Wise plc (WPLCF) Q4 2023 Earnings Call Transcript

Wise plc (OTCPK:WPLCF) Q4 2023 Earnings Conference Call June 27, 2023 4:30 AM ET

Company Participants

Kristo Kaarmann - Co-Founder & CEO

Harsh Sinha - Chief Technology Officer

Matthew Briers - CFO

Martyn Adlam - IR

Conference Call Participants

Alistair Nolan - Morgan Stanley

James Goodman - Barclays

Kim Bergoe - Numis

Nick Anderson - Liberum

Aditya Buddhavarapu - Bank of America

Soomit Datta - New Street Research

Justin Forsythe - Credit Suisse

Hannes Leitner - Jefferies

Josh Levin - Autonomous

Mohammed Moawalla - Goldman Sachs

Martyn Adlam

Good morning, everybody. Thank you so much for joining us for our Financial Year 2023 Full Year Results Presentation. Usual format, today, we're going to have Kristo, Harsh, and Matt take you through the results and key highlights for the year. And then, we'll follow this with some Q&A, which we'll take from the room first. And then, we'll also take Q&A on the live web stream. You can do that just by raising your hand virtually.

Before we hand over to Kristo, Harsh, and Matt, though, I'd just like you to hear actually from one of our customers.

[Video Presentation]

Kristo Kaarmann

Thanks, Athena, and welcome everyone to our second full-year annual results as a public company. So it's the financial year 2023. Of course, we're going to get to share the detailed numbers and the financials, but it's also the time for us to check up on the progress we're making on our mission and what we've been shipping.

So before we're going to hear from Matt going through the detailed numbers, you're going to hear from me and from our CTO, Harsh, on what we're shipping and why. So, every day we come to work at Wise to work on a mission, to build the best way to move and manage the world's money because as we've talked about before the international banking, the traditional ways of doing this is broken. It's slow, expensive, and often a frustrating experience.

And it's not a small challenge, because there is a lot of demand for it. A lot of people are hoping for better. There's about GBP2 trillion moving cross borders, looking for a better way to do this for people and it's even worse for businesses. It's GBP9 trillion, GBP9 trillion moving across borders annually and the experience the small businesses are getting [Technical Difficulty]

So, our customers and people are telling us that it's expensive to move money, there is no real banking services for their international business, and banks are saying, it's impossible to build better experiences on the infrastructure that is there on the technology. And this then summarizes what we are solving. We've already made a ton of progress on making transfers fast, cheap, convenient, and go around the world.

We're building the Wise Account, the new solution to international banking. And this is going to transform how people and businesses think of handling their money across borders. And we have created new infrastructure because the current one doesn't work. The banks are telling us that. And that's what enables us to build these other two products. And now, we are opening this up to our partners so that they can build their own bank accounts on top of it.

And it turns out what we've been building resonates with the demand and it's paying off. So if you look over the last four years, we've seen us triple the number of customers that are using Wise, using our products and we've seen us quadruple the volume. So clearly, what we have been working on is resonating. It's paying off. And all that time, I think it's now the seventh year that we're operating profitably. It's one way to look at it.

The other way to look at it is, we're still scratching the surface. We are only serving about 5% of the total market for people and less than 1% for businesses. So we have a long way to go. And so let's set the scene for today. I'll kind of talk to little bit about the problem we're solving, the things that are broken, the things that we're here to fix, and the demand for it, on the left-hand side. And I gave you a glimpse of what the numbers or the results have been over the last four years, and Matt is going to go deeper into that. So this is clearly working. We've gone from the problem to the solution. The question is why.

So what makes us a special company that is able to solve this enormous problem and achieve our mission? I think it really boils down to two things. First of all, it's our obsession on customers. We are one of the few financial services companies that has evangelical customers. And this is not by accident. I think I'm surprised when I hear people loving their bank, but our customers do that and they tell their friends, we can't stop them telling their friends. And this is because of the products and the experiences we create.

And we can only do this as the second block, by creating the new infrastructure that enables this, fundamentally a different experience. And Harsh will talk a little bit more about the second, I will cover the first. So let's go into these evangelical customers. And I'll start with a number. I love numbers. 66%, two-thirds of our customers join because someone recommended Wise. This is an awesome stat.

But the important question is, why did they recommend, why are they are recommending Wise to their friends. And this is because of this radically better experience that we create because that's what our customers are seeing, are used to be seeing, and that causes the frustration, which is now replaced with instant transfers. 55% of our transfers arrive in less than 20 seconds. 5 times to 10 times cheaper than using your bank. And we're not hiding fees. Tell you what you are getting charged.

And it's actually a delightful experience when you can get your business account going in less than a couple of hours. And we do this by investing in three products, Wise Account for individuals, Wise Business, and the Wise Platform for banks and our enterprise partners. So I'm not going to go into everything that we covered over the last year, but I'll just give you one highlight of how we think about developing these experiences.

As we see the Wise Account getting more traction and we are building out the experiences our customers have, not just sending, but also invoicing their customers internationally, spending across borders and holding money with Wise, we've realized that coming to holding money the problems are not too dissimilar than what we've seen cross-border transfers turns out, that is also quite expensive to hold money in a UK traditional current account.

When the inflation goes up, the central banks are paying 4% to 5% interest rates and of course, the current account pays nothing. And we found a way to solve this. By over the last couple of quarters, we launched Wise Interest which is a Wise Assets products that allows our customers to hold government guaranteed assets in the UK and now rolling out in Europe, that beyond being 100% with the government guarantee, but also they pay the interest close to what you'd expect from the central bank. So, that's slightly older data now from I think beginning of June. But in the UK, our customers are earning 4.12% on the pounds and a little bit less in euros.

So this is just one example of how the experiences that we create are creating evangelical customers, because now being one of the highest earning current accounts in the UK, of course, everyone is talking about it. I'm not going to go through more of those, but I would recommend just click into the quarterly mission update. This was one of the, I think, '23 highlights that we brought out and things that we shipped in the last quarter.

And without going through this, these changes or these improvements that we're making to the Wise Account and Wise Business, they are resonating because we now see about 50% of new joiners starting to use the account, just going beyond just sending money, but using it for spending, for receiving, that's across the world. But if we click into some markets like Brazil, this is a majority of customers now using Wise as an account rather than just a transfer product. And of course, this plays through to our entire base, which is then growing on the business side. It's, I'd say, more than half of the users using Wise as their business account.

And why this matters? From the financials perspective, the customers who use us for more fully for whom we can satisfy more of their international banking needs, they do 3 times more transactions and bring 2 times the volume that just the send money customers. So this does translate into our results as well. But bringing this all together, while we started talking about this, because these are the experiences that create evangelical customers.

This is what will drive our customer growth and the customer growth in turn drives volume. We see our customers growing 3 times over the last year, we see the volume following that. On businesses, it's even more. Customer growing faster, but the volume growing even faster. So that's kind of setting the scene on the evangelical customers. And going into what's next, there's going to be the same similar investments that we're seeing bring that result over the last four years continuing.

So just to give you some examples. Matt is going to talk through some of the benefits that our customers are seeing, for example, from the heightened interest rates and the interest income. We will have improved servicing and onboarding so that the Net Promoter Score can go even higher, our customers can get more evangelical. We've talked about new features such as assets, but there is more around spend experiences and some of these features are yet to be rolled out around the world. So we start in UK and Europe, but then roll out around the world.

And then we add to the footprint of where we operate. We're bringing on Wise, bringing Wise not just individual features, but the entire footprint to more and more people and businesses. And all of this, all of what we're shipping is leading to more customers, more active customers. And that's not just this year, actually the improvements that we're making today are going to bring the customers over the next four years. So the growth, the 3x customer growth that we saw over the last four years, we want that to continue, because we're really only scratching the surface with what we started.

And now going more deeper into the infrastructure that enables all of this, I'll hand over to our CTO. Thank you.

Harsh Sinha

Thank you. So, as Kristo said, people love Wise for a variety of reasons, but a few of them are price, speed, and convenience. But it is our global infrastructure that really powers this proposition. And on top of this infrastructure is what we build are these amazing experiences, so the Wise Account, truly international account for people and businesses and then also Wise Platform on top of which others, other enterprises or the banks are building on the top of this infrastructure.

I'll go a little bit deeper into explaining what this infrastructure can do. And there's a lot more this can do, but I've kind of tried to call out a few things here. So, first of all, when I talk to bank partners, some of our competitors, things that they are wowed by or things that really blow their mind on what we can do are these things. We are 8 to 10x cheaper than banks. The speed at which we can move money across our network and also how quickly and how efficiently we can onboard people and businesses and be compliant across such a large geography of licenses we run.

