Wise PLC

LSE:WISE

Earnings Call Transcript 2023-Q2

[Martin Adams, executive]

Good morning, everybody. Those in the room and those joining virtually by Zoom. I'm pleased today that we'll be joined by our CEO and Co-Founder Kristo, who's going to talk through our mission update, our progress on our mission for the first 6 months. Matt, our CFO, who's going to talk through financials for the first 6 months. We'll then move on to Q&A. So I'll start by taking Q&A in the room. And then for those that are joining us virtually, I will take questions by Zoom. Just as a reminder, if. you do have a question and you're joining by Zoom, if you could just raise your hand through the Zoom function, and I'll introduce you.

And with that, I'd like to hand over to Kristo.

[Kristo Kaarmann, executive]

Thanks, Martin. Josh, you have to wait. We still have -- we got 10 minutes of me talking and then Matt as well. Welcome, everyone in the room and everyone on Zoom. So before we go into a bit more detail and a bit more numbers, I just wanted to remind us why I'm here. So I'm here with my team because we were solving like a really big problem for international people and businesses. This is a real thing that we're working on. We're doing it by building something completely restating the infrastructure and how these payments work. And they power products that people and businesses love.

So it's a great thing to be working on those and doing it in a way that is sustainable, meaning we're independent, we're funding our own growth. So this is, for me, an amazing thing to be working on. And now from the shareholders' perspective, when you can read these things, you'll see that we're working on a really large opportunity, which builds on this infrastructure, a massive competitive advantage. And there has an in-built growth engine through word of mouth. And then in the end, it's a profitable company.

Just to put this into context of why we're here and why I think you are here. So how did we do in the last quarter? We had 5.5 million customers who use us for cross-border transfers. Our average price stayed at 0.64% and more than half of our payments are now instant. If you look at us in the context of growth, our volumes are growing 49% year-on-year. And our total income, which Matt will break down a bit more has gone up 63%, and we're staying at our 20% or above EBITDA margin.

Now I'm going to take you through how did we actually do in this quarter in terms of product and how our customer experience has evolved. As a reminder, again, the reason -- the things that our customers care about and the things that we're solving here is that money internationally is very slow. We're making it fast. It's quite expensive to use. It's inconvenient and has lots of hidden markups and fees in there. So these are the things that we're solving on our own infrastructure. And in the context of where we are today, we're making visible progress on individuals, and we're up to 4% of the global volume is moving on transfer-wise. Our businesses were still rounding over. So we're less than 1%, we think, in small businesses. So there's a lot of work for us to do here.

And going through each of these pillars one by one, we see that over the years, we've actually made really steady progress on instant and now half of these transfers are even less than 20 seconds and almost all the transfers in less than 24 hours.

Last quarter, we had a drop down, and you'll see some of these ups and downs. We anticipate this will be moving upwards, and we can increasingly make more and more transfer instant. On fees, it's the same journey. We've managed to bring the fees down to 0.61 for the last few quarters. And then last quarter, we're up to 0.64. And then again, in the long term, we expect that the -- that our goal is to bring these down rather than up. But then put this into context, the banks are still somewhere at 3%. So the small ups and downs on our journey have to be seen in the context as well.

Now I've always talked you through a little bit on the progress on those 4 things that go around building our infrastructure. So first is expansions. We're expanding globally. We're already quite a lot in. There is plenty to do. This half year, some of the bigger achievements was getting a settlement account in Reserve Bank of Australia, which leads a way for us to become a direct member of the Australian Instant Payment Scheme, which then again helps with our goal, both on faster and more efficient transfers.

On Japan, we actually were already pretty fast, sadly just during the working hours. So we changed the connectivity this time around, and now we brought fast transfers to Japanese 24/7.

On the regulatory front, it's quite a bit of movement on Wise Assets. So we got licenses in Singapore, started serving our customers there and also in the EU in Estonia. So this is going to take a little while as we passport out to the rest of the union.

On Operations, we're onboarding a lot of new customers. We're going to be talking about the demand that we see for Wise and Wise Account, and we've been scaling up our operations teams. We added about 1,000 people there.

And on Technology, the stat for the half year is 99.7% uptime. Actually, for the last quarter, this was 99.9%. So the reliability of our platform, especially for our platform partners, is relevant and important.

So now moving on in to how do our customers experience this. They use us through 3 products. It's either the Wise Account, Wise Business or Wise Platform. And just as a reminder of who are these people who use this? I don't -- I hope a lot of our shareholders are also customers. But just as a reminder, so who do we see using the Wise Account, there's definitely digital nomads, who spend their time working in countries where they're different than employers. We have expats who move into new countries and then use the Wise Account as their first account for a little while. We see travelers and we see students who are often experts as well. So these are the few groups that we see among the Wise Account users.

And what Wise Business users that's actually even more diverse because these days, there are so many businesses who do international payroll and pay suppliers internationally. It's very hard to be really, really just a domestic business. And then increasingly, businesses are using Wise to invoice their customers who are probably also not in the country where they operate. So for businesses to be able to operate internationally, the Wise Account can really does come to life.

So next, I'm going to talk a little bit through the features that we've added on the Wise Account for the last 6 months to bring out kind of the trend of development. Our Wise -- there's a few in the U.S. actually. So our USD account or the Wise Account in the U.S., got much better connectivity into the local brokerage platforms, financial services apps.

On global front, we are rolling out a new homepage experience. So what we are seeing is that there's a lot of -- so we're hearing a lot of demand for the features that the Wise Account now offers but they haven't been as easy to find. So we expect that there's more people -- even more people finding the features that are useful to them.

We started rolling out debit cards in the U.S. So Again, we've been talking about rolling out cards in different places around the world. There's one place where we didn't serve businesses with cards yet that was the U.S. We fixed that now, and U.S. businesses are getting cards. And again, on the business side, where we're starting to enable our business customers to invoice their customers and get paid by card. Our business customers use our account numbers quite a lot, so they get local account numbers in 10 different countries. So they use that to invoice their customers, but sometimes they need to pay by card, so we're enabling that as we go forward.

And all of these things that we're building for the Wise Account really seem to resonate because we're seeing more and more of our customers. And you'll hear about how much more customers are generally signing up to Wise but more of them using the Wise Account than merely transfers. So on the individuals, it's up to 20% and -- sorry, 30%. And businesses up to above 50%. The interesting bit here is that those who use the Wise Account, they have either more use case or larger use cases. So then they end up using Wise for more volume moving to us and more transactions coming through us. So we feel that with the Wise Account, we definitely created a better product or an adage products for our customers that means they can get more of their things starting with us.

