GoPractice is launching a new format: snapshots of noteworthy product and business podcast episodes.
In the first issue, we have prepared a retelling of the Breakout Growth Podcast episode, in which Sean Ellis and former PayPal marketing director Matt Lerner interview Nilan Peiris, VP of Growth at the fintech company Wise. In the beginning of July 2021 it had a valuation close to $11 billion and opted for a direct listing.
For the convenience of our readers, we have opted to provide a summary of the key points of the conversation instead of a full or partial transcript of the interview. You can listen to the full episode on your favorite podcast platform – Apple Podcasts, Spotify, Castbox.
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What is Wise and what value does the product provide to its users
At the core of Wise is a successful cross-border payment product. The company makes about £3 billion in monthly transactions. Traditional cross-border payments are expensive and slow. Wise has managed to provide the same service at higher speed and lower costs. One in five cross-border transfers in Wise are instant. They intend to reduce the cost to almost zero.
What is the value? In Europe, banks can charge between 4% and 7% of implicit cross-border transfer fees, embedded in the exchange rate. For a $1,000 transfer, the costs amount to $50. At $1,000,000 (e.g., when buying a house), the costs can reach $50,000. Wise helps you save a lot of that money. About 80% of Wise’s users are in the B2C segment (students, freelancers, etc.), and the remaining 20% are in the B2B segment. They even buy houses and pay off mortgages in another country through Wise.
How to ensure low cost of transactions? (Note from GoPractice: Wise has local accounts in all countries where the service operates, so the money just doesn’t cross the border when transferring. For example, when transferring from England to France, the sender’s money goes to the English Wise account, and the money for the recipient is debited from the French Wise account.) To achieve the minimum cost of Wise transfers, it is necessary to solve about seven problems: obtain a license in each country; make Pay-In and Pay-Out cheap and fast; achieve instant conversions; make onboarding very simple; and understand the rest of the growth funnel, such as recommendation drivers and reputation change drivers.
People continue to use banks because they trust them and do not suspect that banks are ripping them off. Let’s say the bank’s website says that the commission is $2. But no one suspects that another $50 is hidden in the exchange rate.
People don’t understand the problem that Wise is solving, so it’s harder to attract them. They don’t realize that they are paying the extra $50, so the service cannot attract users through search engines or ads.
The likelihood that someone who first heard about Wise will trust them with an amount of money comparable to the value of a house is rather low. You can go to the bank, you can look at it, shake someone’s hand. Trust is the determining factor here.
Acquisition channels and growth principles
The main channel of growth is word of mouth. People recommend Wise for specific use cases that they’ve successfully solved. Those who bought a house through Wise tell about their experience to other people who intend to buy a house. Students who have received a payment from abroad tell other students about the service. Users are finding different ways to use Wise and this helps the service grow. The service strives to give users as much value as possible by increasing the speed and reducing the costs of transactions.
Wise says: “When we enter a new market, we need to be at least 10 times better than any alternative product in an important way. Otherwise, no one will notice us.” For example, in Brazil, the viral coefficient of a service is very close to one. It costs about 10% to withdraw money from this country. By creating a way to withdraw money at 1%, Wise has significantly changed cross-border payments for Brazilians. It was one of the fastest growing markets for the company. A large difference in the cost of transfers compared to other services leads to more recommendations. This in turn increases the value of Wise stock and the value of the business as a whole.
Wise believes that often in order to create a product that is 10 times better, they must create something that didn’t exist before. In Singapore, they were the first to receive a license that allowed them to take selfies and a photo of an ID, after which international transfers became available. In the UK, they fought for five years to create new regulations that allowed them to get an account with the Bank of England and get the best value for international transfers. These are good examples of how to achieve greater efficiency in established markets.
Recommendations lead to growth, but growth leads to congestion. The net promoter score (NPS) of Wise is around 86%, which is very good. With such an indicator, recommendations through word of mouth grow strongly, but at the same time, the load on support and other specialists increases significantly. It is impossible to hire new people at the same rate as the audience is growing, so at some point NPS starts to decline and growth slows down. At such times, you need to put everything in order to straighten the NPS and resume growth.
How to talk to shareholders about revenue and earnings is critical to a company’s success. It is important to reach agreement with shareholders and adjust their expectations about whether revenue is a final goal or an intermediate goal that allows the mission to be solved. The second is more interesting and profitable for shareholders in the long term. In the end, the main thing shareholders need is making sure that one day you are going to grow damn big.