For the frequent flyer, some names in this story may be familiar. Before boarding a plane, they could have considered using either Wise or Revolut as a contactless card for overseas use.
The early 2010s saw a rise of payment fintech created as an alternative to traditional financial institutions. Most of their founding stories sing a similar tune — founders speak of frustration with archaic and costly platforms, which drove them to create start-ups that aim to make payments more transparent and equitable.
A few names that started out targeting the consumer market have pivoted to offer business solutions. Where do these consumer- and business-focused fintechs stand in the global payment ecosystem?
Penny wise, not pound foolish
The founding story of Wise is all too relatable — two friends from Estonia working in London, who were paid their salaries in euros and pounds, found that moving money back home was expensive and slow. As Kristo Käärmann recounts in various interviews, he was slapped with a EUR500 fee when he tried to transfer his GBP10,000 Christmas bonus to an Estonian account.
So, Käärmann and co-founder Taavet Hinriku invented cross-border payments transfer platform TransferWise in 2010, known as Wise today. Their business proposition was simple: they would get rid of the “middlemen”, otherwise known as correspondent banks, from the value chain of payments.
In the traditional value chain of payments, correspondent banks process transactions such as fund transfers or currency exchanges between consumers and merchants. Correspondent banks rely on the Swift network, made up of 11,500 financial institutions in over 200 countries and territories, to carry out the transaction. This process comes with a 2%–5% fee of the total sum and takes between one and four working days. In Käärmann’s case, this meant a EUR500 fee.
Instead, Wise built its own banking network, opening bank accounts in all the geographies that they are present in, which allows them to move funds within the region without any pricing or foreign exchange fees.
Wise’s Lim: People and businesses move about GBP11 trillion across borders, and they are losing GBP300 billion in transfer fees alone. Photo: Wise
“Say you want to remit Singapore dollars to the UK today, once we’ve received the money, we start your funds, complete all the necessary checks and move the money from our pool in the UK to the recipient bank account,” explains Lim Paik Wan, expansion lead for Wise Asia Pacific.
Through this, Wise can offer one of the lowest fees in the market, at just 0.65%. This is a fraction of the global remittances average of 6.2% according to the World Bank. Wise also boasts a transfer speed of under 20 seconds for more than 55% of all its transfers.
In 2016, Wise launched Wise Business, after the company realised that businesses had been using their consumer product to carry out corporate transactions, such as paying employee salaries across borders.
This signalled to the team that businesses were facing the same problems as individuals, says Lim. For businesses looking to expand overseas, they would need to be physically present to open bank accounts to begin operations, which Lim describes as a hassle.
According to Lim, people and businesses move about GBP11 trillion ($18.8 trillion) across borders and they are losing GBP300 billion in transfer fees alone.
Wise Business allows these enterprises to open accounts instantly, carry out activities such as batch payments and even issue extended cards for employees. Wise’s business partners come from a range of industries, from KSisters — a platform that caters to South Korean products to customers around the world — to Electric8, a technology consultancy firm.
Solving these pain points of cross-border payments for individuals and businesses has worked. Wise listed on the London Stock Exchange in 2021 at GBP8.80 a share, valuing the company at GBP8.8 billion, making it London’s biggest tech company by market capitalisation that year.
As of March, Wise has 10 million active customers, 34% higher y-o-y, and supports about 4% of personal cross-border volumes globally. In June, Wise reported a profit before tax (PBT) of GBP146.5 million in FY2023 ended March, more than triple its PBT in FY2022 of GBP43.9 million, marking the company’s seventh year of profitability.
During FY2023, Wise processed GBP104.5 billion in cross-border volume, up 37% y-o-y, with revenue of GBP846.1 million, up 51% y-o-y. Asia Pacific is its fastest-growing region, with 60% y-o-y revenue growth.
Shares in Wise surged more than 20% in June after it announced that rising interest rates would continue to push up profits this year, helping to offset a decline in the size of transfers by customers. Wise said it had been helped by “unusual trends”, including “strong interest income”, despite a slowing economy curbing volumes per customer in the first three months of this year.
Revolut cleans house
Rubbing shoulders with Wise in London is Revolut, which was founded five years later in 2015 by Nikolay Storonsky from Russia, a former derivatives trader at Credit Suisse and Lehman Brothers; and Vlad Yatsenko from Ukraine, a former software developer at UBS, Deutsche Bank and Credit Suisse.
Similar to Wise’s founding story, Revolut initially launched with a prepaid card offering cheap foreign exchange fees. In December 2018, Revolut became a recognised neobank — or a purely digital bank with no physical branches — when it secured a challenger bank licence from the European Central Bank, facilitated by the Bank of Lithuania.