And so one thing as you saw the share of the Wise Account users is growing up, but also the general amount of users is going off quite fast as well. So there's no surprise that we see the balances that customers hold with us go almost doubling year-on-year or 88% year-on-year growth. And there's split between personal and business and almost growing at the same pace. So this, again, is so far as really steady mix.

So we talked a little bit about the Wise Business and the Wise Account. Now our customers reach us sometimes through our partners. So we have talked to you and shared a few platforms where Wise is built into other products. And you see a lot of banks here, some challengers, some more traditional ones, and different types of platforms where these platforms give their users the benefit of Wise. This last half year, we have a few logos up of -- again, you're seeing a few banks, both the challenger types and more traditionals. And also quite a lot of nonbanks, payroll providers, company registration agencies and others who make use of Wise for their customers.

And with that, we're kind of talked about all the new features we're bringing out, all the new customers that we're servicing and the capabilities that we're building for that is something that we measure through the user experience. The few things that are really important for us, how quick and easy it is for a new person or a business to start using Wise.

If you've tried to open an international back account for our business, you'll might be spending weeks and months in it. We endeavor to get all of this done and open for you in 24/7 and in 24 hours, there's still quite a bit for us to do and also to kind of give you a view of how we're -- like the standards that we keep ourselves up against. And when we say that 84% of payments arrives in time, meaning some didn't. But those that didn't, that means that they didn't arrive in 20 seconds, they're around 25. So there's a bit of a scene setting here. But of course, when we say customers that their payments is going to arrive in 20 seconds, we expect it to. So there's still something to grow towards the 100%.

And then moving on. Just to put this into the context, we've added about 1,000 people to our team in the last 6 months, and we keep hiring and adding more language support, more specialisms. So there's a lot more there to build.

Now the last thing for me is going to be just the international context. I think we've showed this maybe a year ago. And we've kind of made this effort of plotting 2 axes. One is where we kind of see how deep we are integrated in the local regulatory and technical infrastructure. So going from partnerships through our licensing process to having direct connectivity to the central banks. And then like what that means to the customer.

So obviously, we expect this to be somewhere -- the journey to be somewhere in the middle, the more better we integrate, the better features are available to our customers. And we see that -- some of those countries at the top 5 are the U.K., Singapore, we're kind of we're already quite far ahead. And then there's a lot of those countries where somewhere in the middle where the service is already pretty good, a lot of free features are available, but there's a lot there to build. And there's a few countries, you definitely don't even see on that map yet. So just to give you the kind of way that we think about the travel here.

And then just to narrate a little bit on what's happened in the last 6 months, we mentioned we acquired a license entity in India, for example. So that means we've moved the -- we've moved a little bit on the x-axis. We haven't really moved on the y-axis yet because the customers haven't seen the benefit of that. So there's a bit more to do there.

We see that the Australia is a good example. We have the settlement account open. So we definitely moved on that axis. There's still work to be done to actually get into the payment system and start switching on instant transfers in both ways out of Australia. And with the Singapore maybe there's a good example in a different way. They already have a QR system that were kind of connected to sort of enabling the -- our customers to pay with QR codes and something that we were able to improve on the user experience side without too much effort on the integrations.

So just to give you kind of a view in our internal world of how we see our geographic expansions and deepening going on.

Now to summarize what I've been talking about here. So there's these 4 things that we work on, not try the user experience that we're measuring the NPS and that does play through in the word of mouth that is 70%, probably highest we've ever seen as a share.

And then moving on to driving growth. So the people recommend us that drives more growth, both in personal and business customers. And that yields the numbers that we're seeing, both in the volumes that we transfer, the impact that we have on the movement of money, but also our year-on-year growth in the financials, which Matt is going to talk us through next. Thank you so much.

[Matthew Briers, executive]

So what do we see? So we're moving an awful lot of money now, moved over GBP 50 billion, and that's growing, as Kristo said, around 50% year-over-year. That's generating -- actually 63% year-on-year growth in income, over GBP 400 million. And that's actually pretty profitable. With the 22% EBITDA margin, highly profitable, GBP 92 million of EBITDA, and that EBITDA is growing fast. And all of that's flowing through as a real bottom line profit before tax [indiscernible]And as you know, the way we run our business, it's high-quality earnings, it's highly cash generative, too.

But just to step back and put that in context before we go into the details on this, the environment we're in, we're still growing fast, still have a huge demand from our customer base, whether they're people, businesses to move money around the world.

Actually, we're translating that into transparent fees, which we translate into income for us. And we're still highly profitable despite actually investing significant amounts in our growth, and I'll go into more detail as to how much of that gross profit we generate is actually translating through into investment which we're making for future growth's in our business. And that's in the context of a really challenging economic environment. We're a profitable cash generator business that's resilient through the good times and the challenging times. And that's intentional as to how we build our company. So really proud of these results, but let's click in as to know what actually they actually mean.

So our active customer base is growing. Our personal customer base has actually accelerated growing over 40% year-on-year. We're seeing still strong growth in our business customer base. Those customers are moving more money through us, people moving 6%, 7% more versus last year. Actually, business is moving quite a bit more. Now some of this is moving, as Kristo mentioned, more customers are using a Wise Account and those customers will use us more. Some of this is root mix, but also some of this is undoubtedly inflation through and through, particularly in the businesses we think we, for example, some of those -- you can imagine some of those examples Kristo showed where businesses are paying their suppliers, and those costs are going up. So that's translated into volume growth of almost 50%.

On a currency adjusted worth calling out around 44% but both Business and Personal volume growth growing really strongly. But just step back and think about that GBP 50 billion or GBP 100 billion annual run rate. That puts us well ahead of, I think, nearly any other money mover around the world. So it's probably the largest stand-alone money mover, growing really fast as well, which is quite -- just to put frame in missing context.

Described here our take rate. We've always talked around our cross-currency take rate than our other take rate, but we now also have this interest income that gives our total income take rate. You can see that's gone up. We see -- Kristo mentioned what's happened on cross currency prices. We see more and more customers use our Wise Accounts. And then we're also seeing some of this interest flow through into our total income take rate. So overall, what that means is our revenue is growing around 55% year-over-year. And that's growing all across all regions.

