Wise PLC's Margin Resilience: Can Cross-Border Dominance Sustain Profit Growth?

Wise PLC (WISE.L), the fintech leader in cross-border payments, has long been a poster child for margin expansion in an increasingly competitive sector. Despite recent pricing adjustments and rising regulatory hurdles, the company's Q2 2025 results underscore a strategic balancing act between volume-driven growth and cost discipline. Investors now face a critical question: Can Wise's scale and operational leverage offset margin compression risks, or will near-term headwinds derail its long-term trajectory?

Margin Resilience: The Volume-Driven Play

Wise's underlying gross profit margin surged to 72.7% in FY2024, a 9.3-percentage-point jump from 2023, fueled by a 13% rise in cross-border transaction volumes to £118.5 billion. This expansion was amplified by a 2 basis-point increase in the take rate (fees per transaction) to 0.67%. However, the company's decision in FY2025 to cut cross-border pricing by over 2 basis points—aimed at spurring volume growth amid EU price transparency rules—tests its ability to convert price reductions into customer acquisition.

The strategy's success hinges on whether volume gains outpace margin contraction. Historically, Wise has navigated similar challenges: in FY2024, a 2 basis-point fee cut was offset by operational efficiencies, including a 2% drop in the cost of sales to £319.9 million. This resilience suggests the company can manage near-term margin pressures. Crucially, free cash flow rose 212% to £486.6 million in FY2024, providing a financial buffer for reinvestment.

Operational Leverage: Cost Controls and Efficiency Gains

While administrative expenses rose 25% to £615.9 million in FY2024—driven by hiring (5,500 employees) and compliance costs—Wise has demonstrated nuanced efficiency. The company reduced FX costs and optimized chargeback controls, cutting the cost of sales even as revenue grew 31%. This balance between scaling operations and maintaining margins is critical.

The SMB segment, which now accounts for 625,800 customers, is a linchpin. Sixty percent of these businesses use the Wise Account, generating 100% more revenue per user than non-account holders. This “sticky” revenue stream mitigates risks from lower-margin “card-only” users, though bottlenecks in UK/EU onboarding temporarily slowed growth. Wise's ability to resolve these scalability issues will determine whether SMBs remain a margin-friendly growth engine.

Geographic Expansion: Untapped Markets and Partnerships

Wise's global customer base grew 29% to 12.8 million in FY2024, with Asia Pacific and emerging markets like Brazil representing key frontiers. Partnerships with institutions such as Raiffeisen (Central Europe) and Itau (Brazil) aim to deepen market penetration, while new products like Wise Invoicing and the Stocks investment feature diversify revenue beyond transaction fees.

The company's push into Japan—where it secured a Type 1 financial license—and its compliance with EU transparency rules, while costly, position it to capitalize on untapped demand. These moves align with its platform-driven strategy, where scale reduces unit costs and strengthens pricing power.

Regulatory and Competitive Risks

The EU's price transparency rules force Wise to disclose fees upfront, potentially compressing margins if competitors match or undercut pricing. Meanwhile, North American revenue softened in H2 2024, though this may reflect broader macroeconomic pressures rather than structural issues.

Long-term risks include margin erosion if volume growth fails to offset fee cuts and administrative costs continue to outpace revenue. Wise's stock trades at a price-to-sales ratio of ~1.8x, below PayPal's ~2.5x, suggesting undervaluation if growth targets are met. However, investors must monitor regulatory execution and SMB onboarding capacity.

Investment Implications: Buy on Dips, Focus on Long-Term Scale

Wise's Q2 2025 consensus EPS of £0.19, down slightly from £0.22 in 2024, reflects near-term pressures. Yet its free cash flow resilience, SMB leverage, and geographic expansion justify a buy-on-dip approach. The stock's 3.83% post-earnings rally in November 2024 highlights investor confidence in its long-term model.

Recommendation: Accumulate positions on dips below £20, targeting a 12-month price target of £25–£30. Focus on Wise's platform scalability, SMB monetization, and cash flow generation rather than short-term margin volatility. Risks are mitigated by its leading market position and diversified revenue streams.

Conclusion

Wise PLC's margin resilience is a testament to its ability to turn cross-border volume into profit. While regulatory and competitive headwinds are real, the company's operational discipline, geographic expansion, and SMB focus position it to navigate near-term turbulence. For investors prioritizing growth over short-term noise, Wise remains a compelling fintech play.