FOR A FINTECH company, Wise (formerly TransferWise) had a refreshingly analogue birth. Kristo Kaarmann and Taavet Hinrikus, two Estonians living in London, met at a party in 2007. Mr Hinrikus was being paid in Estonian kroon that he exchanged for pounds each month; Mr Kaarmann was converting his sterling salary into kroon to pay his mortgage back home. Both were fed up with bank fees. So they devised a workaround. Every month Mr Kaarmann topped up Mr Hinrikus’s British account, and Mr Hinrikus did the same for Mr Kaarmann’s Estonian one, setting the amounts according to the mid-market exchange rate—naturally, fee-free.
The business they set up in 2011 to provide a similar service for others now has 10m customers. On July 7th it went public on the London Stock Exchange (LSE), with an opening valuation of £8bn ($11bn). Fittingly for a company set up to eliminate transaction charges, it did so without an initial public offering (IPO), thus avoiding the hefty fees banks charge for marketing newly minted shares to institutional investors. Such direct listings have become increasingly common for tech firms in America: Spotify, Slack, Palantir and Coinbase have all used them in recent years. But Wise is the only company to have completed one in the City of London, apart from the LSE itself.
Wise’s valuation will have cheered its founders, who have seen it more than double in the past 12 months. City executives whose revenues depend on London listings are likely to have breathed a sigh of relief, too. Earlier this year Deliveroo, an eight-year-old food-delivery company, was handed a drubbing at its IPO. Many of the City’s biggest fund managers refused to participate, and on the first day of trading its share price fell by 26%. The debacle raised fears that Britain’s equity market is insufficiently hospitable to the tech firms set to be this century’s stars.
Wise’s warmer welome is in part a sign of greater confidence in its business model. It has been making profits since 2017, something Deliveroo has still not managed to do. No awkward questions hang over the employment status of its workers; Deliveroo’s IPO documentation included warnings about legal inquiries in Britain, France, the Netherlands and Spain. Wise’s business model, unlike dispatching drivers with food, is eminently scaleable. And its path to growth is clear. Although it processed £54bn of international cash transfers in the most recent financial year, it reckons it still only handles £1 out of every £40 sent across borders by individuals. Meanwhile it is branching out into serving small- and medium-sized businesses, which transfer £7trn a year across borders.
Even so, animal spirits being what they are, the successful listing will boost the…
Read More: Wise’s listing gives a boost to London’s equity market