In fact, it's pretty amazing even when you look at the U.K., this has grown very healthily still despite, actually, as we called out before, having a really high share of the market. But it really just shows that still huge demand even in our most mature markets or the markets have been operating the longest to continue growing.

And People and Businesses are actually holding GBP 9 billion of balances with us. As Kristo mentioned, that's really the adoption of the Wise Account rather than the average balance is growing. People are finding use for the product, storing their -- trusting us with their money.

So I thought I'd provide a little bit clear around what -- where do these balances sit and how do we hold these. You can see we have a mix of currencies. That doesn't -- that isn't purely driven by the mix of customers. But actually, for example, if you're a customer in the U.K., you might hold as many dollars with us as your hold pounds, just like if you're a customer in the U.S. But overall, it means we've got a fairly even mix across pounds, euros and dollars. A lot of people try and help understand what is the rate that we're adding on this. Half of that is still held in cash in banks. So in high-credit quality banks that we partner with to help us run our infrastructure.

But then another half of it's held in government bonds or in money market funds, which highly liquid. Our job is to keep this safe and secure and available for our customers. This means that actually we often ask around what the yield is we see on these balances. And just in September because, obviously, rates changed and also shifted our balance mix over this period of time. We're seeing around -- just over 1% yield on these assets. If you compare that to what the average rates would be, you can see we don't earn interest on all the balances, but we're earning interest on a fair sum of this.

So the question is what are we going to do with that? And I think we've been clear, and there's no new surprises today, but just to reiterate that. The first thing is many of our customers will have the opportunity to earn interest, and we want to be able to pay interest. We're not always able to, but we're looking at ways as to how we can do that. Second is, actually, our accounts, an account that people use and value where they're holding this, we're going to have costs of running that, which we can help cover with some of this interest income rather than necessarily conversion fees or otherwise.

So some of this interest we will use to cover the cost of that. And then also like where we can invest, we always will. So some of this can help us continue to grow. And then across all these costs, any costs that this would cover are clearly we'll continue to earn a margin as we always will and always have done on these costs. To primarily assert my thesis and there will be different answers in different regions, but this is how we're thinking about moving into this.

So that's step back. So overall income growing around 63% year-over-year, GBP 416 million supported by the early stages of that interest income that started to come through in this half year. So these numbers you are familiar with.

Let's just go through some of the margin stat there. So we generated a 63% gross profit margin across the half year, which means a GBP 262 million of gross profit. And we've always said and being clear on what do we do, what is our business model or our investing model. You know that we invest for growth. So that's the gross profit generated from our product where we reinvest a bunch of that into marketing, which helps us bring more customers, brings more volume. We invest in product and the features. We're giving you examples of sustaining that development in our infrastructure and our products, which drives volume. And then also we will -- where we can, lower price where that's possible. Or also, we'll maintain our price or increase our prices in order to make sure we can sustain this flavor.

So today I just wanted to give you a bit more color as to what some of this balance might look like because we've always talked around our expenses. So if you look at that gross profit, that GBP 262 million, where does it go? So I've kind of given a split here of 3. A lot of that, you can see at least 1/3 of that is going into close to EBITDA, adjusted EBITDA. Actually, 1/3 of that -- the other 2/3 is split roughly between covering the cost of running the company, think about our operational teams of everything from customer services, verifying customers, but also cost of running finance or our other corporate functions, and the offices we're sitting in versus on the other side, actually, 1/3 of that is investing in our growth in the future.

And that's not really changed over time. So much so that actually, if you think about it's kind of interesting fact here. But if you look at the cumulative amount of money that we've spent in product development since the very early days, the first engineer, we spent around GBP 350 million. That's all time spent on this. And then if you look at the GBP 525 million it is twice the current -- it's not a guidance for the years, it's twice the last 6 months' gross profit, right?

Actually, it's quite a nice return. If you think about spend in one period and what do you get back in the next period. And this -- and the reason I show you this is to highlight the discipline that we have when you see 1/3 of our gross profit going into investment and growth, those principles really haven't changed around us but investing things that our customers want and need that will help them move more volume. There's a pretty healthy return on investment that we see on the spending. It gives us huge confidence to invest -- keep investing in that third, which when you look at that pie chart, that's around where we're investing. That also includes marketing spend.

So actually, if you look at that, just media spend alone, we've grown around 40%. And we've always said we have a 9-month -- less than 9-month payback on that. And that is literally the return on that media spend relative to the customers that it brings in. Actually, if you look at the blend across all of our customers, it's radically lower than 3 months. But actually, if you look at the returns across the period, I know there's a lot of pressure on the returns on marketing and pressures on media, but actually, our returns got better over the last 6 months.

Actually, we've seen payback improve consistently over the last year. And let's just remember, that actually 70% of our customers that join us do so without this media. They're coming through word of mouth. They're coming off the back of that cumulative investment of GBP 350 million in our product, which is only getting bigger and appropriately so given the opportunity we've got ahead of us.

If you look at total expenses, this is the full stack of expenses. This is growing just over 40% year-over-year. Clearly, we're investing heavily in our teams in employee benefit expenses. Investing in marketing and then some other things in that as well. And we did have some one-offs in this time last year relating to the listing. And transparently, if you look at the expenses that sit between gross profit and EBITDA, that's growing around 57%. This shows the slightly slower growth in some of the costs that sit below that weather. So the amortization or the stock-based comp charges. So 40% expense growth relative to the 60% income growth.

So our EBITDA, we said we're investing, we're generating a very healthy gross profit. We're investing heavily in our future growth and maintaining an EBITDA at or above 20%, and that's 22% for the half year up on the 20% we saw in the last period. So this is very intentional and reflects the balance of both growth and profitability that we're managing a highly profitable business, growing really fast.

It's also cash generative. So if you look at the -- check that finishing we've got on cash flow, we generated GBP 78 million of free cash flow. If you adjust for some of the working capital adjustments, as we always have working capital movements in and out of collaterals, for example, for these periods. Actually, this underlying free cash flow is really growing in line with the income and the profits that we're generating. So it's very healthy cash dynamics in the business today.

The bottom line profitable like a lot of companies will use EBITDA. We do is a good comparison, and we think it's helpful for our business. But just to give you the confidence, we see really fast growth in the bottom line profit before tax that we're seeing on GBP 50 million for the period.

