Wise (LSE:WISE) stood out like a sore thumb on the stock market today (1 June), crashing 13.7% to 805p. And like accidentally bringing a hammer down on your thumb instead of the nail, this is a painful development for me as a shareholder.
But might this just be a chance to invest in this fast-growing fintech at a marked-down price? Here are my thoughts.
‘Sell first, ask questions later’
As a quick reminder, Wise transfers money across borders more quickly and cheaply than traditional banking methods.
Indeed, it bypasses these networks entirely by operating a massive global network of local bank accounts. The firm calculates the mid-market exchange rate and applies a small and transparent fee, which it continually lowers as it grows larger.
In recent years, Wise has had great success attracting customers, including businesses and large financial institutions. It now has over 19m active customers worldwide and processes roughly 4.7m transactions per day.
The danger with such increasing scale, of course, is that criminals can try to move laundered money. Fintechs including Monzo, Starling Bank, and crypto exchange Coinbase have all faced fines for compliance failures in the past couple of years.
Like every financial institution, we face the reality of increasingly sophisticated bad actors attempting to exploit our platform, and we continually invest in tech-enabled systems and teams to stay ahead of ever-evolving threats.
Wise.
Today, the stock fell after the company said it’s responding to enquiries from prosecutors in Brussels relating to Wise accounts being used for criminal activity (suspected drug-trafficking and corruption).
The suspicious transactions are reportedly said to involve around €500m across European countries. For context, Wise did £181.7bn in global cross-border volume last year (25% growth).
Predictably, investors are responding with the age-old approach: sell first, ask questions later. Actually, these days it’s more likely trading algorithms programmed to respond this way.
Where next?
Wise says no specific findings have been shared with the company, while the requests themselves are not evidence of non-compliance or wrongdoing.
However, the timing is awkward because the company has only just moved its primary listing to the Nasdaq. These headlines could dampen enthusiasm for the shares and hinder customer acquisition across the pond.
On top of this, the firm might feel the need to beef up its checks for new customers. That could introduce friction in the onboarding process, slowing growth.
It’s worth noting that about a third of Wise’s global team is dedicated to compliance and anti-financial crime. So this is disappointing news, and is likely to increase volatility in the share price moving forward.