So, talking about cost and speed, a big part of our infrastructure and what we've built over the last 12 years is this network of direct connections to different local payment systems. Currently, we are integrated into -- directly into four countries, with more coming, but also we have a very large partner network that is very stable, which allows us to control the end-to-end experience that then allows us to have lower cost consistently and control the speed on which we can move payments.

To give you an example, the first direct connection, we were the first ones to get directly connected to the UK payment system as a non-bank. That took us about five years from working with regulators and working through, getting the access in the settlement account because it's the first time being done in the UK. And through that what we learned and how to do this and launch this integration and connection, it's a learned muscle. And the last one that we did was in Singapore, which took us about six months. Anybody else who has to come and go through this journey would have to follow the same process.

But then, it's not only the connections and the partner network we have, there is another aspect of what makes us special in the way we've built the systems, which is Wise is global. The way the tech has been built, every payment, every document, every dataset that comes into Wise is globally viewed in one place. Compare this to banks where usually if you are in a large bank, one division of the bank does not see the tech or the data on the other side, which does then -- does not let them make certain decisions that we can.

To make payments move faster, we can make treasury decisions with our ML based models. 50% of our money movement on treasury is predicted by machine learning. Similarly, when we are onboarding documents, we are seeing -- we are onboarding a million documents a month now on our system. And we can do that very quickly with machine learning models and automated processes that we've built. And all of this is because of this global dataset and global view we have with the data, that allows us to then move money faster for liquidity movements, to fund these transfers to make things instant.

And it's hard for competitors to keep up. Just using speed, as an example, even for us, a few years ago, we were about 20% instant payments. In four years, we've completely moved the needle and set a new gold standard in the industry on what global cross-border payments should look like at 55% instead. So money goes from source account to the destination account usable by customers in less than 20 seconds. And as part of this, we're doing all our financial checks within those 20 seconds that are required by law. And all of these things are done because of the technology infrastructure we've built.

And this is hard to replicate. People ask me, like, okay, so why couldn't somebody else do this. First of all, we have about 700 engineers working on this problem. I think we are now the biggest engineering team in the world, working on this one specific problem of cross-border transfers. If you go to other institutions, even banks, they have a team, but it won't be this big, just on this problem. We move fast. We are moving at a speed of 250 releases per day. Most banks and larger firms will launch their apps once in six months or three months.

But then it's not just the tech, somebody would ask me why couldn't a big tech company who has a lot of engineers and a lot of -- and it can move fast do this. It's this collaboration between tech, regulatory, expansions, and operations, which makes us infrastructure special. We maintain 69 licenses across the world. Try asking a big tech company to maintain two. That's the difference, right?

So it's not just the idea that you can just ship code, it's how do you build the regulatory framework, the example I gave of convincing regulators to get access to the local payment systems, those are all learned muscles and anybody who has to come and do this, they have to follow the same process. So that's why we feel this is going to be very hard to replicate and scale it because not just the tech, but regulatory, expansions, and operations on how we serve the customers to create those wow moments.

And it's not just our direct customers who come and use our apps, who are seeing the power of this infrastructure. We have over 60 Wise Platform partners now who see the value we are creating and our ditching old rails and wanting to connect over our API to our infrastructure. And through the last year alone, through these integrations, we have now enabled 25 million more people to be able to access this infrastructure. These apps are now connected and if they want to use Wise, they can.

Wise Platform is still a small part of our overall volume that we move at Wise right now, but it's growing. And what's notable here is the logos that keep popping up every year. So now we have Tier1 banks which are starting to integrate into Wise. So over the last year we have Bank Mandiri, Shinhan Bank in South Korea, and last year one bank in Japan all integrated into Wise. But also, in the US, we have all the major neo banks who are doing business banking also running the cross-border rails on Wise.

So going back, fundamentally one of the problems that we have is -- in this industry is that the underlying technology that is used to move money around the world and accessing of funds is broken. And that's why we rebuilt -- we are rebuilding the infrastructure and we'll continue to invest in going deeper and broader. Whether we are going to bring in invest time in bringing in Australia over the next few months, directly integrated into the Wise infrastructure or Pix in Brazil or using the data mode that we've built to move -- to fight financial crime faster and make decisions fast.

As Kristo said, we are looking on a massive problem and we want to have Wise here for a long time and build a generational company. So we have the market size and we have evangelical customers who love what we build and are wowed by the experience they get. But these wow movements are created by the underlying infrastructure and that's what we've continued to invest in and we have over the last 12 years and we'll continue to in the long-term invest in this. And we'll do it in a fast-growth and profitable manner.

And talking about profitability and numbers, I give it to Matt.

A - Matthew Briers

Good to see you all again. This is pretty amazing around hopefully explains a bit more on why we think we've kind of got traction, the results that we got. But let me talk a little bit about these results, a topic close to my heart. So if you look at our results for this first year -- for this last year, now there's obviously a set of results we can be very proud of. And they reflect quite an exceptional year for a number of reasons.

So you can see and we've heard a lot today around how this drives the fundamental momentum and the customer base. This is what's really driving this growth. You can see with 10 million customers, that's grown not just at 3x over the last number of years, but it's grown 34% in the last year. That's led to volume growth, which has now led -- which when you combine that with the balances that customers are holding and the interest which is quite -- been quite a change this year, that's led to almost GBP1 billion of income, which is 73% growth year-on year.

And very proudly we've always run a profitable business and that's continued to compound. We actually doubled the EBITDA in the business this year. And I'll talk a little bit on the dynamic of those. So you can kind of pause there and think, this is a great set of numbers. But actually, I'd like to just dig beneath that and, right, what can you really take away from this as a business that we're building. I believe we're building a business with pretty much world class fundamentals when you look at what's inside and driving these financials.

So why is that? Well, first, this growth that we're seeing in our customer base, which led by word-of-mouth and organic growth, which is a function of the proposition. Obviously, it's very exciting from a growth perspective, but really also impacts us financially and hits us all the way through the P&L. And it's a real -- really helps us. It's followed up by the fact that we invest incredibly efficiently. Well, let me say this, I mean, we invest in product that has an impact. We're very focused on the problem we're solving and making sure everything we do has an impact. And we follow that up with marketing that has an incredible payback.

And then what's emerging or what's new that you're seeing, or the compounds on this, because we have always followed those fast first two, is now we have is Wise Account which is really driving traction in the growth, but it's actually structurally supporting the growth rate, but it's also structurally supporting the profitability in the business today, which also lets us continuing to double down on the growth for the future. So we are growing fast, investing in profitable, these are really important nuances for me as to how to bring this to life.

Let's dig into some of this. As always, good full-year results. We talk to you on a quarterly basis. So it's always good to be able to back and say, right, what does this look like over the long term. And what you can see here on the left is the active customers. These are people who are active. Remember, for Wise, this means they have made a cross-border transaction in that period has continued to compound and it's actually grown pretty fast in the last year. And it's this that is driving the volume that you see that this is cross-border volume on the right-hand side, both for people and for businesses. Business compounding 30% customer growth leads to 40% compounding volume. This is the primary driver that has been in the past and I'll talk through why I think that's going to continue in the future.

But let's look underneath this, around what's really underpinning this growth. As I said, how has this like customer-led growth really drive through and underpin the growth? First off, the light green that you can see here is the volume we get each year from customers that join us that year. And the dark green is the volume that we have from customers we had before that year. And what you can see is just simple maths you can kind of see here is actually that volume when customer -- the number of customers that join us each year grows and they send more volume with us.

And then when they join us that volume sticks around. So actually it's a really healthy business dynamic. Customers join us, they love the experience, they tell their friends, that grows, and then they also stick around. This helps us grow. This underpins the compounding growth rate of active customers that we're going to have and you can see that coming through volume. 4.5 million customers joined us in the last year. That's pretty exceptional because it grew 40% year-on year and this is I think exceptional. We're seeing very healthy momentum going into this year.

But then this volume retention, which is frankly the simple maths you can almost do yourself here, which is how much of the volume we had previously translates into the existing customers in the next year. Over time, that's been up just over 100% across our customers. Some years, it drops below, some years it goes higher. This noise is in -- probably in the VPC, but over the long term you see this dynamic and this is driven by the products we build. And we are sticking to the fundamentals of how we build our products give me confidence that we can translate this going forward because you know these dynamics are consistent when we've spoken to you over the last years and maybe even much longer for those that have seen us as well.