So to summarize, we're moving a lot of money now, moving more than GBP 50 billion in 6 months, and that's still growing really fast, like the incremental billions of we're adding year-over-year is significant. That's translates into very healthy income growth, but also from a profitability perspective, both at the gross margin, we're investing an awful lot of money in our future growth and still managing a very healthy 22% EBITDA margin. And that's generating bottom line profits and cash generation. So pretty excited now. Think about the context for this. It got very healthy business and very resilient and continue to invest in the future. Thanks very much.

So I'm going to hand back to -- so one more thing. No change in guidance. We upgraded our guidance, if you remember, in the last set of results. Still continuing 55% to 60% income growth for the year and no change to our guide on revenue or adjusted EBITDA.

[Kristo Kaarmann, executive]

And the last thing to me is just to check whether the numbers match back to the reasons why we're here. So as the reminder, we had to solve a big problem for people businesses. We see more and more [Technical Difficulty]

And thanks to use Wise, we're rebuilding the infrastructure. I can show you the progress how that's going. And again, we're seeing even the markets where we are working. We've been working on those markets for 10, 12 years, they're still growing as the U.K., for example, and creating the experience that people love, being sustainable on the way, the numbers do match up with what we do.

Do we have some time for QA?

[Matthew Briers, executive]

Well most in the room, and then Martin will help us [indiscernible]. I'll be told to keep on the screen. Okay. So let me start. So James, just for everyone, what's your name, and where do you come from? And then what's you -- what's the question we got?

[James Goodman, analyst]

So James Goodman from Barclays. Maybe just to come to the account balances, which clearly have grown extremely strongly, actually ahead of volume when there is an argument that maybe customers should start to think about where they can get the best return on those balances. So you're clearly adding new functionality into that. But can you talk a little bit about your comfort in those balances continuing to grow? And maybe just to help us think about that interest income percentage? When you show the amount of funds which can generate interest income for you, where can that get to on a structural basis? So that's the question really a broad question around the account balances.

Second question is a bit more specific. Just I noticed that with the Business account, you're starting to offer cash back to some of those businesses, it's an interesting way to start to give some of this back to customers, I wondered whether you could talk to that and whether there might be the opportunity to do something similar at some point in consumer?

[Matthew Briers, executive]

Okay. Why don't I take the first question and you cover the second. So the question is, is like what's our expectation of growth really of these balances? And then also what might be the structure of that look like from what we hold those balances in. So we haven't given any guidance on that outlook and don't plan to. You can see so far, they've really been driven by the rates at which customers are adopting our accounts, our Wise account. So what that means is people are continuing to come and bring their balances to us. Now customers will have options, no doubt. Maybe not from the bank, maybe from somebody else to maybe to an elsewhere trust. This is inevitable. And actually, we'll offer that option to our customers as well, hopefully, through our assets, products in certain jurisdictions.

So clearly, our objective when we launched the balanced product wasn't to attract balances, it was to attract -- to help people make it more convenient to use Wise Accounts. So we'll continue to invest in that. If we can pay interest, we will. But inevitably, they could -- we'll see, like we'll learn in each small case as to how we develop our proposition as to what happens to those balances. Most important thing for us is that customers keep using Wise and keep moving their money and using Wise to save money with us, moving their money especially.

As to the mix, we probably can go higher on the mix of -- but we'll do that cautiously. We're not racing to chase yields. We are making sure that the customers' money is safe, that it's available and liquid. And then as we feel comfortable with this, and we're pretty cautious on this, as you hope, we'll work out so that operationally, it works very well and that there might be a yield. So it can increase and it will be different depending on the jurisdiction and the regulatory environment.

[Kristo Kaarmann, executive]

And the business spend cash back that you're referring to, this is something that have launched in the U.K. for U.K. business, and we're rolling out where we can. So this is really speaking to our approach to not subsidize across customer groups. So we are getting that interchange from the schemes and the merchants, whether we want or that we don't want it. And this is what the business customers earn by using their card. It would be, I think, not really thoughtful to use that money to subsidize some of the other products that we're doing, but rather give it back to the people who kind of earned it. And I think eventually, we'll see other banks and card issuers do the same thing because otherwise everyone is going to start using the Wise business card and that we probably wouldn't want to see that happening.

[Omar Keenan, analyst]

Omar Keenan from Credit Suisse. So I've got a question for Kristo and a question for Matt, please. So my first question for Kristo. So you've been -- Wise has been a public listed company for more than 12 months now and part of the feature of that, I guess, has been a debate around whether cross-border market is going. I guess if we think about over more than 12 months, we've had things like cryptocurrency, IXB, HSBC Global Money. Today, it is kind of debate as to whether somebody can come along and do it better than you're doing or at least as good. And standing here today, it feels like this space is little bit overplayed and you still getting a lot better than other people are.

So I just wanted to get your thoughts around the industry landscape. When you think about the alternative ways that other fintech disruptors could potentially do this, that's out in the market. Do you see any sort of obvious ideas that you can bring in and do things differently at Wise? And do you see any movement on the incumbent banks to reduce that differential in terms of how much more times expense, more expensive they are, I guess, the most public one that we heard was from HSBC Global Money, and that's kind of gone a little bit quite berserk. So I would like your thoughts there.

And then my question for Matt. I hope -- I was wondering if you could help us a little bit more with the mechanics of the interest rate sensitivity around the Wise deposits? I appreciate you don't want to give guidance on growth in the level of deposits. The 1% yield in September, obviously, central bank rates are going up from then. I understand that you're holding -- there are some balances in bonds that you're holding, if you could talk about the roll-off profile that can help us mechanically think about interest income and where you have balances sitting with banks?

I understand that you sort of -- you guys hustled a little bit more in terms of trying to get the interest rate you get up on that, it can help us think about what that pass-through is going to be. And related to that, the use of that money in terms of reducing price towards the customers, I understand that's going to be weighted towards other fees, which is currently 15 basis points. Could you give us a bit of a steer as to what you've announced already, and how that's going to change? So it's 15 basis points because you are using less domestic fees. Is that going to become 5 or 10 or something like that?

[Kristo Kaarmann, executive]

You're asking for kind of advice on how to do this better than we're doing? And I wish I knew because then we would do it definitely. This is the thing that I kind of showed on this map that works is really linking into the local payment systems, clearing in the local networks, which is all doable and we've kind of demonstrated, it can be done. We moved 50% of the payments already instant. So I think the technology exists. It's just a matter of how do you make it work and how do you interconnect the world, which is just a lot of work, unfortunately.

