Wirecard: a financial scandal with multiple ramifications 

Text by: Agnieszka Kumor

As the investigation continues, with searches including July 1 in Germany and Austria, millions of users of Wirecard, an online payment company, are wondering what could become the financial scandal of the decade.  

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The noose tightens around Wirecard . But despite the request for bankruptcy, its activities continue, says the German group. Thus, payments from its German banking branch, Wirecard Bank AG, offered to merchants "will  continue to be processed without restrictions,  " read a statement. For hundreds of millions of electronic payment users, this is good news. But for how long ?

Among the merchants using Wirecard solutions, we find the British low-cost airline EasyJet, a French online bank, Orange Bank or the famous "fintech", financial technology companies. 

An intermediary in electronic payment 

A provider of financial services, Wirecard is an important link in the world of electronic payment. “  When you make a payment online or with your smartphone, there is an intermediary like Wirecard. He manages the transfer of the sums paid between the merchant from whom we make a purchase and the payment network, while taking a commission on his service  , "explains Laurens Lafont, editor-in-chief of Propos Utiles , an online stock market advice journal. , on Boursorama.

The problem is when your provider cheats. However, Wirecard is suspected of fraud, market manipulation and falsification of accounts after the discovery of a hole of 1.9 billion euros in its accounts inflated for the occasion, and which leaves its creditors facing a debt 3.5 billion euros. 

Get your money back 

But the traders, the main customers of the German group responsible for collecting the proceeds from their sales, are not sure of getting their money back. Although part of the sums due to them is still in a "cantonment" account.

The money from sales is placed on this account pending an effective transfer to the seller who normally intervenes within one to ten days. Currently, a few hundred million euros would be in the cantonment account of Wirecard, sums of which traders risk being deprived by the bankruptcy of the German group. 

Cards that no longer work 

Individuals also have questions. First, German customers of Wirecard Bank AG, which provides credit or debit cards. In Germany, where Visa or Mastecard cards are not always accepted, the group offers a "Prepaid Trio" service, a German bank account with two payment cards, a Visa and another backed by the German banking network (Girocard).  

Customers of Wirecard Card Solutions Ltd, a subsidiary of Wirecard in the United Kingdom, had cold sweats after this entity was prohibited from making payments last week by the Financial Conduct Authority (British financial policeman, FCA). Newcastle-based Wirecard Card Solutions Ltd is independent from its German sister, but its role is crucial: it issues cards for "fintech" like Curve, Pockit or Payoneer, most of which allow payments to be made with its smartphone.

After the “Wirecardgate” broke, the clients of these financial technology companies could no longer operate their cards. The situation returned to normal after the ban was lifted by the FCA on Monday June 30 at midnight. All these players - “fintech”, neobanks or other merchants - will have an interest in changing payment service providers as quickly as possible. But that could prove difficult. 

The "fintech" worried 

This new scandal is a blow to the financial technology companies, because it could bring discredit to an entire environment which, according to some, has nothing to be ashamed of. The risk is that distrust will settle among users as well as among investors who could become more reluctant to finance endlessly these "fintech".  

The stakes are high. Born in the aftermath of the 2008 financial crisis, based around the world, "fintech" are on the rise. In 2018, investments in this sector reached $ 55.3 billion. Not sure that the windfall continues to flow. And one would expect the bankruptcy of many of these companies.  

Suddenly, the "fintech" multiply reassuring statements. Like Curve, which claims more than 1.3 million customers worldwide. The British company, born in 2015, offers numerous banking services via its mobile application. The bankruptcy of Wirecard, which supplied him with his credit cards, led to their temporary deactivation. A member of the Mastercard network, the company says it is working with its network to remedy this problem. 

For its part, Orange Bank ensures that "  the technical solutions continue to work  ". The telecoms operator's banking subsidiary has long been planning to replace Wirecard as a supplier in the mobile payments it offers to its customers.  

And what about regulators? 

The summer will be hot for these new players in the financial sector. But not just for them. The case splashes in passing BaFin, the German federal authority for financial supervision, which entrusted the validation of the accounts to the audit firm EY. It was EY who had to verify whether the funds declared by Wirecard actually existed in the Philippines. With the result we know.

EY could leave feathers there. Its leaders probably remember the Enron affair, another scandal of fraud and financial manipulation. The bankruptcy of this American company in 2001 followed in its wake the disappearance of Arthur Andersen , the firm which audited its accounts. 

After Wirecard, the behavior of financial regulators could change. They could be more picky and demand more powers to do verifications directly instead of giving this task to others. Not sure that the "fintech" appreciate this new behavior.  

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