And, yes, is the short-term, we've seen some noise on VPC. If you look at VPC, which is the translation from active customers to volume, over the long time it's been quite stable, maybe even increasing over time. But actually if we look at this last year we've seen this has been quite volatile. We saw exceptional strength from USD in the summer of last year. And then as the macro environment shifted and the interest rate environment shifted, we've seen reduced kind of contribution to this VPC of larger transfers and I've hopefully signal that and telegraphed that to you over the last month. That's not really changed now and we are a few days short of finishing this first quarter of 2024.

And actually we've seen that broadly stable, that VPC going into the first quarter. So I would manage expectations slight -- marginally down but actually broadly consistent in the noise. But we just remain cautious with macro and what's to come here. But if you just step back to the broader context, this is really around customer-driven growth. Over the long term, that's what's going to drive the growth of the business. Yes, there's going to be some volatility on this in the short term, but we need to look through that.

So what does this mean? This customer growth has underpinned 51% revenue growth over the last year, which is an acceleration. We need to remind ourselves this. And why is that driven by customer growth? One is the active customers which has driven this cross-border income. You can see 42% growth in revenue from cross-border transactions over the year, but actually you see other income, which is the income that we get relating to the Wise Accounts, whether it's for those who've gotten accounts in the room, spending on your card, we earn an exchange or you might pay us fees for the accounts, whether you're a personal or business customer.

So actually it's the customer growth and as Kristo mentioned, the increasing adoption of our Wise Accounts which is actually driving the structural increase in growth in revenues over time. Remember, I'll remind ourselves as well, growing revenues at 50% year-on year is pretty exceptional here. And we are seeing this dynamic of people and businesses, but we're also seeing it around the world.

Both personal and business customers growing revenues at 50%. And even in the UK, we are growing revenues almost 40% year-over-year. And then in some markets where we're getting great really early traction, this is near 100%, which is quite exceptional. Quite distributed across customers, distributed across geographies, with lots of headroom in this market to continue to grow this number.

And those customers don't just send or receive money, but they hold balances with us. And this has grown, as you know, to GBP10.7 billion of customer balances we were holding at the end of March. That grew really fast in the past and actually still growing very healthily. But we should manage our expectations around what that might grow going forward, the law of large numbers and also, we've launched our assets products, which means some of these balances are opting into an assets product in places like the UK where you could earn a really, really good return. So they have been growing around 50% to 60% year-over-year.

And on these balances, we've been earning interest income. We earn GBP140 million of interest on the balances we hold for customers and GBP72 million just in the last quarter. We return some of that and we'll talk -- you shouldn't be surprised if we've talked around how we return this interest to our customers where we can. So we paid a proportionate of that, an increasing proportion of that back to our customers.

But if you think about that the gross yield as we exited the year was almost 3% and we were returning around 0.6% of that to customers. We are successful in Europe in returning balance cashback. We started that in the US, but we still got work to do in some of the other markets, where it's harder and we're not -- either we can't or were not allowed yet to pay from our regulators to pay this net interest back. So this net interest or this interest after these balances related benefits comes through to income and this income grew 73% year-over-year, and it's pretty exceptional because we saw emerge -- grow stronger in balance, but the change in the interest environment really drive this.

Well, let's switch gear and think about how that tracks through down to the bottom line. We saw gross profit of over GBP600 million, consistent year-on-year gross profit margin. Actually that meant that gross profit also grew north of 70% year-on-year. And then let's think about what we do with that. It gives us fuel for our growth. You can see here that actually the vast majority of this gross profit either gets back into investment in product and marketing or actually flows to EBITDA.

And this investment in product is pretty critical for us at this juncture. Kristo mentioned and Harsh mentioned, all the things we've got to build and all the opportunity ahead of us and our confidence and track record and how we've made those investments, gives us confidence to keep scaling this up product. So we've grown the product teams this year. And we've also grown our servicing organization.

But let me talk a little bit around what do we spend money on. So we spend money on marketing. As you see in the accounts, we spent EUR37 million of marketing and that grew roughly 33% year-over-year. So why do we do this? Well, of that 4.5 million, 1.5 million customers came through our marketing. It was not through the word-of-mouth. Actually, a pretty efficient payback. So just on the paid marketing alone, we capped that historically at a 12-month payback, fully-loaded payback. It's very efficient. I mean, if you were to blend that across all of them, I would -- I think it's the envy of many companies trying to grow that. We won't give up on this discipline. It's what kept us growing strongly over time.

We invest in our product teams and Harsh talks about the size of the engineering team, but around that you've got all of the product, compliance, operation -- and teams that really focus on building and protecting our products around the world. And what is the return here? Well, the return here is actually probably the first pound that we spent. This 3 million of those 4.5 million customers are coming through word-of-mouth and that word-of-mouth, as you've heard, is a function of the time we spend building these products. And when those products go live, it's not just one-time marketing, you're actually getting that stream of customers from the product you're shipping year after year after year. This is like very efficient spend of marketing -- spend on products, my apologies.

That's launching new features, new geographies, but a significant proportion of that time we spend goes into building the infrastructure, which is what enables this over time and deepens the moat around the product that we offer. And we've also this year grown our service teams quite a lot actually. It's been a pretty amazing year in our ability to do that. Partly, we have to do that, we have to onboard 40% more customers this year. So the right thing to do was to do that, but we've also -- if you follow Kristo's mission update, you'll see that the quality of service that we're giving our customers through the year has improved. And actually we see -- if we're going to spend a pound, where would we put this.

It's quite easy to see that actually giving customers a better onboarding experience and a higher NPS, actually is pretty high payback and where we're going to spend it. And our customers tell us this. So we see this in NPS, we see this in virality, we see this in retention. This is a good use. So it's been a year of scaling those teams. Of course, we grow the functions. As we open new licenses around the world, we've become larger and we invest in that footprint. It takes people, it takes controllers, it takes lawyers in order to really build that infrastructure from a company perspective, which helps kind of scale for many years to come.

So when you add all that up, so what's happened to our OpEx base across the year. You've seen it grow just over 50%, almost GBP500 million now. That's underpinned or kind of given the employee costs that I've explained, our headcount grew around 50% and then with some salary inflation, that's the -- you can see the employee benefit expense across the year. So what does that mean? Yeah, we've seen these costs grow pretty fast. It's a function of scaling the teams. It's been one hell of a year, candidly, on growing those teams and be able to do that. So I'd expect now -- we'd hopefully that -- those hard yards are behind us and this cost growth going forward is not going to be different.

When you put this through to EBITDA and profitability, we saw higher EBITDA margin in this year than we saw before, roughly 25%, almost GBP240 million of EBITDA, which almost doubled year-over-year. And I'll talk a bit more about the drivers of those, but we know that that's due to the significant interest and interest income, significant increase in interest income flowing through to the bottom line. But importantly, that actual bottom line of profit before tax as well, I look -- we look at this as well and care about this as well as EBITDA of almost GBP150 million of profit before tax, so bottom line profit for company. So let's step back a minute, again before we dig into like where we are going next.

We're building this business with world class fundamentals, I will share with you the proof points. Hopefully, you've seen that. This customer-led growth, we've seen the viral customers, you've also seen it hit us with high retention of when customers join us stick around and that helps. We're really efficient in how we invest. This gross profit margin that we generate invests in high ROI product investments that build our infrastructure, that fund this proposition and then kind of continue to fuel this customer-led growth and that's supported by best-in class marketing payback.

And now, the new thing here, I would say, is this Wise Account just structurally supporting this active customer growth, but also keeps our customers more engaged. And it gives us this currently this much higher profitability, which passes the question, how do we invest that for -- both for the benefit of building a much better stronger business and obviously in doing so helping our customers. So what do we do, how do we invest going forward?

Well, it's time to double down. What have we done in the past that's going to help us in the future? We'll keep investing in our products and our infrastructure. These product development teams and also the marketing is really what's driving the underlying growth. We will do this and this is really funded by our commercial product. So we're not going to use this incremental interest to keep doing this. We don't want to become dependent on that interest to fund these investments.

We'll continue to sustainably disrupt cross-border pricing. Over the last 10 years of what we've done, this is what's really built an amazing franchise of customers that trust and recommend us. And we've done it profitably. So where we can do this, we will continue to run our business with lower prices wherever we can and actually continue to run that business -- that product at a 20% margin.

