Wirecard or Weirdcard?

Another day and another headline about Wirecard:

• 'The money's gone': Wirecard collapses owing $4 billion
• Wirecard’s Missing Billions Forces Out CEO, Panics Lenders
• Wirecard: Former boss arrested over €1.9bn scandal
• How Wirecard fooled most of the people all of the time
• Inside Wirecard
• EY failed to ask for Wirecard bank statements for 3 years
• Softbank plans to sue EY over its role in Wirecard scandal
• German shareholder group files criminal complaint against Wirecard auditors
• Brussels to call for probe into German regulator over Wirecard
• Why was Frankfurt so blind for so long about Wirecard?

I’ve already shared lots of insight and discussion about the company, and the fact that The Financial Times did some great investigative reporting which brought to light a lot of the issues, whilst having their journalists hauled up in the German courts on criminal charges because BaFin was embarrassed.

• Wirecard versus The Financial Times: a FinTech poster child on trial

Well, they’re even more embarrassed now that it comes to light that a lot of the company’s balance sheet was pure fiction and the CEO and founder has been arrested. But I took particular note of this headline …

• Fintech sector grapples with Wirecard fallout

… where the authors discuss the company's role in the foundations of Europe’s fintech world. The article is from Sifted, a new division of The Financial Times dedicated to fintech. In this article, Isabel Woodford rightly points out that most Wirecard customers are not customers of Wirecard in Germany:

There have been fears about possible disruption to Wirecard’s fintech clients — which include Revolut, Pockit, Soldo and Curve — who rely on the German tech-darling for card issuance, account top-ups and other e-money services. But it’s becoming clear that Europe’s fintechs face little direct upheaval, even in the event of Wirecard collapsing. This is because most fintechs clients operate under Wirecard Card Solutions (WCS) — an FCA-regulated, UK-based entity headquartered in Newcastle, rather than Munich-based Wirecard AG.

That hasn’t stopped Wirecard’s WCS competitors stepping into the fray however. For example, I saw a note from CEO and founder of Railsbank, Nigel Verdon, reaching out to say anyone worried about their relationship with Wirecard can have a chat …

Revolut need to re-platform at some point but Wirecard also needs to re-platform their tech - both of us know that from experience.  Revolut has own issuing licenses (I think?) - so other than processing what value add would Revolut get other than a ton of liability?

— Nigel Verdon (@nigelverdon) June 24, 2020

And also got an email from a business development lead at another competitor saying:

I understand from a number of digital companies in my network that significant issues involving another payment provider are causing their customers to look for an alternative provider outside of the normal contract cycle.  I am not sure if you are in this situation but I thought it was worth reaching out to you …

Nothing like taking advantage of weakness in a situation is there? Mind you, probably a good idea as the FCA closed Wirecard Card Solutions this morning and froze all funds, effectively freezing Anna Money, Curve and other customers for a while too.

On 26 June 2020, the FCA imposed a number of requirements on Wirecard including, that the firm:

• must not dispose of any assets or funds
• must not carry on any regulated activities
• must set out a statement on its website and communicate to customers that it is no longer permitted to conduct any regulated activities.

The issue I raise here is that I liked Wirecard, as they have powered so many innovators across Europe to unleash their dreams, and I applauded them for that.

However, there are three things wrong here. One is with Wirecard; a second is with Wirecard reporting; and the third is with the German regulator, BaFin.

The issue with Wirecard is they royally messed up and should be held accountable for it. Well done to The Financial Times for discovering and reporting their issues.

The second is that Wirecard is not a FinTech company. They are a bank behind FinTech firms. They have always been a bank and never been a FinTech, and they are regulated by BaFin, the German regulator, who also royally messed up. Shame on you BaFin for not admitting it.