So I don't think that -- I wish there was silver bullet. I haven't seen any. And I think what where we're building and where we're made gears of headway is the way how this -- like money is going to work without borders. That was, I think, the first part of your first question.

[Omar Keenan, analyst]

Yes, the incumbent banks, what you think?

[Kristo Kaarmann, executive]

The incumbent banks. I think for them, the trickiness really is because they never told their customers what they charge. It's very hard for them to say, "Hey, we're going to cut our fees by 50%. But because we never told you that we charge 3%," like us telling you now that we're going to start charging 1.5% is really hard. It's just I don't know how they're going to deliver that message. So I think we haven't seen much of that happening. But I think it's first, they will have to move towards being more transparent with what they charge and only then -- and then quickly, I think we're going to start seeing the fees come down as well. But getting over the first hump is a little bit harder part of journey.

[Omar Keenan, analyst]

So I'm basically taking on what you said that when you surveyed the landscape, this is the best way to do it, and there's no threat to the [ virility ] in this business model for the foreseeable future despite all the debates that we had in the last 12 to 18 months, this is still the best way to do it.

[Kristo Kaarmann, executive]

The best way that I found.

[Matthew Briers, executive]

So the second question then is what are we seeing with these balances? And then where might the rate go? I think it was really where we're trying to get to? So, so far, just -- I mean, let's look over the last 6 months when we've really seen the interest rate environment starts to change. As you can see, we haven't seen a radical shift in the vector and the rate at which these balances are growing. There's still people coming to us. Not to say that won't change, like we'll find out like a lot of our customers have never seen an interest rate. Think about the age of customers. So I think we'll see how this works over time. The best we can do, as I said, is where we can or where we want to pay interest, we will.

Then you asked around like -- actually, you asked around, like what might be the impact of the things that we're doing to maybe like on the other fees around these things. So clearly, like some of these things were announced either towards the end of the quarter or even in this half year already, so they're not necessarily in these numbers. The way it's kind of stepping back from this the way I think about this is like we look at the total income base or [ capital ] that we have, that actually we would think, right, where do -- effectively, where do we want to cover our costs or pay for the cost of operating these accounts.

And where in the past, it might have been from conversion fees and that comes some of that might be from interest. So I'd rather think that -- if you're trying to think -- don't think about like how much of this would necessarily drop through as extra when I think about the rates. We're really thinking about like what margin do we want to continue to earn on our business. And like what's the best way to fund those activities for our customers. So we'll test things like cash back. We will test thing -- look at things like domestic payments [indiscernible], which we shipped recently in some markets.

But overall, I would think about still driving this volume growth and still seeing -- we've given you a sense as to the overall income growth and we'll test our way as to how that's made up between interest and revenue, such that it's interest really -- let's say, the -- say, the central bank has to put their rates up to 10%. I'm not sure this is in the curve. But like whatever -- if that goes slightly faster, it means we can maybe go slightly faster on our proposition, if that makes sense because that's how we think about investing for the long term. Yes, we may be able to get a higher yield balanced because we might put some of that cash we might see moving into interest-earning products. We might actually earn interest from banks on this. But I would rather think about this as the better job we do on that, better our proposition gets rather than thinking about immediate drop-through if that makes sense.

[Omar Keenan, analyst]

That makes complete sense. And I guess, the reason for asking the question is not to assume that there's a full drop-through in a way, the more interest income you earn, the better you can invest in the business and increase the virility of the business because it allows you to cut domestic payment fees. So I guess that's why question is interesting is that if that 1% yield on interest income goes to 2% to 3%, of course, that allows you to cut other fees. So I guess my question is mechanically, is that going to go to 2% or 3%?

[Matthew Briers, executive]

Well, I mean, central bank rates have moved since that we've given in average rate, so it's definitely going to go up. But at some point, it might come down again or -- it will -- you've seen this is connected to the Central Bank rates, which you've seen, have increase and probably will increase. So the question is what are we going to do with this drop? If this is carried, we're going to have an opportunity to reward back our customers for holding balances with us where we can or other mechanisms to make our product really competitive.

[Omar Keenan, analyst]

Is there any color you can give us on currency splits or...

[Matthew Briers, executive]

I showed you a currency split in the chart, which is roughly split between dollars, pounds and euro. So you can see like sensitivity to one central bank rate to another. I'm going to go this way around the room so I can.

[Unknown Analyst]

So my question is about growth. First of all, I guess a bigger sort of way in the [indiscernible] between Business and Personal, how should we be thinking about growth going forward in those two? And with that, will you -- so we received a lot of customers you are really taking market share, where is that market share coming? And then finally, having existed and having seen you for this long, but we're going into sort of a different kind of macroeconomic at the moment as everyone is trying to figure out what might that do? What's your sensitivity to that? If you could -- obviously nobody knows [indiscernible] you can help us sort of think about your business in a slower economic growth?

[Kristo Kaarmann, executive]

All right. I think that was -- it might have been 3, but I've definitely got 2 of them. So like Business Personal like what are -- where is the growth going to come from? Or where is that going? And then second is like when the market economic environment like and our sensitivity to that. Maybe you take the second and I'll take the first. So the question was around how do we see going forward our Business and Personal growth and they're growing both very fast.

So we've been asked a long time ago, so when is the business going to overtake the personal and it hasn't because the personal has been growing so fast as well, although the business is growing very -- the business customer base is going really fast. So both are growing really fast. But I think the dynamic to point out there is, and you've heard us talk actually over the years now, how we're building features for larger and larger businesses. So businesses to bring on a team to Wise, they have like dual approval, accounts employee cards. A lot of the things that businesses need to do that personal customers don't have interest in.

So we've been building out these feature sets and rolling them out to business customers, which has, I think, perhaps gotten that as you see the business per customer volumes are increasing a little bit. I think some of that might be a mix that there is now -- it's more useful for larger types of businesses. So we see that. We're going from like very, very small businesses to the very large and larger ones that find Wise useful and usable in their business context.

So I think we're definitely going to be seeing more business growth even coming from that. But then again, there's so many more people who start to use us although it's hard to kind of think about the mix top down. So therefore, it's easier to think about it bottom up.