We'll drop prices where we can and continue to extend this moat. But again, we will not drop those prices using this interest income. But we will use this interest income to power our growth and build a much better Wise Account proposition. If you are a Wise Account customer, hopefully -- definitely, if you're in Europe, you already get interest income or cash balance cash back on your product.

So, I'll share a bit more now, but to be clear, we use rough -- we use up to 80% of this interest income to build a much better proposition for our customers. And we'll use the remaining 20% -- will actually flow down to EBITDA. And we can talk through the implications for this. But fundamentally, when we're building a business that's not going to be dependent on interest income and actually this interest income is only going to power this Wise Account proposition. So how are going to use it. I've talked about this 80-20.

Just trying to make this really clear. I know there's a bunch of people in the room that have got to kind of go out and work out how to model this. So just bear with me. 20% will flow through to EBITDA, but actually 80% we're going to build a customer proposition. How is that going to work? Well, the first 1 percentage point, so imagine we are running at a 3 percentage point margin, the first one percentage point will actually cover -- give us income that will result in a 20% margin on these account features.

So if you imagine, what it does today, it avoids these for us to charge you a subscription or we've already reduced the same currency fees that you might need to -- we've charged in the past or making payments in and out of your account. Customers love that or rather customers really didn't want to pay those fees. Actually, we are using interest where we can to do that. But essentially we're trying to avoid doing that to fund our OpEx, it's rather funding the profitability of those features on top of the profitability of the conversion business. This is good for customers, great for customers.

And then for the rest, where we've done that, which is, as you can imagine, a significant proportion of the interest income, we're trying to reward customers for holding balances with us. We can do this in the EU, as you know, and we're also live in the US with the product here, which is customers love and are opting. It's great rates if you're holding dollars in US. And we're trying to extend this to other countries over time. We'll keep working with the UK and other countries around the world, but that's going to take time to scale.

We'll also, where we can't do that, so where we see opportunities as well, we may offer other incentives that you might typically see with an account. Maybe we've started looking at cash back on card spend, or other fee refunds that are discretionary and purely linked to the account, but not really building this OpEx dependency. So we're not going to use the stock prices or fund general OpEx of the company. The challenge we will have is actually it's going to be really hard to do, scale up this 80%.

So in the short term, more of this is going to flow to EBITDA. As you can see, we're only giving 0.6% of that 2.8% back to customers at the moment. So it's actually going to give us elevated EBITDA margins whilst we scale up, but we'll do it with caution, we'll do with discipline and stick to these principles that are hopefully clear to you.

So to check where this is in the numbers, as you can see, like for those of you who've done the math on the H1 and H2, you can see that we ran a 27% EBITDA margin in the second half of the year. And this was really a function of these elevated EBITDA margins. And if we just used 1 percentage point of the interest that we got, we'd run the -- effectively the profitability of the account features would run our pattern of above 20%, which would equal the profitability of the conversion business which actually brings us to a 20% margin growth. So actually we are minimizing this dependency on interest income and maximizing the use of that into our proposition which should then maximize growth, whilst also leading to a high profitability on the bottom line.

So what does that mean for guidance because of all these fundamentals what we expect over the next year? Our guidance for the year on income is the 28% to 33% growth for this year. And the key driver that underpins or gives me confidence is the growth in the number of active customers that we're going to see -- that we're seeing. That we've seen in the past, we've seen that healthy momentum through the year. But we need to be cautious around a few things. One is what's going to happen with VPCs. This impacts the short-term dynamics, of course. These are slightly lower, as I said, as we enter the year and definitely down on the average for last year. And we have a softer and uncertain macro outlook. I'm sure you see across your other companies that you're looking at or cover.

And then interest. We will see -- well, rates have already increased since the end of last year and we can only look at the yield curve. And we also -- but also countering that, we hope to be able to return more and invest back more in our product proposition for our customers. So EBITDA as a result of those likely to remain somewhat elevated through the year. And it's worth just pointing to what are some of the dynamics we're going to be lapping.

I will just put these up now because we will look at these shortly when we are thinking quarterly. For the first -- as we enter the year, we're actually at a lower VPC than we were at this time last year. So we're lapping that kind of a higher VPC dynamic, but then as counted when we look at the overall revenue dynamic for what's happening, the actual cross border take right now is slightly higher than it was a year ago. So these things have different impacts. So let's look at these in the whole.

And then, at the moment, we've got a very relatively high kind of interest earned on our balances and maybe relatively low interest return and we're lapping that with basically no interest income this time last year. So income growth at the moment is very high. But that will change as we go through the year and start to maybe normalize as we get towards the...

So, over the long-term -- for medium-term, sorry, this is just really what's happening in the next year. It's just another data point on our road. I know we focus on this, but this is active customer growth that gives us confidence to effectively extend this medium-term guidance. So we set this initially when we listed in 2021, this medium-term. Actually every year we've moved that forward which actually gives us confidence that we're continuing to invest in products and actually able to continue to extend this rate at which we think we can compound income above 20%.

And adjusted EBITDA, there's no real change into structurally how we're really running the core. Harsh talks about building this network for the wealth money of how the profitability on the transaction flow around, that really doesn't change. However, when you look at these dynamics, at least, over this year and beyond whilst we are having elevated interest rates, you're likely to have elevated EBITDA margins as well.

Well, let's step back and step back to this year. What are we seeing in our financials? Obviously a set of results we're proud of and a pretty exceptional year. But fundamentally three things. It's all the way down through the results you're seeing this customer-led growth having a massive impact. And we are doing now and it's a huge opportunity. We are growing fast.

We're really efficient in what we invested. The investments we're making in products are thoughtful, focused and have an impact and we're backing that up with super-high return marketing. And then this account is what's really powering our growth and this interest dynamic is allowing us to double down on that significantly, following our principles of sharing these economics with customers, but also will lead to higher profitability in the business.

So on that, I'm going to say thanks and hand back to Kristo before we take the questions.

Kristo Kaarmann

Thanks, Matt. And I'll just very quickly kind zoom back even further up, because the investment strategy that Matt gave a good overview in the middle of this section is working. So over the last four years, it has worked. We're doubling down on this. So as a reminder, what's going to happen, so we are investing those into the same things that are going to drive the new customer growth over the next three, four, five years to come which will then be driving the volume engagement and our results. We will be bringing the benefits, we're going to be improving the experiences, adding the new account features. We're going be extending our footprint and that will lead to new customers -- more customers.

And as a reminder, this is how it all stacks together. We are solving a large problem. We're evangelical -- we're obsessed and our customers, therefore, end up being quite evangelical about our products and what we do. And this is all enabled as a secret sauce by this infrastructure that we've built. We've replaced how the money moves now with the infrastructure that Harsh took us through and as we saw from Matt's presentation, it all turns up on our P&L and balance sheet. Thanks to the thoughtful constraints that we set on ourselves in a sustainable, profitable, growing -- fast-growing business.

So with that, close here and look for questions. I think over to Martyn, you are going to -- or let's do the...

Question-and-Answer Session

A - Martyn Adlam

Yeah. Thanks, guys. We'll start by taking Q&A in the room. If you could raise your hands. You won't need a microphone, where you get picked up by the ceiling mics. But if you could just raise your voice, that'd be great. And then we will take some Q&A on online shortly after. Thanks.

Kristo Kaarmann

Okay, Matt, you see the people. I don't know everyone by name. That's my...

Matthew Briers

Alistair?

Alistair Nolan

Great. Thank you. Alistair Nolan from Morgan Stanley. Maybe two for you, Matt. First, you maybe help us a little bit with how to think about the composition of income between, I mean, from interest and what's coming from revenue and just kind of how to think about how that all flows through. And then just secondly, anything you could say on the outlook for pricing as you see it today?

Matthew Briers

Great. Thanks, Alistair. So I'm assuming everyone on the line can hear. So the composition of income you can see this year has changed, but we have an increasing share from interest. But really I think just stepping back from this, we expect this active customer growth to continue. Our VPC from where we are at the end of the year, the cautious around assuming that's going to recover, I'm just mindful of where the macro so where could that go through the year.

But overall that should give us the volume dynamic which I'm going to answer the second question in here with, our pricing, we haven't -- actually pricing has gone up slightly higher through the second half of the year in cross-border pricing. So that should support like pretty steady revenue dynamic throughout the year. And then of course we're going to see continued interest income throughout the year, but actually like -- and expect balances -- balances will continue to grow at a slower rate. But still this interest income will be a meaningful element of the fee income through this year. James?

