Will the Wirecard scandal splash the booming fintech sector?

Wirecard and fintech

The Wirecard scandal and the fintech sector

Le 15 January 2021

The fall of Bavarian fintech Wirecard is not without consequences for other finance start-ups, including outside German borders. In addition to purely operational implications, this growing ecosystem could suffer from a feeling of mistrust on the part of investors and customers. Business leaders fear the amalgamation.

Will there be a before and an after Wirecard for the world of financial start-ups? The financial scandal that shakes this Bavarian company specializing in electronic payments could well splash the fintech industry as a whole. In any case, this is what some players in this young sector fear, which has been developing at high speed for the past ten years and whose fundraising has reached nearly 500 million euros in France over the past six years. first months of the year.

Presented as an “old” fintech, Wirecard was born in 1999 near Munich. She specializes in particular in acquisition. In the world of online payments, this activity allows an e-merchant to accept different types of payments (CB card, Visa, Mastercard, Paypal, Alipay, etc.). Wirecard thus acts as an intermediary between a merchant and a card issuer.

Thanks to its technological solution, the Bavarian company would have attracted more than 300,000 companies in the world. In 2018, it even replaced the Commerzbank dinosaur on the Dax 30, the index which includes the 30 largest market capitalisations in Germany. Quite a symbol. At its highest, Wirecard weighed 24 billion euros, double the current valuation of Societe Generale. Today, it weighs “only” 511 million euros and its future is more uncertain than ever, after it filed for bankruptcy on June 25, a week after acknowledging that the 1.9 billion euros euros missing from its balance sheet “probably did not”, leading to the resignation of its emblematic boss Markus Braun.

Breakdown of chain services and crisis of confidence

This dizzying fall is not without consequences for other fintechs, including outside German borders. Because, in addition to its acquisition activity, Wirecard has also developed a payment card issuer activity from its British subsidiary Wirecard Card Solutions and counted among its client companies many finance start-ups. However, on June 26, the British regulator (FCA) decided to suspend its licenses, causing the service of many fintechs, such as the Curve banking app, whose card was temporarily unusable. After three days of blockage, the British subsidiary of Wirecard was nevertheless able to resume its activity and its client companies as well.

Beyond this purely operational impact, the Wirecard accounting scandal could have indirect consequences that are much more damaging for the fintech ecosystem, which would risk suffering from a climate of mistrust towards them.

“This is the first time that this nascent industry has been confronted with a scandal of such magnitude,” observes Guillaume Ponsard, managing director of the CentralPay payment platform. “This scandal could have happened in other industries. This is an accounting makeup. We should not cast shame on the whole of a profession which is extremely regulated ”, he continues.”

Reinforced controls?

“The Wirecard company is subject to both listed company law and banking law,” says Mikael Ptachek, president of the Observatory of fintech. For this former director in an audit and consulting firm, if the facts are proven, it is more a question of understanding where the failures occurred in the chain of control which is based on “managers, internal controls, external auditors. and the supervisor ”. This scandal could then contribute to bringing more transparency and lead to a strengthening of compliance checks upstream of investments.

 

Article originally published on July 2, 2020 and to be read in full on truffle.com