Singapore is the land of opportunities for foreigners living here. Thanks to the city-state’s strong currency and economy, it has become one of the regions’ largest business hubs despite being one of the smallest countries.
With that, remittance has become a booming business in Singapore as expatriates and foreign workers often need to send money back to their families.
Typically, one would have to head down to a physical bank branch or remittance service provider, fill up a form and have a teller at the other end manually complete the transaction. After doing all that, the receiver would not know exactly how much money they would get, as transfer fees and exchange rates were not entirely transparent. Furthermore, this process could take days or weeks to complete.
Tired of this long process and the lack of transparency, friends Kristo Käärmann and Taavet Hinrikus decided to do something about it. They started TransferWise, which provided remittance services that offer complete transparency and can be done within a matter of seconds, or minutes at most.
Today, the business does not just offer remittance services. Rebranded as Wise, it also offers a multi-currency account within its app, as well as a prepaid card that users can use to spend the money in the wallet.
“[After creating an account and completing verification], you can simply use the Wise app to input either the amount you want [the recipient to receive] or the amount you would like to send. The app will then [show you] the relevant fees and exchange rates,” explains Venkatesh Saha, CEO of Wise Asia Pacific and head of APAC expansion.
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Wise has bank accounts in the countries that it operates in and these accounts are used to transfer money to the receivers in their home country, enabling transactions to be quick and seamless. But the way Venkatesh sees it, the business is not a capital-intensive one. “What we are doing is matching those flows based on a principle we call ‘netting’, which we can do in many markets around the world. That is just one way in which we make sure that we are capital-efficient,” he explains.
As Wise disrupted the remittance industry with its fully digital services that are faster, cheaper and more transparent, it took the next step to go public.
London listing
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For most companies, the reason to list on an exchange would be to raise capital and fund some aspects of the company’s future growth. But for Wise, this was hardly the case.
“Our IPO happened mainly to give our existing and long-term shareholders an opportunity to exit as we did not raise any additional funds through our listing,” explains Venkatesh.
Wise’s listing on the London Stock Exchange (LSE) was a rather peculiar one. The company had gone public by way of a direct listing.
“The direct listing was something innovative for it has not often been done by a European company, and we are the first one in LSE,” says Venkatesh. Apart from giving existing investors an easier avenue to exit their investments, he elaborates that the direct listing was so the company could “be fair” to shareholders.
“In a direct listing, anyone could bid for a stock on day one, unlike the traditional IPO process where various allocations are made to large funds and regular retail investors will not typically get a chance to participate in the beginning. Another point to note is that we don’t set the [share] price, it will be set by the market’s demand and supply. That is what will end up valuing the company,” says Venkatesh, adding that the direct listing process is also cheaper, which then allows the company to continue focusing on building its sustainable business.
In a direct listing, a company’s shares are admitted to trading on a public market. This is in contrast to the traditional IPO route, where admission to trading hinges on a successfully coordinated offer of new or existing shares to investors, which are all managed by an underwriting bank that provides bookbuilding services. After which, the bank markets the offer to institutional investors first and retail investors can participate after admission to trading.
When a company such as Wise chooses the direct listing route, it skips a bank’s bookbuilding process and the opening auction on the exchange determines price discovery. In a simple direct listing, there are no set conditions about pricing securities or how many shares should be sold.
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The way LSE sees it: “A company choosing a direct listing will need to be confident that there is sufficient demand among its existing shareholders to allow a liquid market to develop post-admission to trading. Public investors actually determine the security price on the day the company goes to market. Companies may still mandate banks for advisory services to help educate investors on their equity story.”
For co-founder Käärmann, the direct listing route was also to avoid speculation within the market around the company’s valuation. “The artificial price-setting in an IPO is necessary for those that have to raise capital, but we fortunately don’t have to,” he says.
Competition concerns
On its debut day on July 7, shares in Wise opened at GBP8.00 ($14.50) and climbed some 10% the very same day to close at GBP8.80, valuing the company at GBP8.75 billion and becoming London’s biggest tech company by market capitalisation.
For a few months, the stock enjoyed a steady share price growth, with it trading at its highest at GBP11.40 on Sept 24. But it went downhill after that and the stock is now trading below its listing price.
It was on Oct 25 that the stock slipped below its listing price for the first time, after a discounted share sale by its co-founder compounded mounting concerns of increased competition for the company. Hinrikus offloaded GBP81.5 million of stock at a discount.
This slide contrasts sharply with Wise’s headstrong start on public markets.
The stock also came under pressure in October when Käärmann was charged for a tax breach and then again clearing houses teamed up to launch cross-border payments. Additionally, Meta, previously Facebook, announced that it was starting a pilot programme for a digital wallet app that allows for instant transfers without any fees. This news weighed quite heavily on Wise.
As at Nov 30, shares in Wise are trading at GBP8.48, 12.1% lower from when it first started trading, giving it a market capitalisation of GBP8.47 billion.
Growth beyond listing
Despite its falling share price and competition concerns, Wise’s entry into the public markets was done in a healthy position as it has shown profit growth over several years. The group’s consumer business between 2018 and 2020 grew by over 50% on a CAGR basis.
However, the group’s overall business growth has been rather slow as it is already well-established in several of its markets. Furthermore, offering lower rates than its competitors and slowing expansion could result in a stunted overall revenue.
Hence, the group’s growth is likely to come from the APAC region. With the Covid-19 pandemic accelerating the need for efficient digital services, Wise is determined to top this area, especially within the APAC region.
When people start getting comfortable using a new, non-traditional way of transacting and managing their money, they then start to shop for the best product. We traditionally do come out as being the cheapest, fastest and most convenient way of doing remittance.Venkatesh Saha, CEO of Wise Asia Pacific and head of APAC expansion
“In Southeast Asia alone, I think the digital payments economy is going to become a trillion-dollar industry. And a big part of that is this transformation where people are getting more comfortable using [digital] financial services. We are certainly a beneficiary of that,” he adds.
Moving forward, Wise intends to expand into new markets around the world, although Venkatesh is not able to share details as the company is still in discussions with the relevant central banks. Currently, Wise is in 43 markets where people can send money from.
The way Venkatesh sees it, Wise has expanded well in Singapore since it first entered the market in 2017. Currently, it has over 200 employees locally and plans to add 90 more in the near future.
“Singapore is our hub where we support all of Asia Pacific. We are not just serving the Singapore market here in our offices, but we also serve the other eight APAC markets where our products are live. But what is also interesting and has happened in Singapore is that we now have teams here building products for the world. So we have gone from being a localisation office to being a core part of the company and doing interesting things here that other markets can also use,” says Venkatesh.
Apart from expanding in its current markets and into new markets, Wise is also looking to offer more products to its consumers. For instance, Wise in the UK is already offering consumers an investment product within the app. Venkatesh sees the potential in this new feature and hopes to bring it into the APAC region soon.
Photo: The Edge Singapore/ Samuel Issac Chua