And you asked about where the customer is coming from. They're really always like nearly always coming from banks. And banks, there's like 6,000 of them around the world. And that's very kind of -- it's a very fragmented business. There's no one competitor really to point out here, but there's a very large base of like normally have used banks or maybe to have the first-ever international payments to make it now. They've kind of started looking around. On the macro?

[Matthew Briers, executive]

Yes. On macro, like, I guess the context of both the use cases for people using Wise and then what we've seen in the past. So we see in our customer base and maybe you saw some of these on the screen [indiscernible]it's not purely discretionary activity you might be paying for it which might be [indiscernible] your business. So these things tend not to -- it's not e-commerce discretionary spend, which we would imagine it's on balance more resilient than a pure discretionary activity going into this.

And then also, if your cost of living is getting really tight, you need to save money. We think Wise is a pretty good option for you if you can -- if you're able to compare between us and the bank. So at that perspective, like we're on balance as a level of like customers are really going to keep continue to need us through this period.

If you look at what happens to remittances through the global financial crisis, this is reported. Now it's a subsegment definitely at the market. But it's growing quite quickly is the first thing. It did slow down, but it slowed and maybe it dropped a bit, but it kept growing quickly. But there's no doubt about it, like our customers and small businesses will, some of them are going to suffer through this period.

But at the rate at which we're growing and the rate at which we're shipping products, we're confident at the rate at which we can -- what's driving our growth is not the market, what's driving our growth is the rate of which as you said, customers are joining us from an alternative. Where we've got inflation effectively forced in our cost base, but we also have this in our top line. So there's an element of, call it, protection or benefiting from this.

Let's step back and think about a real macro seeing growth businesses that are investing a lot in growth in the future. We're doing that today, but we're doing it out of cash flow, and we're doing it out of level of profitability. And we've worked out how to charge and we've got a business model where we're charging our customers what it costs us to generate the product. And if it gets really hard, we've seen with volatility, we've trained ourselves on our customers to prices may go up from balance, we want them to go down in the long run.

But all of this mechanic, both the relationships to the customers, the business model and the way we've run it from a profitability perspective sets us up pretty well to keep investing and growing even when times, which I believe right now, are very challenging for most businesses out there, as I'm sure you all meeting and seeing pretty resilient.

[Hannes Leitner, analyst]

Hannes Leitner from Jefferies. I have a couple of questions. So the first would be around your headcount growth. We go maybe into a more economic downturn in the next couple of quarters. So how should we think about that? Is this now an inflection point for you to hire more talent and role.

And then the second thing is, for example, on your business ventures, you mentioned business, cashback and other features and functions and expense management, for example. Do you see they are moving more into the fintech space, I think thinking now about the Marketo and RDM, is this the other competing elements driven then also by the thought process of your customers, of your businesses? And the last bit is just in terms of your partner network, when we think about Germany and 26, when you move into this kind of business accounts and personal in reaching the features and functions, are those partners all on board? Do they use them then as well? Or are you competing directly with that?

[Matthew Briers, executive]

Okay. So can you do the -- I'll do the hiring question. And then you can cover the features. So we are hiring, but we're not hiring, I think a lot of companies have hired speculatively thinking, let's invest and see if we can generate some growth to pay back that cash flow in the future. We're quite more synchronous with this and that we're hiring -- yes, we're hiring operational folks to help service the demand that we've actually generated. So it's a lot of customer service verification agents. That's all funded by the product today.

And then on the product area, which is the other 1/3 of the pie chart, which I showed you, actually, we're hiring in this area pretty quickly as well today. We haven't accelerated, but we're just continuing to hire, lay down, put down teams and get grow those teams to be able to grow things in the future. So I don't think we'd say we're opportunistic now. We're just -- nothing's really changed in how we're managing the business through the cycle like we just got this discipline of -- I talked about that GBP 350 million, that's really just incrementally growing a really strong team that's able to continue to roll out features over time, and that team is growing. Yes, if there's more talent on the market, great. We'd love to hire them. But we'll keep building the team at the rate at which we can sustainably grow this and keep that discipline on the return.

[Kristo Kaarmann, executive]

And then in terms of the features that we're rolling out for businesses, the principle is roughly that, to an extent, we'll probably be able to do a good job for businesses. But at some point, along the verticals that you mentioned, whether it's accounts payable or accounting or some treasury services, someone else can and will build a specialized service, and then it's more a matter of how do we integrate with that service. So it's a bit of a both. A good example maybe we've built a really good integration into Zero, the accounting tool. We can help our customers do like basic accounting or at least get on the way with any tool, and then we build integrations with whether it's an accounts payable to or card issuance to we have a few of those as well.

So therefore, there's no like yes or no answer to your question. We're definitely going to increase the breadth of things the businesses can do on Wise or get their finance teams drop down on Wise. But then also make -- help them use other more advanced services that are already out there. So both those ways.

And in fact, with your second half the questions of what are these things that we build, like are these useful for our partners? I would say that our partners mostly uses for the -- or mostly bring the international infrastructure to distribute their customer payments. So the -- it's really the Wise transfer feature that they mostly want and need for their customers. And there might be ways how -- as we usually expose everything that we build to our partners as well. But I don't see that being too much of an interesting angle going forward.

[Andrew Gardiner, analyst]

It's Andrew Gardiner from Citi. Question, Kristo on the chart you showed about the sort of the relative maturation of your product by different country. Clearly, U.K. and Singapore in the upper right there. When you give us the sort of the account wise account adoption, that's on an overall basis, can you give us a sense as to where you stand in those more mature markets today, with rate of Wise's adoption there? And on a journey, you've clearly done well here in the U.K. But those markets that have, where you more recently launched that kind of feature set. Are you seeing a similar rate of adoptions happening faster, slower? Just so that we can get an idea of where that might trend over the coming period.

[Matthew Briers, executive]

It's a good question. Things is I wouldn't -- I'm trying to -- I'll not give you the number now, like there's a few things to think about like where we launch our products. In some markets, we've been open a long time without those features. So as a put and take, if you imagine like some markets we've got a lot of customers you onboarded to transfer rights over time, and that's what they do. Where in some markets, we launched quite quickly with these features. So it might not be intuitive to look at it that way. But clearly, we're trying to look at markets here where we have those features and still what the penetration is.

So I can't give you the answer, but I think it's fair to say intuitively, without having looked at that data, I would expect these to be correlated. So the more -- the better the feature set more penetrated, more adoption refined for the Wise Account users. We usually wouldn't build these features if no one is using that basically.

