Fintech’s Profits Triple as Interest Rates Rise, Boosting Wise’s Shares

Shares of online money transfer firm Wise surged nearly 18% on Tuesday after reporting a significant increase in profits attributed to rising interest income.

In a statement to the stock market, Wise stated that its pre-tax profit tripled to £146.5 million ($186.5 million), while earnings per share more than tripled to 11.53 pence. The company also experienced a customer growth of 34%, reaching 10 million total users by March 31, 2023, and saw a 37% increase in volumes amounting to £104.5 billion.

Wise’s stock was trading at around £6.18 by midday in London, marking an almost 18% increase for the day.

The company benefited from the recent surge in interest rates as the Bank of England raised them to 5% in response to persistent inflation. Like other fintechs, Wise has been able to generate income from the interest on funds held in customer accounts.

Notably, Monzo and Starling Bank also reported significant profitability milestones, attributing their increased income to lending activities.

Wise reported a 51% revenue growth to £846.1 million compared to £559.9 million in the previous year. The overall income for the firm reached £964.2 million, a 73% YoY increase, largely driven by the surge in customer deposits.

However, Wise has faced challenges in recent times. CEO Kristo Kaarmann has been under investigation by Her Majesty’s Revenue and Customs due to a £365,651 tax bill he failed to pay on time. The outcome of this investigation could have significant consequences for Kaarmann’s position if he is found to have violated UK tax laws.

In an interview with BBC Radio, Kaarmann acknowledged the ongoing FCA investigation and expressed his hope for a prompt conclusion. He emphasized that his personal tax mistake has no impact on the business and stated, “I was really late with my taxes a long time ago and I paid the fines.”

Additionally, Wise faced a $360,000 fine from Abu Dhabi regulators for deficiencies in its anti-money laundering controls. Kaarmann confirmed that this issue has been resolved.

Earlier this year, Kaarmann announced his intention to take a three-month sabbatical between September and December to spend time with his baby. During this period, Harsh Sinha, the company’s chief technology officer, will assume the role of CEO on an interim basis. Some investors speculate that Sinha may permanently take on the CEO position, although Wise has not made any official statements regarding this possibility.