will be as much a data play as a payments play.
- Whether Wise will be able to push prices lower in the future
Harsh: That’s part of our mission — we definitely want to bring it to a point where you feel like moving money across borders feels essentially free. Transactional costs go down every time you remove partners. So as I said, the example of going direct, we can definitely have a big impact. And then, as you said, economies of scale do come through when we continue to get more volume and onboard more and more customers. Some of the fixed costs, whether it’s how we look at our infrastructure or how our technology is deployed at data centers, those things get spread across many, many customers and many, many transactions. Then finally, I think the bits that Steve and his team are doing around Wise platform, for example, also give us a very big advantage because if you think about Wise and the Wise API connected to a bank — those banks have already done KYC checks and onboarded the customers (e.g., checked their passport or driver’s license). So, we don’t have to do it again. That already is a big part of the servicing costs — so we can actually remove that cost immediately, and that allows us to reduce the prices for customers too over time.
- Whether there’s any risk that competitors, such as banks, will offer similar price levels to Wise (either through finding a way to be more operationally efficient, or through pricing at a loss)
Harsh: I think banks have an interesting problem. Generally, banks have a lot of things that they technically give away for free, but that free offering is actually paid for by something else. Usually, at a bank, the two big money makers are the lending business and the FX business. So they have this problem where they’ve got people like us and others who are competing on price, providing the FX business at a very competitive rate and a better product experience. They can try and drop the fees and prices, but then how would they supplement that somewhere else to then continue to provide other services for the price they’re providing, which is essentially free? So I think that’s the big problem they have, along with the other bits I talked about, which is the technology that they’re running, the cost of running operations; they’re much more manual for a lot of things that we do in an automated manner. So I’m not too sure if banks will be able to compete at the scale at which we are moving.
There might be other players who could follow the playbook that we’ve been following. So that’s what we obsess about — “are we missing something as we build Wise?” “Could somebody else come in with a newer insight that we may have missed, which allows them to be faster and cheaper, and could they get to the mission faster than we do?” Payments is always a scale business … the more volume we get, we have those economies of scale. But that’s what we obsess over more when you look at competition. And then generally, I think, loss-leading pricing doesn’t really work. So the one thing that we have an advantage on is we’re a profitable business, and we’re here to stay now. We are sustainable, so we’ll continue to iterate on dropping prices and making things faster. If somebody wants to come in and undercut by raising a lot of money and acquiring customers, over time they’ll have to raise prices because this is not sustainable.
- How Steve approached developing and building Wise Platform
Steve: When we started this, we spent a lot of time with banks in particular trying to understand what it is they would want from Wise. What we heard a lot of is, part of it’s the payment rails, these cheap, fast payments that we’ve talked about. But a lot of it’s all the other thousands and tens of thousands of things that make Wise special — from parts of the operations, treasury, and liquidity management. through to some of the more front-end parts. How do we get the right information in front of the customers at the right time, ask for the right pieces of data from them, the naming of the fields, the little tooltips, all those micro details that allow for high converting world-class flow with over 99% straight-through processing? These are the details that the 16 million customers moving £9B every month really use Wise for.
So we heard this a lot from partners: “How do we get lots of this stuff, not just payment rails access, which is commonly what other infrastructure players might offer?” That’s why it’s quite unique. So, we basically did this by exposing all of our internal APIs to partners. For partners today, they are using the same endpoints that our own internal mobile apps use. So anything that you can build on our mobile apps, a partner can build as well. That’s quite an intentional decision that allows us to allow partners to build really awesome experiences, not just kind of access to payment APIs, but access to that full stack of features through a single API.
Is it what we originally envisioned? I’m always surprised by the things partners want to do with rails, things we’ve never thought about, things we’ve never looked at before or considered, from the amazing ideas to the wacky ideas. That’s the power of exposing the APIs — this lets people take control of what is it they’re trying to sell to their customers. So, there were a lot more broader use cases than we initially envisaged. But, in terms of the products and building this network for banks and others to power the world’s money movements is still very much aligned with what we set out to achieve.
- Challenges faced in building and growing Wise Platform
Steve: In the enterprise world’s sales cycles, a bank might replace their international payments product every five to 10 years, or consider updates in that kind of timeline. It’s challenging sometimes to stay with that cycle and come back month after month, quarter after quarter. Long-term, this is obviously 100% worth it. But it’s challenging to convince partners that there’s a need to act, there’s a need to do something. If you’re a bank and you see lots of this volume moving away to companies like Wise or others, why is now the time to act? I emphasize a lot with banks who have 250 products. This is one of many decisions they’re trying to take and things to prioritize. And how we managed to get this movement and get partners saying, “actually now is the time to act, to do something about that”, is always tough, but that’s what we’re here to help partners understand.