Revolut expanded into Singapore in 2019 and has since been awarded a Major Payments Institution licence and Capital Markets Services licence by the Monetary Authority of Singapore. In 2022, it was granted in-principle approval to offer cryptocurrency-related services under the Payment Services Act.
Today, Revolut is aiming to build the world’s first “global financial super-app”, offering saving goals, rewards and even supplementary accounts for young users aged seven to 17.
On top of Revolut’s free features, its “Premium” and “Metal” plans, priced at $9.99 and $19.99 per month respectively, provide users with additional benefits, such as lower fees, global travel insurance and discounted access to airport lounges.
Users here can invest in stocks, cryptocurrencies and even commodities like gold, silver and other precious metals. For US-listed stocks and ETFs, Revolut charges a commission of 99 US cents per trade and since February, users can trade fractional shares from US$1.
Deepak Khanna, head of wealth and trading at Revolut Singapore, says the company has seen “encouraging interest” in trading services and continues to see a “steady increase” in users and assets under management.
Revolut’s founding product, its multi-currency debit card, allows users to make transactions in over 150 currencies. Users can also exchange and hold 33 currencies in their wallet and set price alerts for foreign exchange rates.
In August, Revolut launched instant card transfers, allowing users to send money to over 80 countries with just the recipient’s name and 16-digit Mastercard or Visa card number. Revolut says this process takes minutes, compared to the “three to five days” required for remittance by traditional banking methods. Revolut charges $1.75 plus 0.8% of the amount transferred for international transfers.
Revolut counts more than 30 million retail customers worldwide, having added over five million new users globally since November 2022. The company says its customer base makes more than 400 million transactions a month, up from 350 million a month in November 2022.
Revolut launched its business solution in the UK and Europe in mid-2017, allowing companies to issue employees with corporate cards. Revolut Business is currently available in 40 markets, including the US and Australia, but not yet in Singapore.
This could change soon. Raymond Ng, CEO of Revolut Singapore, says Revolut Business will help businesses big and small to save money and accelerate growth. “We are looking to bring Revolut Business to Singapore soon and will share more on this in due course.”
In March, Revolut reported its first full-year profit in 2021. Its annual report was released months after they were required to be filed due to a revamp of its internal accounting systems. Revolut reported a net income of GBP26.3 million for FY2021 ended Dec 31, 2021, swinging into the black from a net loss of GBP223.6 million in FY2020.
The company reported FY2021 revenue of GBP696.2 million, nearly triple FY2020 revenue of GBP219.9 million. However, Revolut’s auditor BDO flagged that it was unable to fully verify some three-quarters of the figure — or GBP477 million — which includes revenue from Revolut’s foreign exchange and wealth department, including cryptocurrency.
Revolut hit back at the auditor’s warnings that the figures “may be materially misstated”, sending legal letters to The Financial Times (FT) which carried the news. In May, the company’s chief financial officer of two years, Mikko Salovaara, announced his resignation.
Revolut’s last funding round was in 2021 when it raised US$800 million in Series E funding, valuing the business at US$33 billion. The latest round saw participation from new investors SoftBank and Tiger Global Management.
However, following the release of Revolut’s 2021 annual report, an investment trust managed by Schroders cut the value of its stake in the company by 46%. Schroders Capital Global Innovation Trust, which invested US$13.7 million into Revolut in 2021, disclosed a GBP4.7 million writedown in its 2022 results published April 17.
More recently, a flaw in Revolut’s payment systems allowed criminals to steal some US$23 million ($31.2 million) in early 2022. According to an FT report in July, differences between Revolut’s US and European systems meant some transactions were declined and then erroneously refunded. While some funds were recovered, the company suffered a net loss of about US$20 million, reported FT.
Better than a bank
Industry peer Airwallex has a similar founding story to Wise and Revolut — two friends from Melbourne were frustrated at the impact of high foreign exchange fees and banking costs on the profit margins of their cafe business. So, they set out to build a solution for businesses operating cross-borders.
But founders Jack Zhang and Max Li zeroed in on a specific target segment from the get-go: SMEs and start-ups, skipping the process of onboarding retail customers entirely. Together with two other friends from the University of Melbourne, they started Airwallex in 2015 with the mission to be a “one-stop shop” for businesses to manage their finances.
Two years into its inception, Airwallex raised US$13 million in its Series A round to expand its reach across Asia Pacific and into Europe. It was led by Chinese internet giant Tencent, with participation from Sequoia China, now known as HongShan. In subsequent funding rounds, Airwallex raised between US$80 million and US$300 million.
Last October, it raised US$100 million in its extended Series E2 round, in addition to the US$200 million Series E1 round it closed in November 2021. However, its valuation in 2021 and 2022 remained flat at US$5.5 billion.
