The co-founder and chief executive of payment app Wise sought to apply some positive shine when the group released its first results as a public company this week.
“We now transfer 3.5% of all personal money that crosses borders,” Kristo Käärmann told shareholders. “We’re really happy to be here, but there’s still 96.5% to go.”
But the Estonian entrepreneur’s efforts have not only been undermined by rising costs which have dampened earnings growth for Wise, which was valued at nearly £9billion when it went public in London, he 12 months ago in a rare coup for the UK market.
Just a day before its first results, Wise, formerly known as TransferWise, revealed that the UK’s Financial Conduct Authority had opened an investigation into Käärmann for willful failure to pay taxes.
The FCA has opened the investigation, which comes after Käärmann was fined by HM Revenues & Customs, over the contractor’s status as an ‘approved person’ which the regulator must find ‘fit and proper’ to do his job.
“This is disappointing news,” said Russ Shaw, founder of Tech London Advocates, a network of tech entrepreneurs. “This will undeniably put additional pressure on the Founders and Wise Board to ensure the matter is handled responsibly and in a timely manner.”
The clash with the regulator caps a bruising first year as a public company for Wise, which Käärmann co-founded in 2010 with friend Taavet Hinrikus, who was chairman until last year, when the couple spotted a opportunity to shake up the payment transfer business long dominated by banks and high fees.
The 41-year-old said he was inspired to found the company after being shocked by the exorbitant cost of transferring money to Estonia from London, where he moved in 2007 to join the firm of Big Four Deloitte audit and consultancy. Wise has defined his “mission zero” – the goal of eventually making cross-border transfers free.
“Why would any sane person risk his hard-earned money so that bankers would invest in loans for their benefit, with no return for the deposit holder,” Käärmann noted in 2015 as Wise’s ambitions attracted investors such as Index Ventures, Silicon Valley Bank and Baillie Gifford.
“If you look at the way they’ve built the business and framed themselves, they were saying very aggressively ‘we’re on the consumer side,'” said Dom Hallas, chief executive of Coadec, a trade body that represents UK start-UPS.
But despite being profitable since 2017, Wise shares have fallen nearly 70% since listing, while the blue-chip FTSE 100 index has changed little over the same period.
Analysts say that, like most fintechs, Wise has been swept away by a sharp sell-off in the market, with rising interest rates prompting investors to abandon high-growth companies they have coveted for much of the past. decade.
Underscoring the abrupt shift in sentiment, investors this week took advantage of Wise’s sharp rise in costs – up 48% to £321.4m – rather than its forecast that revenue would rise between 30% and 35% this year. In the 12 months to March 31, Wise’s revenue rose 33% to £559.9m and its pre-tax profits rose 7% to £43.9m.
As Käärmann faces the challenge of winning over investors, current and former employees of Wise – the company has around 3,400 employees – say its approach to business is unlikely to change.
“He is extremely humble. If you didn’t know he was the CEO, you wouldn’t know,” a former employee said. “He shared an office with the rest of us.”
The walls of his London office are adorned with mottos such as “consumers > team > ego”; another is “no drama, good karma”.
Käärmann, whose interest in extreme sports ranges from adventure racing to snowboarding, and has an annual ritual of touring Africa on a motorbike with his brother, was applauded for Wise’s decision to step up. register in London rather than New York.
“Fintech is a key sector for the city and the UK as a whole, and it’s essential that early-stage founders see a clear path out here,” said equity fund partner Oliver Richards. London-based venture MMC Ventures. “Wise’s decision to sign up here has been a fantastic show of confidence in London.”
The FCA investigation, however, has contributed to souring the once celebratory mood. Following the HMRC sanction, Wise carried out an investigation himself with legal advisers late last year, before reporting his findings to the regulator.
David Wells, the chairman of Wise, said the board took Käärmann’s default and the FCA investigation “very seriously”, but would continue to support him as chief executive.
“As a brand, Wise has been built on being a fair, value-for-money and transparent company,” putting pressure on Käärmann to maintain the highest standards in its own life, said Shaw London Tech Advocates.