British fintech Wise reports 280% jump in profit as higher interest rates boost income

British fintech firm Wise nearly quadrupled pre-tax profits in its half-year results out on Tuesday, citing a boost from higher interest rates.

Wise reported revenue of £498.2 million, up 25% year-on-year, in the half-year ended on Sept. 30, 2023. Including interest income, the company’s total income stood at £656 million for the period, up 58% year-on-year.

Before tax, company profit came in at £194.3 million, up 280% year-on-year.

Wise said that it benefited from higher interest rates, extending a trend from earlier this year where the company was pulling in extra income thanks to interest rate increases.

The business is sitting on a greater amount of customer balances than it was a year ago, meaning it was in possession of more yield-generating cash, in a period of central bank rate increases.

Jefferies analysts said in a note that, despite Wise’s blowout profit performance, they remain “cautious on TPV [total processed volume] momentum, despite stabilization expected, as VPC [volume per customer] likely remains under pressure.”

The analysts added that the boost to Wise’s results from higher interest income is a “welcome temporary compensation” for slowing core total processed volume, but noted it is “likely unsustainable.”

Wise, which lets consumers move money across borders at considerably lower fees than do established banks, has a business that’s largely tied to the health of the consumer. U.K. retail spending grew 1.2% in October from last year, the lowest year-on-year growth since December 2022.

Wise, which went public on the London Stock Exchange in 2021, has a market capitalization of £7 billion ($8.7 billion). The firm’s share price has risen 25% since the start of this year, clawing its way back from a bruising year for technology stocks.

Harsh Sinha, Wise’s technology chief, recently took the reins from Wise CEO Kristo Kaarmann at the firm’s helm. Kaarmann, who co-founded Wise in 2011 with fellow Estonia-born entrepreneur Taavet Hinrikus, began a three-month sabbatical in September and is due to return in December.

Wise shares were largely unchanged Tuesday.

The results come after a bloodbath for payments stocks, which sank sharply in recent weeks due to results that suggested slowing momentum and a return to reality after the heady days of the Covid-19 boom in online payments.

“Rumors of fintech’s demise were overstated,” Simon Taylor, head of strategy at regulatory technology firm Sardine.ai, told CNBC on Tuesday by email.

“The consensus trade was that ‘risk assets’ like fintech should suffer most with rate rising. The opposite is true. ‘Rate normalization’ was supposed to help the banks but it has helped the fintech companies more.

“Wise has benefitted much more from higher rates than the banks have, because it continues to grow revenue and market share,” Taylor added.