James Goodman

Yeah. Thanks a lot. James Goodman from Barclays. So, I will go for a couple as well. Just to follow up on the account balances point, you were quite clear that we should anticipate a slightly slower development because of the lower margin numbers and because of also the increased popularity of some of these other products. I don't think we know exactly how much money has been held in those other products. So wondered if you could give us a bit of a sense of how much money you are seeing flow to things like the fixed income products and the share products and how you think that's developing through the first quarter on the account side. And then I'll come back with the second on then.

Matthew Briers

Yeah. So we haven't guided on this balance growth. We haven't disclosed either just how much money is flowing into assets. What we can say is like, particularly this interest product got some pretty -- I mean, remember, we just really only got this serially live in the UK and it's growing in other jurisdictions. And so actually it's very early to disclose that. We've seen -- that's become more relevant than ever in the last three to four months, think about what's been going on in the world, people's trust in a product like this, as well as the ability to earn interest and get instant access to your line is pretty cool. But it's very early to like kind of report these numbers and explain that. But we'll come to this.

And I'm sure Kristo would add, over the coming months and quarters and years we will -- that will be as much impacted by launching that new countries and new geographies with new products over time. So it's got many years to develop this product. But it is having an impact on our -- you can --- we can say this in our balances. We do see a reasonable amount of money moving from customers to either have balances, that -- myself included that have opted into our assets products. It's a very important product. Definitely, we'll try it out.

And then obviously new customers joining and moving straight on to this. But our balances will continue to grow. They will continue to grow through this year, but they're going to grow off a very high base. And I think where people are is roughly in the right place and like -- so I do think come -- just if you look at the incremental billions added, like a -- kind of be thoughtful on this as you look at that through this year.

James Goodman

The other question I have is a bit of a more general question about just the strength you're starting to see -- have been seeing in some areas like the rest of world. I wondered if you could drill into that a little bit. Is it Brazil and precisely what's causing such success there? And I guess more generally, I've often thought about Wise as quite a developed market to developed market currency proposition primarily, but it seems like you are all the time increasing your geographic reach. So perhaps you can just comment on the evolution of the infrastructure and the customer proposition.

Matthew Briers

I'll give the number and then -- so just for little bit context, but like in our rest of world, Brazil is having a pretty healthy impact. Now, it's not just Brazil. There are other markets. Whilst Brazil is having an impact today, there might be other markets that are earlier on that journey that there's a lot of fronts for this that can have an impact on this over time. But Brazil has certainly been an interesting, fun, successful to watch. I'll let...

Harsh Sinha

I will take that. So actually, we don't see our product to be developed market to developed market product. Like, we actually think this problem exists for the whole world. It's just in different price points, different speeds. And it is again going back to the infrastructure. When we build this and launch it in new market, there is a drastic difference in what the incumbents can provide with what we can provide. So to give you [Technical Difficulty] very good growth in Brazil. And Brazil is a very [Technical Difficulty] work, it really works and people tell other friends. So we see virality pretty high there, but also we are also heavily investing. We are, as I mentioned, directly integrating into the central payment system there which is called Pix.

Forget about just cross-border. If you look at what's happened in Brazil in domestic in the last year, Pix was launched about two or three years ago and the story there is very similar to what happened in India with UPI where suddenly it's just gone berserk. Like everybody has given up other payment methods and they are using Pix, because it's instant and it's cheap. So then we tag on to that revolution. And then we get access and we build on that. So just an example. It's not just an -- it's like we see the problem [Technical Difficulty].

Matthew Briers

Actually for the [indiscernible] just come to you next. Can you say what's your name and where you come from just for the benefit of those on the listening-in? Yeah, go ahead.

Kim Bergoe

Kim Bergoe from Numis. I think a question that sort of follows up on this. How much of current flows of the 105 billion that you -- how much goes via your own rails and not much is using, I guess, effectively through the SWIFT system? And another question, maybe slightly -- but you mentioned somebody building that sort of new infrastructure. Is that basically sort of a replacement for the SWIFT system? Is that the way to think about it?

Kristo Kaarmann

You want to say how much?

Matthew Briers

I think it would be a rounding error, like, I mean, we are having integrations this time.

Harsh Sinha

Customer-facing flows, I would say, as Matt said, is rounding error. And that's why we can build this amazing proposition where instantly you can't do the stuff the Wise at scale with SWIFT. And, yeah, I mean, the way we think about it is -- SWIFT is a great partner, don't get us wrong. But generally, I think, first of all, the market is big enough that there'll be different solutions, but we do think by controlling the end-to-end pay in, pay outside and running the network to where we are and building a deep integration into every local payment system, we basically can control that full end-to-end experience, which gives us a big edge on what has existed so far. So that is basically -- and that's why we talk about -- when you talk about what we are building, we believe that we are building like the new network to move money around the world.

Kristo Kaarmann

Just one caveat or correction. I think we end up using SWIFT as a short-hand for correspondent banking. Just to be really clear, the things that's not broken necessarily is not...

Matthew Briers

Yeah.

Kristo Kaarmann

Things that's broken is their correspondent banking model underneath that we're replacing. We're not quite replacing SWIFT, but the other thing.

Harsh Sinha

Exactly. SWIFT is just a messaging system. Eventually, the money moves through correspondent banking.

Kim Bergoe

Thank you.

Harsh Sinha

Cool. Please.

Unidentified Participant

Yes, thank you. So, Martin (ph) from Investec. You've been very clear that you don't want to be sort of reliant on the interest income and the challenges in some instances sort of returning back to customers. How important is it to you to hang on to those customer balances? So for instance, if customers became more rate conscious, started jobbing around, did Wise always need to be the best rate in the town? Is it very important to you to hang on to those cash balances, given the problems in some instances you have actually returned those to...

Matthew Briers

The second question, I'll try to answer and I'll let [Multiple Speakers]

Kristo Kaarmann

Hand cash balances is a byproduct in the first place. We didn't -- we never intended to, but it's a byproduct of people using the Wise Account and especially businesses using Wise Account to receive money. So you kind of need to put it somewhere and soon they realized that having this like Anita has talked about having this international operating system, financial operating system is just so convenient way you can take money and keep it in any whatever currencies and have the fastest way of distributing it wherever you need so.

So cash balances is a side effect. And then -- but it's an important side effect that people care about where they hold money and whether they're losing while their holding money or they're gaining while they're doing it compared to the central bank rates. So it doesn't matter for us to do it well and it doesn't matter for us to provide that operating system. But we're not reliant on the income received from that.

And in fact, the more of that we can -- the customers can access directly through the assets product, we believe this increase is the evangelical nature of the customer is so much that it's so much more valuable for them over the longer-term through word-of-mouth, through the experience that they're getting. So, no, we're not reliant on it at all, but we see the benefit of customers being able to and being willing to hold their transitory cash at Wise.

Matthew Briers

Nick?

Nick Anderson

Nick Anderson from Liberum. Two questions rather, one at a time. First of all, could you just talk us through capital allocation plans. Obviously cash -- corporate cash on balance sheet is growing very strongly. I noticed you picking up a bit on the share buyback CBT. You are also sort of paying lot for the RCF. So maybe I suppose several elements there, what are the plans for that cash in terms of maybe resetting shareholders at a later date and also do you need to renew the RCF?

Matthew Briers

Yeah. So we have -- that's why we are generating a healthy capital base and cash flow from the company and we've also -- so it's really the trading of two things here at the moment -- at our point in time, right. So one is we've built already and are continuing to build a really strong balance sheet for a company. We have healthy cash flows and very healthy liquidity. And we're very early in doing this. We've done very well over the past and we'll continue this.

On the flipside, we also really care about dilution for our shareholders. So the thing we started doing was saying, well, actually, we can definitely afford to, from this cash flow, offset the dilution from our stock comp program. And that was a very fast step into this foray. So at the moment, we don't have plans to radically change that capital allocation. But what you can see is, we've got increasing capacity as you can see over this period for those choices.

And to your point on RCF, I think just the rate we got on the RCF is a very modest rate over the SONIA. So actually the rates we get on that -- the reason we've -- actually, the normal question I get is, why do you still -- why do you use an RCF and not like a bond or something like this. Actually the rate we are seeing though is pretty efficient. And it's pretty effective as the rates and supported by our good supportive club of banks, which we appreciate.

We'll review that over time as to whether it's replaced or whether it's a different mix. But right now it's -- we don't disclose the rates on it, it's an efficient use of capital -- it's an efficient source of funding, which we use and it's continued to scale actually, but it's something we will review. So both of those, they are already using from time to time.

