UK FinTechs hit by Wirecard crisis

As the shockwaves of the Wirecard accounting scandal continue to reverberate, dozens of FinTechs which rely on its card issuing and payment services have been forced to suspend customer accounts, leading to uncertainty for millions of individuals and small businesses across the UK.

FStech contacted a number of the more than 70 companies who have reportedly been affected to assess the impact of Wirecard’s collapse on UK FinTech.

In the wake of the German e-money firm’s decision to file for insolvency - following the discovery of a €1.9 billion black hole in its accounts - the Financial Conduct Authority (FCA) announced that it would stop regulating Wirecard’s UK subsidiary and freeze its ability to handle customer money and accounts.

The ruling meant that all companies using Wirecard’s infrastructure to issue cards or process payments in the UK would find their services effectively suspended, with the FCA prohibiting Wirecard from paying out or reducing any of the money it holds on behalf of its customers.

The move caught a number of the UK’s FinTech companies off guard, with some given just an hour’s warning of the decision to suspend Wirecard.

In an open letter to the FCA, the Emerging Payments Association (EPA) urged the FCA to unfreeze Wirecard Card Services accounts “as soon as it can”.

The industry body for payments and FinTech added: “Without this suspension being removed rapidly, we believe there will be significant and lasting damage to individuals, companies and the UK’s current and future prospects as leaders in FinTech.”

Last night, the FCA did exactly that, with updated guidance stating that: "We are now in a position to allow Wirecard to resume regulated activity and on 29 June 2020, the FCA provided written consent to Wirecard to resume issuing e-money and providing payment services.

"We continue to monitor Wirecard’s activities closely and certain requirements continue to remain in force - these should not, however, affect the services Wirecard provides to its customers - this means customers can now or very shortly use their cards as necessary."

ANNA Money, a FinTech app for small business owners, uses Wirecard for e-money accounts, issuing debit cards and processing customer payments. On Friday it released a statement on “urgently recommending” that customers withdraw money from their ANNA account as soon as possible.

To address the possible concerns of around 20,000 business customers, ANNA Money’s founders held a live video Q&A session in which they explained that all affected money was safeguarded in accounts with Barclays, but was not immediately accessible due to the FCA’s restrictions on Wirecard.

The company announced that its board and shareholders agreed a plan to guarantee temporary liquidity for customers using the company’s own funds, with the facility being made available, if needed, within the next fortnight.

In a statement, co-founders Boris Dyankonov and Eduard Panteleev said: “There is never a good time for something like this to happen, but with SMEs already being hit hard by the pandemic which has caused increased financial pressure, now is the worst time for them to have to deal with extra cashflow worries because they can’t access their money."

The company is aiming to provide further updates to their customers before midday on Tuesday.

Curve, a card consolidation app and banking platform, had already begun the transition away from Wirecard’s e-money services in favour of in-house alternatives earlier this year.

It warned customers on Friday they would likely see a “temporary disruption to their service” and were advised to carry an alternative payment method while they rushed to accelerate the transition to their own solutions.

In an update on Monday, the company reported that it was “back live”, having brought all of its issuing and e-money in house with Mastercard and confirmed payments company as its processing partner.

Reflecting on the rapid escalation of events, founder and chief executive of Curve Shachar Bialick said: “The call I received at 9am on Friday was the worst a founder could hear – that our accounts would be closed imminently, through no fault of our own.”

However he said that his team “was not deterred” and used their skills to minimise the impact on customers and deliver a solution previously thought to be “impossible”. He added that a complex transition of services had been made rapidly and with minimal disruption at a time of “significant upheaval in European FinTech”.

Business expense management platform Soldo, which used Wirecard for its prepaid card solution, posted an update to social media on Monday explaining to customers that their cards would be frozen until the issue was resolved, but sought to assure customers that “all money is safe”.

The statement read: “We understand the frustration and confusion this has caused - for the time being your Soldo business card will not work (but will work again v. soon), so we recommend an alternative method of payment.”

Holvi, a Finnish business banking service for freelancers and microbusinesses, launched in the UK in January, with Wirecard providing its business Mastercard. On Friday the company told its customers that as a result of the FCA’s decision to revoke Wirecard’s permission to operate, “your Mastercards stopped working and remain out of order. Card transactions and ATM withdrawals will not be processed.”

Customers will still be able to invoice, receive and transfer funds as normal.

In a statement the company said: “This decision surprised us and the rest of the industry. We knew about Wirecard's situation and were following the events closely, but we were repeatedly assured that this would not have any impact on the services.”

The company, which holds customer funds in segregated accounts in European banks in Finland, Sweden, Denmark, the UK and France, assured its customers that accounts and funds remain safe, secure and accessible.

Holvi is currently exploring the option of becoming independent of third party service providers and issuing its own Business Mastercard in the future. The company said it will share more information on 1 July.

Likewise, Pockit, a consumer banking app offering current accounts and remittances, has been racing to get customer accounts back online after the suspension blocked its ability to use Wirecard’s payment platform.

In a statement ,the company, which had been working over the weekend to find a solution to lifting the restriction on customer accounts and said it “understands the urgency and distress that the situation at Wirecard has provoked for our customers.”

Pockit said it was “urgently reviewing all payment platform options and solutions to best protect and serve our customers”, including discussions with an alternative, UK-based payment service provider.

A number of Pockit’s users receive their Department of Work and Pensions benefits through the app, and have been locked out of accessing these as a result of the suspension.

A statement from the Department of Work and Pensions said: “If you receive DWP payments of any kind into accounts held by companies associated with Wirecard, or have not been able to access your account since Friday 26 June, please call the enquiry line specific to the benefit or pension you receive.”

The accounting crisis threatens to engulf Wirecard - once a leading light of Germany’s FinTech scene - and has already claimed the scalps of former chief operating officer Jan Marsalek and former chief executive Markus Braun, who was arrested last week on suspicion of falsifying company revenues by German prosecutors.

The company owes creditors almost $4 billion.

The crisis has wiped billions from the company’s share price and yesterday saw the EU’s market watchdog launch an investigation into Germany’s financial regulator BaFin over its oversight of the firm’s activities.

Commenting on the impact of the crisis on the UK’s FinTechs, Sarah Kocianski, head of analysis and research Manager at 11:FS, said: “For those FinTechs that still use Wirecard for these services, this will be a major blow, not only to operations but also to customer confidence.

She added: “It's quite probable that few of these customers realise that the fund held at these e-money licencees is not actually held by the provider they interact with, and therefore not insured or protected to the same extent as it would be in a fully licensed bank - that not only means that customers will be confused and no doubt outraged that their cards have stopped working and their funds have been frozen, but also unsure as to the reason why.”

“It seems likely that European regulators will take a good hard look at the current regime,” Kocianski explained. “If something of the Wirecard scandal can happen at this scale, and 1,000s of consumers are affected in multiple countries, should providers be allowed to offer current account products if they don't have a license that enables them to hold the funds themselves?"

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