[Andrew Gardiner, analyst]

So it's resonating similarly as you...

[Kristo Kaarmann, executive]

Would expect. I think we'll see like small differences around whether it's like specific demand or good competition that the banks do a good job with that as well. And there's I think there's probably some local dynamics, but generally, I would expect that to be correlated. Yes, we couldn't get that kind of number across the base, if it's not pretty well spread, if you think about it, given how well you understand the basis for this spread? Let's have these 2 questions and then maybe we can go to the phones as well.

[Unknown Analyst]

[indiscernible] My first question is on volume growth. Could you help us understand how inflation contributed to your volume growth? And my second question is on geographical expansion. You launched Wise Account in Brazil earlier this year, you saw a healthy growth. You also had a slide on progress in different geographies where you had this [ metric ]. I'm just wondering whether you're looking into M&A to expand and accelerate your graphical expansion?

[Matthew Briers, executive]

Okay. So on inflation on volume growth, if you look at the volume per customer, you can see definitely in the business customer base, some of that, I feel, is coming through from inflation. You have to do your judgment of your math as to how you think that is impacting it. There's also a currency impact in that, which we've tried to be really transparent on. There's definitely inflation in some of that growth in volume. So active customer users it's not a bad proxy to keep it really, really clean.

[Kristo Kaarmann, executive]

And then in terms of M&A and things that we've acquired, we've recently announced we acquired a small company in India that carries licenses that we believe will be useful for our customers over there. I think looking forward, we just remain pragmatic about what is the additive thing that an acquisition could build -- could bring to our infrastructure really -- and kind of follow-up over from that.

[Matthew Briers, executive]

Yes, even in that chart with face, there were many of these radically movements up forward to the right on these versus doing it ourselves. And always it has to be right [ playout for these ] opportunities. Let's keep going at times.

[Unknown Analyst]

[indiscernible] Just 3 questions. So first of all, net credit losses, both in absolute terms and relative terms, they picked up. So is that a new normal or just some kind of aberration? And secondly, on other operating income, and that's also kind of picked up again. Is that -- is there something one-off in there? Or is that a new normal level? And third and final question is on regulation and compliance. You sort of flagged the fine in Abu Dhabi. So the question is with regulation and compliance, you aim to meet the standards within the jurisdiction, what you're operating in or do you have a highest common denominator approach globally?

[Matthew Briers, executive]

Okay. Let me do the financial questions. And then do [indiscernible] Yes. So actually, the credit risk in the portfolio is very -- from a consumer or business basis, we don't have credit risk on these. From time to time, we might make a loss on -- actually probably more so a while ago, we had a loss in Brazil where we had a dispute with department. This was actually, this is relatively low and not something that we expect to be meaningful over time. Then from -- on the other income, so in our total income, I think you're referring to on ...

[Unknown Analyst]

No, sorry, it's the kind of the 7 million just above the PBT line.

[Matthew Briers, executive]

Okay. So these will be.

[Unknown Analyst]

It's just it is much higher than usual types of one taken.

[Matthew Briers, executive]

Yes. So this is -- this could be relating to -- so we have a bunch of movements below this. This will be maybe interest that we're seeing on -- we could have interest we're seeing on some of our own cash and our own balances. If you think about most of the cash we hold, which we think about the interest that we're holding -- the interest that we're reporting on the top line is interest on customer balances. So effectively, we can earn interest income on our own cash balances, which can help show that...

[Unknown Analyst]

Sorry, just to be on the net credit losses so you are saying that it is -- there wasn't like a one-off in there like Brazil 2 years ago. It's just.

[Matthew Briers, executive]

So that was a one-off we saw that. But we also see -- so we'll make some product losses in the product, but these stay relatively small. We haven't seen anything material shift over the last 12 months or 6 months.

[Kristo Kaarmann, executive]

And in terms of your question about the regulatory footprint, the answer to that is really clear -- actually, this chart that we had with the 2 axis in the countries where we operate, like this is all about taking regulatory exposure. And the answer is very clear that every country has their own rules and we operate in this country, we operate in those rules. So therefore, absolutely, we need to operate in the local regulators, rule sets, whether we like it or not, whether we think it's effective or not. And we always intend to do that.

So as you rightly pointed out, in Abu Dhabi, we're at very tiny operations, we didn't adapt as well into the local regime as we should have. And therefore, we were fined there. And of course, if we look at it in the global scale, the intents of the regulators are often very, very similar, if not the same. And therefore, there is a large common denominator. And when we build the systems that support that. Of course, we try to take advantage of the way that we could simplify the experience, but like the bottom line is we're responsible in the business that we operate to the local regulator and their laws.

[Unknown Analyst]

And I guess just maybe the still the question is, as you go more -- become more global and therefore more complicated. If you look at the kind of the banking industry, people tend to use one of the two models; when they're smaller, they tend to -- everyone always meets [indiscernible] the local level, that's kind of a given. But sometimes they're just deciding it's getting so complicated we kind of go to kind of like a highest common denominator approach. So that you're kind of the same, the highest possible standards in every jurisdiction.

[Kristo Kaarmann, executive]

Highly -- I mean, it's kind of unlikely that we would end up there. I think we'd rather like follow the local complexity. And then in the background, if we can make it simple, and that's fine. But that's the bonus of efficiency.

[Matthew Briers, executive]

Okay. Should we take some from Zoom because I think those folks have been waiting for questions.

[Martin Adams, executive]

Sure. Thanks, Matt. So first question comes from Josh Levin from Autonomous.

[Josh Levin, analyst]

Just 1 question. Matt, you had said earlier this year that volatility in the FX markets had benefited Wise as it likely pulled forward some demand. What are your latest thoughts on that? Is that FX volatility still a driver of demand? And if FX volatility were to subside, how do you think that might impact growth?

[Matthew Briers, executive]

I think -- so we do see noise or ups and downs. We see volatility in FX market relaying to customers spending more -- typically more with us over short time horizons. So all that means is if you see rates move, people -- maybe with the larger payments might start right now, it is the time to do this or now, not the time, but it tends to be now time to do this on some directions.