Nick Anderson

And then the second question, if I may is, obviously core part of the statements about ultimately making cross-border transfers free. Then it looked at another way, over the last five years cross-currency take rate, the various measures you give us are broadly stable. So I guess -- and volumes are up fivefold. So, the question is, when should we start to see scaling effect to maybe material quantum change in that pricing dynamic?

Matthew Briers

So from a scaling perspective, we have seen this on some routes. If you look at some of our currencies, they have definitely got cheaper over time. There is also a dynamic in that where we've added currencies that have grown at higher takes, (ph) there's definitely a mix effect. But over time, we've seen these time horizons we're talking about. So we've definitely seen -- we continue to put downward pressure on these prices over time.

But that path is not going to be linear, particularly if we run the discipline of how do we charge the lowest we can rather than what we get away with, which means this -- as we manage to scale, those costs will go down, but actually, if you've seen in this year like, where we know we need to grow our operational teams and improve the experience, our customers really value that and that take -- put pressure on product. But I think those are some of the dynamics and we are also supported by continuing to invest significantly in our growth, which we think is really valuable. I think it's for -- Kristo, the question goes to you as well, probably worth sharing your view on this.

Kristo Kaarmann

We go as fast as the -- so we go as fast as our unit economics allows us to and in some -- as much as -- the important thing is, in many markets, we achieved more. So -- and Brazil is a good example where price has come down in multiples over the last two years. In other markets, it's gone up a little bit as our cost base has increased or we've gotten better at attributing our costs. So it's a mixed story. I expect that the story is a downward trend.

Matthew Briers

So I think fundamentally like what do we know and people are going to want faster, cheaper, alternate system than they have today. Like we're already radically cheaper than the banks and our challenge is how do we just keep downward pressure on that over the long-term. So kind of -- that's what people kind of know us for and we've got a commitment to doing that as well as we can and we think we're doing that relative to the competition a pretty strong job today. And just that discipline and that focus is not going to leave the business. Thanks.

Aditya Buddhavarapu

Aditya from Bank of America. So couple questions from my side. Firstly, on the macro environment you mentioned, can you talk about, are there any -- apart from the higher-value cohorts, are any other pockets of customers in particular geographies or segments may or may be seeing some change in behavior, if you could just comment on that?

Matthew Briers

Yeah, sir. We're going to see quarter-on-quarter movements and we'll see that over the last quarters and I'm sure we will see that over the coming quarters. But I would encourage us -- I just want to just step back from this and what are we seeing. We're seeing more and more customers adopt -- obviously, people -- more and more customers joining Wise every year. That's growing pretty consistently. That's sticking around and they're using our Wise Account.

And these are the structural trends that we see in our customer base that are driving this systemic compounding growth in the number of customers. We'll see just like we all will see volatility on daily, quarterly basis on how much money people are moving. And there's certainly enough drivers of that with macro today.

If you just look in the longer run, like this stuff is, as to how we invest and how we -- where we focus actually the systemic drivers of active customer growth is where we're -- what gives us this focus. Nothing's really changed in what our customers are doing. I think they're doing more on the Wise Account and, but we'll see ups and downs. But, I think what we'll see by the end of the year is continued growth in the number of active customers, more using our features and those features supporting our growth.

Aditya Buddhavarapu

Understood. And then as a follow up on the OpEx, so you spoke about the investments you've already done and your plans going ahead. Should we think that you're sort of passed over the peak and the OpEx growth over the medium term because you've done -- invested a lot on the operation side of things, on development side of things. So from here on incrementally, should it be investments we've seen?

Matthew Briers

Yeah. Last year was a pretty tiring year from onboarding and hiring people. Like it was a pretty phenomenal. Amazing, we pulled it off, but like we've done those yards and we leaned into that. So definitely the rates at which we're hiring going forward or growing the cost base at least, ultimately this aligns to the rate at which we grow, sustainably fund that with the rates at which we're growing our -- the volume flows of the business. So, that's right. And you can trust us to keep ahead of what we're seeing and plan very carefully and continue to run a profitable, sustainable business over time.

Aditya Buddhavarapu

And one just last one for Harsh. Just on the infrastructure side of things, so obviously you have some of your other FinTech competitors or [indiscernible] you are also investing on that side and trying to build partnerships in different markets. You also have the likes of Visa and MasterCard who are building number of partnerships, different players. I mean, how do you sort of see that changing the transition to Wise on the infra side [Technical Difficulty]

Harsh Sinha

Yeah. I think, the key thing here is like what -- are you going directly or are you going with partners? As you said, there's a lot of people who are doing partnerships, some are using PSPS, some are using aggregators. Eventually the quality of your network and what you can control end to end is based on what you control, right? And I think our thesis is that the more we own stuff directly and the more we have it for the longer term, we get independence from others, right?

And then we control that speed, cost over the longer run, right? And that's shown for us at least the way we've invested over the last 12 years, this has been -- this has come true. And that shows in the proof points we have with like 55% in the product numbers we have. So I think that's a big differentiation where we actually want to own the entire rails through to the pay-in and the payouts. And that's a big different strategy.

One other thing I will share is, when I talk to a lot of Wise Platform partners, right, and they get pitched by everybody else too, one of the thing that's coming up now is people are realizing that actually the consumer business we run has been an asset for us in understanding there's more to running cross border than just the rails also, right? So we've understood, oh, when we get on these rails, these products up, how do we -- how does that impact contact rates? How do we onboard customers better?

How do we build in better experience to get the document uploaded? And that translates into helping our partners build better products, which has lower contact rates, better onboarding experiences, right? Versus if you go with some of the other players who are just B2B, they'll say, here's the rails, everything else you have to sort, right? And we do see that, like sometimes they'll go with somebody else and then they'll come back to us because they see, I don't know how to run cross-border, you know how to run cross-border. Tell us. I think those learn examples of the B2C product also is helping us.

But on the infra play, we believe we should own full end to end. And I think that's a big differentiation with these partnerships. We do have bank partners where we help right now and they're very stable ones, so that helps us.

Aditya Buddhavarapu

Thank you.

Soomit Datta

Thank you. Soomit Datta at New Street Research. Just going back to the net interest income policy, I think investors are obviously pleased to see the 20% being sort of fed through to EBITDA, but at the same time, I'm curious why not hand that back to customers by way of fees, because obviously the long term mission is to reduce fees. This would be a good opportunity for that to play out that way. So just curious on that. That's the first question.

Matthew Briers

So, there's obviously a number of things to factor in that right? So if we're going to offer radically lower fee at some point in the long term in the future, right, the company can do that successfully and win. It doesn't -- it can do that at the lowest possible unit cost and survive with minimal oxygen, if you like, at that point. Think about taking this to its longest. If we're dependent on interest income to offer fee, in the short term kind of avoid the need.

Our teams you've got in this building maybe, in London, 1,000 people, 5,000 people around the world, pretty religious around driving down the costs, the prices for customers. Now clearly this topic's come up. But if we do that without reducing down the cost and sustaining a profitable business over time, it just delays -- it really just delays the need to actually build a leaner, faster machine. And actually if you hook up to that cyclical revenue stream, actually it can be quite dangerous. It's the same as maybe raising a load of venture capital and spending it on free payments whilst you try and get yourself, you're actually building a profitable business.

We took a very different path to doing this a long time ago. It's been very successful in helping us build business. So our principle is like, it's -- like you think this, but actually like it's very -- it's actually much, much smarter and more robust from a, how can we guarantee for our customers we're going to be able to do this in five years or in 10 years actually to take the hard path now, which is what we've done always and build a stronger business over the long term.

Kristo Kaarmann

But we are aligned that we should pass this back to the balance holders and -- but rather than people who have transferred but people who hold balances, and it's the magic of how we're able to do that, that we're -- we'll get clearer over the next six to 12 months.

Soomit Datta

Can I have just one quick follow up as well, please? Different topic. Just on the speeds and the instant payments up to 55% from 20% in the last four years. So super impressive Where does that go from here? What are the kind of things you need to move that on and how can that kind of drive the business over the next two, three years as well?

Harsh Sinha

Yeah. I mean, we will continue to connect to other instant payment systems as they -- there's quite a few of them. We're still connecting to, example I gave is Brazil and Australia. We can access that quite a bit right now already through some partners. But then actually there's a natural evolution right now happening in the overall ecosystem of payments. Like a lot of payment systems are getting upgraded.

