Several years ago, I heard about a product called TransferWise. As someone who’s always travelled a lot and moved currency around for business, the service seemed too good to be true.
It charged low fees and was highly flexible. And ever since I started using the product, I’ve not looked back.
And it seems that other users agree. Wise has grown rapidly over the past few years. Compared to peers like PayPal, the company offers a stripped-back offering.
Nevertheless, its fees are significantly cheaper and, over the past few years, the group has introduced several new products which have only increased the appeal.
The appeal of Wise shares
The main reason why I plan to buy Wise shares is that I think the company offers a product that people want.
As more consumers have come on board, revenue has increased from £178m in 2019 to £421m for the 2021 financial year. The company generated this revenue on £54bn of currency transactions. To put this into perspective, the global foreign exchange market is worth around £4.7trn a day.
A large percentage of this is trading and derivative activity. So, this figure isn’t an entirely accurate reflection of the market opportunity. Still, I think these figures show the scale of the opportunity on offer.
If the group can capture just 5% of this global market, Wise shares appear cheap at current levels.
The firm is also profitable, a rare quality for high-growth tech stocks. Last year, the company generated £31m of profit after tax, up more than 100% year-on-year.
All too often, tech companies give away their products either with excessive marketing or with so-called freemium services. These initiatives help generate activity. But investors have to pay the losses at the end of the day.
Wise’s figures appear to show this company isn’t only avoiding these tactics, but customers are happy to pay its fees anyway.
Risks and challenges
While I am incredibly optimistic about the outlook for Wise shares, I’m also aware the company faces some risks and challenges.
It has no competitive advantage. Therefore, there’s nothing to stop larger competitors from entering the market and snapping up consumers by offering lower fees.
At the same time, one of the main risks listed in the firm’s prospectus is that the group may fail to meet anti-money laundering regulations. If that happens, the company could be subject to significant fines or restrictions, which may inhibit its ability to operate as a going concern.
Despite these risks and challenges, I plan to buy Wise shares because I love its product and think it has enormous scope to grow in the years ahead.