It’s undisputed that the fintech industry continues to prove challenging for any player to join and achieve success.
On the other hand, apps such as Wise (formerly known as TransferWise) have managed to build into a trillion-dollar business in only a span of 3 years.
The app has been on the rise since its launch, making millions in revenue and net profits from the idea of an efficient channel that allows people to transfer money internationally – quickly and with little to no cost.
Now, the question arises: how does the Wise Foundation operate to achieve such success? Or simply, how does Wise make money? This article addresses all the above questions.
Origin Story Of Wise
So, who owns Wise money transfer? Wise was founded by two friends, Taavet Hinrikus and Kristo Käärmann, in 2010, living as expats while based near London.
Feeling frustrated with the impractically excessive fees for international money transfers charged by traditional banks, they developed an innovative solution.
They created a peer-to-peer platform enabling users to exchange currencies at midmarket rates without intermediaries.
With their background, given that Taavet Hinrikus was the first worker at Skype and Kristo Käärmann was a former management consultant, they used this to formulate a tool that disrupted how people sent money across different jurisdictions.
The company started its operations in 2011 as a venture that provided low charges to other people by offering an alternative mode of banking services that was transparent.
Wise Business Model Explained
The uniqueness of the Wise business model lies in its transparency and the objectives to introduce affordable international money transfer and currency exchange services.
The key elements of the Wise business model are listed below.
1. Real exchange rate
Wise includes the exchange rate and the mid-market price for its users buying from one currency and selling in others.
This is the midpoint between the buying and selling prices of two foreign currencies traded in the international market, which serves as a sort of guideline that both buyer and seller can use.
2. Low transaction fees
Rather than the percentage-based fee, Wise charges a fixed upfront fee per transaction.
This fee is boldly shown and, in most cases, lower than the fees charged by conventional banks and other financial institutions.
3. Peer-to-peer system
Wise operates in a network of peers where it pairs users looking for currencies trading but opposite each other.
For instance, if somebody needs to change his or her dollars into euros, Wise brings such a person in touch with an individual searching to change euros into dollars.
This reduces banking intermediaries.
4. Borderless accounts
Wise offers cross-border multi-currency accounts to users, through which they can store and manage money in different currencies.
This functionality primarily benefits individuals and organizations engaging in international trading.
5. Transparency
To accentuate transparency, Wise has a user-friendly system that shows all commissions and the actual exchange rate before confirmation of any transaction.
This transparency differentiates Wise from conventional banks, where several hidden charges and unfair exchange rates are expected.
Wise Monetization Strategy
Wise uses diversified monetization tactics that make it possible to benefit from its role in the global market of money transfers and currency exchange.
Here’s a breakdown of the Wise monetization strategy that answers the question, how does Wise make money?
1. Transaction fees
Wise charges a small upfront fee for every transaction. This fee is usually less than what traditional banks and other money transfer services charge.
With many processed transactions worldwide, Wise makes so much money on these transaction fees.
2. Currency conversion markup
Although Wise provides its customers with the ‘real’ mid-market exchange rate, it may sometimes use a slight markup on several currency conversions as an additional source of income.
Nevertheless, this markup is usually lower than what traditional banks charge, becoming a competitive advantage to Wise.
3. Interest on balances
Wise provides borderless multi-currency accounts that enable users access to balances in different currencies.
Wise may receive interest on these funds just as the banks earn revenue from customer deposits to add to Wise’s monetization strategy.
4. Business accounts and API integration
Wise provides business-specific services such as business accounts and API integration to streamline international transactions.
Businesses are provided with these services and pay fees for them, thus contributing to Wise’s revenue.
5. Premium services
Wise provides premium services at a fee, which include faster transfers, personal account managers, and advanced customer support.
Such premium services target specific users with different needs and preferences to create another source of revenue for Wise.
Conclusion
The evolution of Wise’s from its small start to a world leader in fintech technology reflects its innovation, transparency, and empowered strength.
Through disrupting conventional banking behavior, Wise has transformed how people and companies can move money across borders., creating a new standard for efficiency in the financial industry.
Wise has established many supporters worldwide with its focus on supplying genuine spot rates, more transparent charges, and user-friendly service platforms.
Its comprehensive strategies also highlight its flexibility and robustness in the fast-changing marketplace, making it a walk in the park for the company to make money.