So we can see that as this happened, like for example in US, so US has been behind on instant payments for a long time. They've launched RTP, which is built by the consortium of banks, private banks, a private setup with TCH, but that's now going live this year. So as that gets rolled out, the expectation of instant payments will go up even more in the us, right? So other markets are going to come up along the way over the next five, six, seven years and we'll be at the table asking for, we need direct access, right?

And again, one of the things that I tried to explain in the presentation, I don't know if it landed was, if you're a regulator, think about if you're the US Fed, right, or if you are Singapore -- monetary authority of Singapore, you control the payment system and access to it. And you don't want -- your job is to make sure there's financial stability and low risk in the payment system, right? But you want some competition, but they don't open it to everybody, right?

So then when they say, let's add some -- banks have access, let's have some other people in there, usually they'll look around the world to say, who else has done this and usually we are standing there raising our hand and they usually get access. That's kind of like this question that I guess asked like, why couldn't a new person raise a lot of money and just get access and do the same thing. That's where they look for experience also. But this is where we see -- I mean, I think I can totally see the numbers going very -- over the five, six, seven years closer, another 10%, 15%, and then it gets hard like the 80-20 rule gets much, much harder.

Matthew Briers

Right. Martyn, if there aren't questions at the room, how is you getting pinged for the folks online?

Martyn Adlam

Yeah. Thanks, Matt. We'll take some questions online now. So we're going start with first question from Justin Forsythe at Credit Suisse. Justin, over to you.

Justin Forsythe

Hey guys, can you hear me?

Martyn Adlam

Yeah, we got you. Great.

Justin Forsythe

Hey. Good morning, everybody. Thank you so much. A couple from me as well, if you don't mind. First one for Kristo. So I think we've hit a little bit about the kind of alternative rails, but I wanted to ask a question a little bit in a different way. So I think in the past you've mentioned that you would potentially leverage different rails on the backend if they proved it to be cheaper, faster, et cetera. Just kind of interested, and maybe this is a question for Harsh as well. Like in the case, let's say, Blockchain became that -- how would that work mechanically? Meaning, do you have the setup to be able to nimbly move to another rail in the backend? That would be my first question.

The second question was for Matt. I just was wondering if you might be able to parse through a little bit the kind of the drop through slide that you were showing with interest income. So I think what you were talking about is how you were going to spend the proceeds were a little bit different. Could you just walk through, because it seems like some of the stuff that was tagged for spending with interest income, some of that would be COGS related, some of the interest and payouts and benefits, but also some of that would be OpEx related. So is there going to be a way, I guess, to evaluate whether those numbers are being hit or not? And does that just mean that the core business is going to do 20% EBITDA. Margins as we've kind of asked in the past? Thank you.

Kristo Kaarmann

Okay. So why don't you talk about the...

Harsh Sinha

Okay, so on the blockchain and alternative methods of moving money, so, yes, I think we definitely are nimble enough and fast enough that if this actually came to a place where it was cheaper to use another technology, whether it's using a specific crypto or coin to move money and move ownership of funds across borders, or if there was some other way we could use blockchain, we could easily integrate that into our system. I mean, actually, if this were to come to fruition, it first of all has to be cheaper, much cheaper than what we are earning today, moving from fiat to fiat.

And that's what we've seen as not really happening yet. But if it were to happen, practically it would be just adding another asset class to Wise Account for consumer. And then you would be able to transfer that ownership to anybody else. So it's pretty standard stuff we could do. But right now it's actually much cheaper to do what we are doing, and much faster and we control the end-to-end experience. And from a regulatory perspective also, it is actually less hassles, by the way.

Matthew Briers

So let me answer the question on use of interest. So as we said, there's a few principles here that we first apply. One is like, how do we avoid becoming overly dependent on that as a business and the second is, how do we use this as the other questions were asked, like, really power these accounts, but it also drives this structural profitability. So like, how are we going to use that?

First is, we'll try and pay -- the first actually 1 percentage point that we're using, as you can see, is actually making the Wise Account features that have this 20% margin that's similar to what we've always had in this cross-border business. So that that's -- and we don't expect that to increase. So if you think about that, that covers -- that basically covers the marginal costs. We have income on the account and revenue account, but this tops that up to make sure we get over this 20% margin.

And then the rest of it will be used purely for -- primarily for account based incentives or however we want to talk about this. So ideally we can pay interest or its cash back in Europe, it's the same thing on balances. In the US, we can pay interest. In the UK, we'll have to try some other things around incentives. We've already started things like cash back in this respect, but these will be like discretionary incentives relating to the account activity rather than funding significant levels of OpEx, which we've become dependent on or subsidizing cross-border pricing. This is a quite an important distinction. And so to the earlier question, like it's very tempting to do one, but actually it's very discipline -- important that we stay disciplined and stick it out as we've outlined.

We'll kind of split this out for you so that you can understand what's happening, because some of these might turn up as contra revenues that have just contra interest, but actually, we expect -- so a few things. We expect to limit that 1 percentage point and then we'll work towards this 80%. It's going to take us time to get there as well. So we're going to be quite thoughtful in what we're going to do, with scaling where we can pay interest or operationalizing other ways to offer rewards on the account as Kristo said.

Justin Forsythe

Got it. Real quick follow up there, Matt. The 1%, sorry that that's a percentage of gross interest income, or could you just -- yeah, quickly walk through what that was?

Matthew Briers

Exactly right. So that's 1 percentage point. So if we have -- if we're earning 2.8% I believe at the end of the year in the quarter, the first 1 percentage point, so 1% or 1.8 left rather than 1% of the gross interest. So, what this practically means is like rates at 1% would mean our Wise Account features are actually running at a very healthy profitability, right? And if rates were -- which helps us avoid customers paying out fee, or reduced levels of fees or reduced level of account charges on the account. And this is at a rate that is very low. I mean, historically or long term, where rates are and where rates are expected to be, this is a very low level of dependency in our view. That's worth taking because It gives us -- it gives customers a great experience and really addresses some of their [indiscernible] with the cash.

Justin Forsythe

Got it. 1% of balances. All right. Thank you so much guys. Really appreciate it.

Matthew Briers

Thanks for the question.

Martyn Adlam

Thanks, Justin. Next question comes from the line of Hannes Leitner, Jefferies.

Kristo Kaarmann

Good morning, Hannes.

Hannes Leitner

Good morning, everyone. Thank you for letting me on. I have a couple of questions. So on Slide 44, you state that this extension of the onboarded services, basically you onboarded 4.5 million customer growing at 40% year-over-year. Given you stated that you have at the moment 10 million active customers, could we think that 5.5 million of those customer -- existing customer and the other one come on new. Maybe you can talk to that a little bit about those moving parts.

The second question is on VPC. You talked about basically the current trading trends are slightly lower. Could you disintegrate that between personal and business and then just thinking over the long term, you wanted to expand into new geographies. You referenced with a nice video around Colombian users. Average monthly income is around $1,000 in Colombia. In Brazil, it's closer to $2,000. So how should we think that how to translate into VPC going forward? And then maybe I have a short follow-up.

Matthew Briers

Okay, I will work on the first one. So, and I might just get Martyn to repeat the questions. So on the first question, like, yes, we did have a really healthy number of customers joining us last year. And then when customers join us, they use us. And then some of them come back every month, some of them come back every year, some of them come back less frequently. But -- so actually we talk about the people, that's the number of people who made their first ever transaction during the year. The active customer base is those that are -- includes those and those that are continuing to repeat. And you see we have this 6 million even on a quarterly basis.

So they're a slightly different currency. But fundamentally what it tells us is that cohort, if you go back to the volume chart I showed you, I think it was the same chart actually Slide 44, if I remember, Hannes, it showed that actually this -- the volume that we are getting from new customers over time has continued to grow and those customers stick around. So basically that just continues to grow through this volume retention, this dynamic over time. The number we shared with you shows you the dynamic of those cohorts continuing to grow over time, which just gives us its contribution to growth.

I think the second question was around like the trends on VPCs. So we'll talk more in a couple of weeks when we talk about our Q1 numbers, but broadly the dynamic and it's too soon to close the quarter now. We're not there yet. But there's some ups and downs dynamics across geographies and segments. But broadly, we've seen this VPC -- I would look at it as roughly stable, but it's maybe slightly down quarter-on-quarter. But we'll share more on that dynamic in the coming months, in the coming weeks. But broadly I think we need to remind ourselves of the longer term trends of active customer base there. And then there's another question for...

Martyn Adlam

I think that was the second question. Yeah, was there another third?

