Key insights
- The article discusses Wise's competitive advantage in cross-border FX due to its direct integration with global banking systems and high liquidity pool, contrasting it with Revolut's subscription-based model. It suggests potential competition from Visa's Currencycloud and BIS's Project Nexus. While not directly impacting US equities, increased competition and commoditization in cross-border payments could indirectly pressure earnings for US financial institutions involved in international transactions.
I have 30% of my liquid net worth invested in Wise and whenever I'm talking about it, I'm often asked, "What about Revolut?"
Many people believe that Revolut a direct competitor of Wise and why shouldn't they?
Both companies offer cross-border transactions at lower rates than the typical bank along with international bank accounts. Revolut goes even further trying to be the Financial Super App of Europe.
But there's a key difference between Revolut (and all the other neobanks, MTO apps, including Airwallex) and Wise.
Wise is more than just an app.
Revolut runs a subscription business that can subsidize FX while Wise integrates directly into banking systems around the world to settle cross-border FX. In short, Revolut is a bank with a different business that still uses the same old banking system but subsidizes it for customers. While, Wise is building its own system.
If you're going to look at Wise as just an app, then, you'll see it in direct competition with Revolut and other neobanks. But it is more that that. That's why so many of the neobanks, for example Monzo and Nubank, use Wise for their cross-border transactions.
Whoever wins cross-border FX will need two things:
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High liquidity pool
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The value-added services to monetize it.
Most of these neobanks have the value-added services but lack the high liquidity pool. Wise has both. Wise may not be the best today with Revolut or other neo-banks offering better apps and Airwallex offering better services for businesses, but the goal of Wise has always been to lower the FX cost and then, on top of that add features as they are requested by customers.
Visa through Currencycloud might leverage their connections to build the high liquidy pool but they lack the value-added services. Same for Thunes. The Bank for International Settlements (BIS) is working on Project Nexus, attempting to commoditize cross-border FX and make it a public utility. Their goal is to bring take rate below 3% and most transactions happening in less than 60s. Well, Wise take rate is 0.51% and 75% of transfers happening in less than 20s. Project Nexus not only lacks the value-added services but it is also behind Wise.
The ultimate mission of Wise has always been to bring cross-border take rate to zero. I don't think they will be able to do it anytime soon. But the lower it gets, the more it forces the competition to either lower prices or join the Wise Platform. Either way, more volume comes to Wise.
It becomes a flywheel. More volume provides more liquidity to further lower prices, which leads to more value-added services that can be monetized.
This is the Costco/Visa playbook together.