Regulatory Pressures And Digital Threats Will Shrink Margins

Key Takeaways

• Growing regulatory, technological, and security challenges threaten Wise's market access, margin structure, and ability to sustainably expand revenue and customer base.
  
• Heightened competition and persistent price pressures risk long-term earnings volatility, margin erosion, and limited transaction volume growth.
  
• Wise's operational efficiency, platform expansion, and pricing strategy strengthen its position to drive sustained growth, recurring revenues, and long-term profitability in global payments.

Catalysts

Provides cross-border and domestic financial services for personal and business customers in the United Kingdom, rest of Europe, the Asia-Pacific, North America, and internationally.

• Increasing global regulatory scrutiny, including rising protectionism and local data requirements, is likely to push Wise's compliance costs significantly higher and restrict access to certain cross-border corridors, directly limiting revenue growth and compressing future net margins as new frictions emerge.
  
• The accelerating adoption and implementation of Central Bank Digital Currencies and other state-backed digital settlement systems threaten to bypass Wise's core infrastructure, which could sharply reduce the long-term relevance of the company's services and undermine both volume growth and earnings sustainability.
  
• As digital platform security concerns and high-profile data breaches mount globally, consumer and business trust in fintech providers is becoming more fragile; this could materially slow Wise's future customer acquisition and limit addressable market expansion, directly subduing growth in customer numbers and transaction volumes.
  
• Wise's continued strategy of price reductions – in order to maintain competitive advantage – is already evident from the steep decline in take rates to 0.53 percent, but as the payments market becomes increasingly commoditized and new entrants emerge, persistent downward pricing pressure risks driving long-term margin erosion and stagnating transaction revenue growth.
  
• Intensifying competition from both digital-first banks, emerging fintechs, and Big Tech companies with deep integration and distribution advantages will likely force Wise to increase operating and marketing expenditures just to defend share, leading to a scenario where earnings volatility increases and the path to reaching ambitious volume targets and margin expansion becomes structurally impaired.

Wise Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Wise compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Wise's revenue will grow by 12.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 25.3% today to 12.4% in 3 years time.
• The bearish analysts expect earnings to reach £288.2 million (and earnings per share of £0.28) by about July 2028, down from £416.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 33.2x on those 2028 earnings, up from 25.3x today. This future PE is greater than the current PE for the GB Diversified Financial industry at 16.7x.
• Analysts expect the number of shares outstanding to decline by 0.4% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.42%, as per the Simply Wall St company report.

Wise Future Earnings Per Share Growth

Risks

• Wise's strong double-digit customer, volume, and underlying income growth-21% active customer increase, 23% cross-border volume growth, and 16% underlying income growth in 2025-suggests resilient demand and customer acquisition that could sustain revenue and earnings expansion over the long term.
  
• Rapid expansion of Wise Platform, with major bank partnerships like Itau and Raiffeisen, supports further penetration of the global cross-border payment market and a pathway for platform revenue to rise from 4% of cross-border volume to potentially 50% of group revenues, creating substantial new recurring revenue streams.
  
• Wise's consistent improvement in operational efficiency, with underlying gross profit margins rising to 75% and cost of sales increasing only 5% against 16% income growth, demonstrates effective scaling that could safeguard net margins and overall profitability as the business continues to expand.
  
• Wise's proactive price reductions, enabled by economies of scale and technological innovation, are driving increased retention and additional volume on the platform, which may offset take rate compression by growing transaction revenue and defending overall earnings.
  
• Long-term secular demand tailwinds-including globalization, rising migration, increasing digital adoption, and the ongoing disintermediation of legacy banks-position Wise to benefit from secular growth in cross-border payments and fintech adoption that can support sustained revenue and earnings growth far into the future.

Valuation

• The assumed bearish price target for Wise is £7.68, which represents two standard deviations below the consensus price target of £11.85. This valuation is based on what can be assumed as the expectations of Wise's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £14.1, and the most bearish reporting a price target of just £7.5.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be £2.3 billion, earnings will come to £288.2 million, and it would be trading on a PE ratio of 33.2x, assuming you use a discount rate of 7.4%.
  
• Given the current share price of £10.38, the bearish analyst price target of £7.68 is 35.1% lower.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.