Wise pauses taking on European business customers as it beefs up compliance

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

UK fintech Wise has paused taking on new business clients in Europe as sanctions and rising geopolitical tensions force the FTSE 100 group to beef up its compliance teams.

The payments group temporarily stopped accepting new business clients in Europe and the UK on October 27. While Wise resumed accepting UK customers last week, its pipeline of European corporate clients remains frozen.

Harsh Sinha, who has led Wise on an interim basis since September after the group’s founder, Kristo Käärmann, took a sabbatical, said the company had not anticipated the degree of extra due diligence that would be required following the wave of sanctions stemming from Russia’s invasion of Ukraine.

In August, the UK’s Office of Financial Sanctions Implementation disclosed that Wise had allowed the account of a company owned by an individual on the country’s Russia sanctions list to transfer £250.

In its half-year results on Tuesday, Wise said it had taken “immediate steps” to prevent it happening again and that it would continue to invest in its compliance. It did not disclose how much it was investing.

“Like all financial services companies, there is a risk that our services may be misused for financial crime,” Wise said.

Wise, which changed its name from TransferWise in 2021, is counting on business customers as a big source of growth. The company processed £15bn worth of payments from such accounts in the six months to the end of September, up from £13.2bn in the same period last year.

Business accounts only made up 385,000 of the 7.2mn Wise had at the end of the second quarter, but they typically involve larger transfers than those made by individual customers.

European clients, including individual accounts, generate nearly 30 per cent of Wise’s revenues while the UK makes up about 20 per cent. The US and other major markets account for the rest.

“The biggest conflicts happening require more due diligence across the business and that’s what every business and every company have to be going through,” said chief financial officer Matt Briers.

Wise’s decision to list in London in 2021 was hailed as a triumph for the UK market, which has long struggled to compete with New York as a destination for fast-growing tech companies. But the group’s shares have fallen by more than a quarter since it went public.

The stock was hit last year as investors soured on the wave of fintechs that had secured lofty valuations in the era of low interest rates. The company has also been buffeted by a UK regulatory investigation into Käärmann defaulting on a tax payment, as well as a fine from Abu Dhabi authorities over failures in the fintech’s anti-money laundering controls.

But Wise shares have fared better this year, climbing 26 per cent, as higher interest rates have boosted the amount the fintech makes on the cash customers keep with the company.

On Tuesday, it reported that its first-half pre-tax profits almost tripled to £194.3mn, as the windfall from higher rates offset a drop in the size of the payment transfers that clients were making.

The company blamed the trend for smaller transfers on the “uncertain” economic backdrop and said it was likely to continue.