So whenever I see this volatility, so I am kind of start, I'm always cautious that this could be short-lived. And I was definitely starting the year, I was -- it was a very kind of strong first quarter saying this could move away and volatility has hung around. But actually, over time, I would expect this to be -- over the very long term, I think this phenomenon doesn't exist because people only have a finite amount of money to functionally move around the world, if that makes sense. So that bring forward would largely have happened, if any sense, and I think we'd have seen some of that. So I think we do judge [indiscernible] some very good underlying strong growth in our products, in our business, which has given us the confidence to shift our outlook for the year from up to this 55% to 60%.

Now I do think this volatility will have driven some -- some volume this year and maybe some more people to look for solutions and maybe they find Wise. So we don't change our long-term outlook as to growth. But I think if this was like a onetime pull forward, which I think largely, we'd have seen that already, Josh, if that makes sense. So over the 6 to 9 months now, we've seen this volatility. I think we've -- a lot of people would have moved that money, pulled it forward or already by now.

[Martin Adams, executive]

Thanks, Josh. Next question comes from Aditya, Bank of America.

[Aditya Buddhavarapu, analyst]

So on the operation side, you said that you hired about 1,000 people in the first half. And I guess, could you maybe talk about how much of that was related to the ramp-up in newer markets, let's say, Brazil or Malaysia? And as you expand into newer markets in the future, do you have to ramp up on the operations side sort of portion? That's the first question.

Second, I speak about from a macro perspective that it's not purely discretionary flows, could you give us a breakdown of actually the flows in terms of how much discretionary versus nondiscretionary or read down from the use cases also on the platform?

And then one last point, you are seeing some emerging markets, let's say, India trying to, let's say, facilitate low-cost cross-border transfers to market like Singapore through their sort of local payment network UPI. So [Technical Difficulty] some of those more initiatives in EM, especially how does that mean for Wise's expansion in those markets?

[Matthew Briers, executive]

So operational impacts of new markets talks about breakdown of payments and then maybe you talk about faster payment systems.

[Kristo Kaarmann, executive]

Okay. Aditya, so on the headcount growth, I agree the expansion into new markets is 1 driver. And oftentimes, it's actually the language that is the driver. So if we go into the market that is served, it's usually serves in a different language. So building up the operating capacity in that language takes a little bit of extra work. But often the markets where we enter, they take a bit of while to get to the scale where the like operations need to be at scale as well.

So I wouldn't consider this as the main driver of our intent to build operating capacity. I think we just really think about us onboarding 60% more new customers than we did same time last year is just there's a lot of work to be done across not just the new markets but also the old market -- yes, the old markets. So that's kind of driving -- so yes, but it doesn't -- it's not really a significant driver of this headcount expansion.

[Matthew Briers, executive]

And then the -- on use cases, we haven't disclosed like a mix of what is -- it's very helpful to judge for each customer what's discretionary or it's not, but we definitely see a mix of payments across our customers. One way to think about this is it probably doesn't look that different. So if you look at your own direct debits that go out of your account and your payments. A lot of our customers just need to do that across currencies and across borders. And so actually, like there's clearly an element of it, which might be discretionary, but as if you think about the big ones, [indiscernible] my account and the ones that pay a mortgage and other things that customers really depend on us on just like the businesses. Then they might be paying their AWS or their staff.

[Kristo Kaarmann, executive]

And coming to your question on payment systems, it links up with what Omar was asking before, I think, for sure the silver bullet, which kind of we're using is, we have these local really good domestic networks developing and what Wise is building is that they overlay across them so that you can use -- you can get the benefit if you're not in that country from the base payments that are happening around the world.

And of course, I would expect and hope that others, if they are working on cross-border payments, they would use the same method because it's a no-brainer. So therefore, I would expect that there's more development in that area. And I still think that we do the best job of that than has kind of seen in our growth as well. So yes, you're right. This is -- I think it's interesting, that's generally how it should be that is good local networks are being put to use to international transfer as well.

[Martin Adams, executive]

I have 1 more question on Zoom that comes from Grégoire Hermann at AlphaValue.

[Gr駯ire Hermann, analyst]

Can you hear me well?

[Unknown Executive]

Yes.

[Gr駯ire Hermann, analyst]

Okay, great. The first one -- sorry, if you already addressed it, but it was on the free cash flow conversion, I think in the press release, you mentioned one-off item. Could you please expand on that and just telling what -- where does that come from, please?

And the second one, sorry, again, if it's redundant, but trying to ask the question differently on the guidance on the top line growth. I mean, could you sort of clarify what are the moving parts that's underpin some kind of, I would say, conservatism on the guidance there? Is it a basis effect from this year's growth, which is rated to be quite high or you expect to shrinking the cost charged to customers quite heavily over the next year. Could you just clarify that again, please?

[Matthew Briers, executive]

Sure. So just on cash flow, we try and clean -- there's a bunch of -- we talk about working capital movements in there. So there might be we have some lumpy movements where we recognize again and then you'll see -- you'll either see the cash flow come through or maybe other ways around. So where these are like not purely describing the operational flows of the product to try and we show the transparency in the top number. But actually, if you clean for those, you can see more of the underlying dynamics. So there might be like a working capital movement for cash flow payment or we offer rebates with some of the -- sorry, we get rebates from some of the card schemes.

So where those are lumpy at around and maybe fall either side of the financial year, 1 year versus the other, we try and clean that out so that we got a clean view of what this looks like. Sometimes it will help us sometimes it won't. But I think for what we're trying to get across to the investors just to understand the underlying dynamic and if you are interested in modeling this.

So then on guidance, really like -- we were guiding to 30% to 35% this year on the top line growth. We've seen much stronger volume growth than we expected this year. Early on, we thought maybe it's just very early volatility we're really continuing to invest in, as we've tried to share with you today, like how much of our -- we're continuing to invest in long-term growth. And we've got a lot of stuff to build as you see.

So we guide -- we have confidence we're going to be growing above this kind of 20% CAGR and -- but we very much focused now on the medium term. And we will drive down the cost across border transfers. We will focus very much on driving the volume growth, but obviously, we want to maximize that long-term growth. But no further updates on the medium-term accounts.

So I think those were the 2 questions. I will [ pull some threads ] as we say in the U.K. And thanks very much for those that have joined us in person. It's very cool to see people in the office, enjoy any of the pastries that get left. And thanks, everyone, online for dialing in, especially if it's been early for you. I appreciate that. Around the world, people have been getting up a little bit earlier to listen in. So we'll speak to you again in a few months. And no doubt speak to some of you again soon.

Thanks very much.

[Kristo Kaarmann, executive]

Thank you very much.