Wise money laundering probe hits at fintech’s fundamental flaw

{"text":[[{"start":4.1,"text":"Payments provider Wise hoped that by moving its stock market listing from London to New York it would gain “greater awareness” among potential investors and customers. It has indeed garnered attention, but not just the good kind. Wise’s shares dropped as much as 20 per cent on Monday, before partially recovering, when it said it was being investigated over potential money laundering offences. "}],[{"start":26.5,"text":"When moving money from A to B is a company’s raison d'être, knowing where said money originated is fundamental — and regulators are understandably watchful. The investigation by Belgian authorities is ongoing and no charges have been brought. But at best, it’s unhelpful for a company that has previously faced criticisms from watchdogs in Brussels, New York and Abu Dhabi. And Wise is not the only one: Starling, Monzo and Revolut have all had run-ins of differing kinds."}],[{"start":56.55,"text":"While this may look like a fintech problem, it’s really a finance problem. After all, it is hard to find a major bank that hasn’t also run into some sort of trouble. In the past year alone, everyone from international group such as UBS and JPMorgan Chase to British building society Nationwide has been fined for financial crime failures."}],[{"start":77.5,"text":"The real difference is what happens next. True, if a big bank really messes up, it can be a drag on performance for years. Wells Fargo missed out on seven years of growth after the US Federal Reserve barred it from growing its balance sheet as punishment for defrauding its own customers. HSBC overhauled its entire sprawling business after it was caught helping Mexican drug cartels launder money and evade sanctions for countries such as Iran and Libya."}],[{"start":104.25,"text":"But fintechs tend to have less diversified businesses, so a problem in one area is liable to have a greater impact on overall results. Wise has branched out in recent years into multi-currency deposit-taking with its “Wise account”, but still relies on cross-border money transfers for around two-thirds of revenue. "}],[{"start":null,"text":"

"}],[{"start":123.35,"text":"Younger companies also need to maintain rapid growth rates to justify their higher valuations. Anything that leads to restrictions on customer acquisition — as happened to Starling Bank after it was fined by UK authorities in 2024 — can therefore be especially damaging. Even after this week’s decline, Wise was trading at about 23 times the next 12 months’ expected earnings, according to Bloomberg data. Most banks in Europe struggle to hit 10 times. "}],[{"start":151.1,"text":"cFund managers have little pressure to buy newly listed stocks not included in major indices, so companies that miss forecasts or otherwise disappoint in their first few quarters can find it hard to rebuild their reputation. All banks must dance to regulators’ tune. Fintechs need to show they can do it backwards in heels."}],[{"start":176.25,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1780446693_4212.mp3"}