- How they thought about scaling Wise Platform globally
Steve: When you go into different markets, we’re not, or I’m certainly not, an expert on every single payments market in the country and the world. You learn something new about each market, from the way customers like to interact with their money down to the details of what word is used to describe a reference in certain markets.We’re always learning those localization points. So, part of the aim of the product we offer is to allow for that flexibility. These endpoints can be constructed in any way to build that flow; the partner who has that local knowledge can build the flow they know is going to work for their customers. They’re the experts in that, so we empower them to do that.
The other challenge that comes with expansion is, of course, the regulatory environment. What are are we allowed to do? How do we work together? What do local regulations say on this? This is where Wise has got quite a lot of experience. We’re licensed in countries all over the world, and it’s pretty awesome to see our teams work together internally to figure these new markets, whether it’s a new market for Wise or a new market for our Platform product, actually working quite quickly through what those requirements are, making sure we’re building them into the product and making sure we’re working with the partner to meet that. I think that’s just part of the nature of global cross-border business from day one.
- How Wise is able to tailor their solutions to the problems their partners are trying to solve
Steve: I think about it as not us tailoring the product to their needs, but them tailoring our solution to the problem they’re trying to solve. If we can build and offer this nice generic set of solutions and features, they can be constructed in many different ways, whether Wise needs to be the entity that’s doing the KYC and onboarding the customer or whether the partner has already done that.
We don’t do custom work for partners. We don’t build new things for each partner because this won’t scale at all. But as I was saying to the team, if we need to do something new, build it as a feature, build it as a config option. Then you can build up, stack up these configs or set of features, and allow partners that customization of what it is they’re trying to achieve, but within the frameworks of how the product is structured rather than trying to build a super custom flow and write code for each individual partner, which will never scale and break quite quickly.
So, it’s more about setting those Lego bricks, giving those bricks and allowing them to be constructed into any weird and wonderful idea, but having those kind of core set of flows that are pretty similar for every partner, that can be much more out of the box and work quicker. So they’re kind of the pre-configured option or you can start from scratch and build yourself. That’s how we think about the structure of the platform: letting partners do that customization rather than building that ourselves because that won’t scale.
- Growth opportunities for Wise Platform, and why Wise is expecting Platform to represent the majority of FX volume in the long-term
Steve: Wise is one of the world’s largest money movers today; we’re a large company in this space. But the space is so, so big: less than a percent, probably, of the world’s money, volume-wise, through through Wise today. The vast majority is people and businesses sending through their banks. This is definitely what we see as the biggest opportunity — “ how do we power those flows in tools like banks where customers already are?”. The space where we’re really, really excited about is building out that network of banks as we go. So even though Wise is a large company and we use a lot of money today, the space to grow into this is significant. And I don’t think we’re going to do that by getting 8 billion people and 200 billion companies to download our app, to come to us; the only way we’ll make that progress is by taking our rails and our infrastructure to the places where these customers already are. The biggest place where those money movements happen today is customers transacting within their banks, so I think that’s definitely what we see as the biggest opportunity.
- Where Harsh sees Wise 5 years from now
Harsh: Definitely, we see the network that we’ve built continue to expand and get faster and cheaper to move money around the world. I see our Wise Account, which is for consumers, as one of the best accounts to hold as an international person, if you’re transacting in multiple currencies, and I see that continue to grow a lot. Also, our business account offering, which is again for international businesses, also growing a lot. But in 5–7 years, I hope that we have connected more and more larger banks to the Wise platform, which will give us this economies of scale and also give us a broader deployed coverage so we can reach a lot more people and solve their problems.
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About Wise
Wise is a global technology company building the best way to move and manage money around the world. Wise processes £9bn in cross-border payments every month on behalf of over 16 million customers, saving them £1.5bn a year in bank fees. Wise’s IPO took place in July 2021.
About Harsh Sinha and Steve Naudé
Harsh Sinha is the Chief Technology Officer at Wise. Prior to Wise, Harsh was the director of product at PayPal. He led product strategy and development of PayPal’s mobile apps and software. Previously, Harsh led various technology functions at eBay. Harsh is also an angel investor, an advisor to early stage start-ups and venture capital firms.
Steve Naudé is Head of Wise Platform, Wise’s cross-border payments infrastructure offer for banks and non-banks alike. Wise Platform allows financial institutions and major enterprises to leverage the power of Wise’s technology and embed solutions that make sending, receiving, and managing money internationally easier than ever for their customers directly into their existing infrastructure. Today, Wise Platform is live with more than 60 banks and financial institutions across the world, including Monzo, Google Pay, Ramp and Bank Mandiri, one of Indonesia’s largest banks.
About the Author
Kailee Costello is an MBA Candidate at The Wharton School, where she is part of the Wharton FinTech Podcast team. She’s most passionate about how FinTech is breaking down barriers to make financial products and services more accessible — particularly in the personal finance space. Don’t hesitate to reach out with questions, comments, feedback, and opportunities at kaileec@wharton.upenn.edu.
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