Matthew Briers

Yeah, the final one.

Hannes Leitner

Another was the second part of the VPC question is then customers in different jurisdictions, in different countries and what the impact is on the VPC.

Matthew Briers

Yeah, so we do have a different mix of customers joining us over time. But actually the impacts on the -- there might be an impact on VPC of this, but like the primary impacts we've spoken about is that over the last quarters of different payment volumes, that's the dominating impact we've seen. These customers, we -- we're launching this customer around the world, but the problem is the same. There's problems of fast -- of slow expensive payments. These customers move volumes through us and they get a great deal. So actually the economics of all these customers that we're launching and the way we price, they are all profitable. We don't subsidize across routes. So actually it's pretty healthy profitability wherever we're growing.

Kristo Kaarmann

And also to keep in mind, I'm glad you referenced Anita. I think she's a business customer in the United States actually. So the reason why she can run her business in Wise is that we reach all or many, many corners in the of the world and that's why it's worth expanding the infrastructure into maybe lower GDP economies.

Hannes Leitner

Okay. Great. And then just a quick follow up on personal expenses and then basically related on the job hiring, the whole personal expenses quite increased substantially and the hiring this year, I think 1700 people, can you maybe give us there little bit of the idea where you need to grow the headcount base to have the business set up then for consistent operational leverage going forward?

Harsh Sinha

Yeah. Maybe I can start and then Matt can add. So yes, we have invested quite a bit over the last year, mainly driven by continue to invest in our operational servicing teams because we have a lot of demand coming in from this customer growth that we are seeing already. And we want to make sure they have a great experience if they need to call us, if they need to onboard and have issues on document submitting. So we have invested in that.

And also in product engineering, like, my organization, a lot of that is like continuing to build and opportunistically invest in these different longer term projects that we've done, for example, investing in Australia and others that we are doing, which requires us to have boots on the ground to basically do the direct integrations. But we expect -- we know that this last year was a lot of investment and we onboarded a lot of people, as Matt said before. And we are hoping through the next year and onwards this trend will be slower. We've done a lot of investing last year.

Matthew Briers

Yeah, exactly, I mean, we've given our -- you've taken our guidance theory, you've seen our -- we're committed to running this profitably, so that should tell you we'll manage our cost base as we need to and with discipline you'd expect. So we can talk more about this in six months.

Hannes Leitner

Thank you.

Martyn Adlam

Thanks, Hannes. The next question comes from Josh Levin at Autonomous. Josh, over to you.

Matthew Briers

Hi, Josh.

Josh Levin

Hi. Can you hear me?

Matthew Briers

Got you.

Josh Levin

Great. Two quick questions. So it looks like the other fee take rate, other fees divided by volumes, looks like that was around 15 basis points in 1H last year, then it increased to 17 basis points in 2H. Could you talk about what's driving the increase in the other fee take rate and where that 17 might be headed to? And then separately, in today's press release, you talk about direct connections to four payment systems. I think that number used to be five or six in previous presentations. If that's correct, can you just explain what's going on there? Thank you.

Harsh Sinha

It's -- basically it's been four, so I don't know if that was different, but in Europe actually we have a lot of access, it kind of -- we basically have UK, Europe, Singapore and Hungary and then we are very close to launching in Australia. That would be the fifth that's directly connected.

Matthew Briers

Yeah, exactly. So we've got permission to integrate into Australia, where we're just in the process of doing.

Harsh Sinha

Maybe it was press releases, like when we got the permission. Maybe that's what you read. I'm not sure.

Matthew Briers

Yeah, so it's not going backwards, Josh. That's not a good thing and we're hoping to get it going forward, which is good. So, the first question is, what's happened on take rate. Well, the first thing on this is the -- like, actually our cross take rate is actually we almost set this because we set a price and it reflects the price we set on the volume. This other take rate is actually the -- it's not priced this way per se.

So this reflects the interchange we may get on cards, the fees we may get on domestic volume, actually not on cross border volume. So actually the take rate's an outcome if you like. And what you're seeing there is the absolute pounds millions of revenues growing year-on-year and the reason for that is, it's just usage of the accounts connected. You can see that in the balances as well is continuing to grow.

So the question is where is that? Like, so how many pounds of fee income on the account will we get per pound of volume? Like it has been increasing. It's actually -- that's despite us actually starting to give things like same currency payments for free, but still managed to go up. But I would just keep -- take that into consideration as we go forward. Like, it's been increasing, we expect it to continue to increase, but at a steady rate going forwards.

Josh Levin

Thanks.

Matthew Briers

But underlying it really reflects the account adoption, customer growth and that's what flows through to -- flows which is driving the revenues.

Josh Levin

Thanks.

Matthew Briers

Thanks, Josh.

Martyn Adlam

Thanks, Josh. And the last question of the day comes from Mohammed Moawalla at Goldman Sachs.

Matthew Briers

Mo?

Mohammed Moawalla

Great. Hi, Matt, Kristo, Harsh. I had two. Firstly, Matt, you talked a lot about kind of driving the kind of the volume, but also kind of adding added product services. So as you think about sort of that existing customer business, could you help us kind of decompose the kind of the margin structure on existing customer versus your new customer? And as you build that kind of lifetime value, kind of how that sort of margin on existing customer kind of evolves? And as we think about kind of the long term sort of shape of Wise's margin, I know you've sort of given us current guidance in the kind of low 20s, but how should we think of the shape of how that margin can evolve given these dynamics?

And then the second question, and maybe for Kristo and Harsh is on the platform business. I increasingly hear more and more you guys talk about this business, how this contributes kind of the vast majority of your medium to long-term revenue. Have there been specific kind of catalysts? I know you had the platform event that kind of give you kind of that increased confidence and how should we think of some of the kind of partner additions? I know you've made some good additions in Asia, but how should that sort of evolve and when does this become a kind of meaningful driver around the growth rate? Thank you.

Matthew Briers

Let me answer the question first. So, if think about our unit customer economics, actually, as you can see from the payback on -- our payback on our marketing, what you can learn from this is that actually if we didn't -- for customers before we spend the marketing money, they're actually very profitable in the first year. So we're not -- we don't wait for them to payback over time. And we do that quite -- it's because we've got very healthy economics on the first transfers that they're offering of -- that they're running on Wise.

Yes, we have an onboarding cost upfront, but actually that -- even that is payback relatively quickly. Typically, given most are on onboarded pretty automatically very, very quickly. So there's not like a -- and the underlying economics of the customers, they're very good from the early days. Yes, we spend marketing money upfront. Yes, we spend onboarding money upfront, but this is structurally very, very profitable early on.

The question on long term or medium term margins is like fundamental as to how we run the -- all the payment volume and the infrastructure is this at or above 20% margin. What we're seeing that's new is how does this interest dynamic track through to margins. And whilst -- as you can see, whilst we have higher interest rates, the 20% will flow through will track through to higher EBITDA margins over time. So, maybe those interest rates are not permanently high. But whilst we are under this model, which we are going on that journey and we expect that through this year, definitely in this near term, it's going to track through to higher EBITDA margins.

Five years ago, I just think about, this five years ago, like, we were really focused on cross-border and predicting five years in the future what our margin structure is going to be. I know it's a hard thing. But what we do know is that we're going keep moving more and more money for people, more and more money for more and more people and businesses around the world. And we're going to do that with a underlying, very profitable business. And that'll keep us growing for the long term.

Kristo Kaarmann

I know the Wise platform, I think there's no specific catalyst and then there's two groups that Harsh mentioned which were -- we see more traditional banks, especially starting in Asia, I guess they're slightly faster moving. So for banks it's always a change is hard and slow. So we see the Asian banks actually go faster, the Shinhan Bank, the Mandiri et cetera. And we see the US challenger banks are -- generally challenger banks go faster as well in the Wise Platform adoption.

I think one of the catalysts I just wanted to add to that is, as the kind of the years go by, banks do see their customers using Wise and for them it's increasingly valuable to bring these customers back to their own platform, which is their own apps, which is what we're supporting with Wise Platform. So the logic for our bank partners a lot is they see the customers using getting benefit of Wise and they would rather -- much rather, and we would much rather them have that in their own apps.

Martyn Adlam

Thank you.

Matthew Briers

I think that's it. So thanks all for, especially those who come to see us in the office, it makes it really special for us having you in. It does like -- hopefully gets to know each other better. Thanks for all the questions online. An exceptional year with lots to learn and -- but quite excited about the future. So thanks very much.

Kristo Kaarmann

Thanks, everyone.