Wirecard meltdown spreads to UK fintech sector
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Wirecard: The impacts on UK fintechs


When German payment technology pioneer Wirecard filed for insolvency after auditors uncovered a missing cash balance of €1.9bn, the reverberations rippled through the UK’s fintech ecosystem. Robert Collings takes a closer look at the effects of 2020’s big audit scandal.

6th Jul 2020
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After the chorus of doubts intensified around Wirecard’s delayed 2019 annual accounts, the massive asset black hole that came to light put the company in breach of covenants on a €2bn loan and the administrators were called in.

Within days of the discovery, the CEO stepped down and was subsequently arrested by German authorities. Wirecard’s offices near Munich were raided by police. The share price collapsed from a high of €192 to just a few Euros per share. 

It’s always a traumatic situation when a business grinds to a halt, but when that business is deeply embedded in financial transactions the effects are more far reaching. Many of the UK’s leading fintech startups were knocked clean off their feet when the Financial Conduct Authority froze Wirecard’s UK assets.

Their entire infrastructure was taken down through no fault of their own, with no indication when it might return.

What happened?

Wirecard has a UK subsidiary that provides payment processing services for several UK fintech companies, particularly those involved in financial transactions but don’t have (or need) a full banking licence.

Wirecard Card Solutions Ltd, the UK company, is an e-money issuer and does not have the same financial services protections that a fully fledged bank would provide. The money held on behalf of their clients is, however, held in a ring-fenced account with a prominent UK bank. 

In light of the events in Germany, the FCA ordered Wirecard not to dispose of any assets or funds, blocked it from carrying on any regulated activities and insisted it put a statement on its website explaining that it was no longer permitted to conduct any regulated activities.

The decision was almost immediate to prevent the insolvent German parent company from extracting funds from the UK subsidiary. But the speed of the action meant that there was no time to warn the customers of Wirecard Card Solutions.

This, in turn, froze the funds of customers of UK fintechs that rely on Wirecard, leaving them with no way to spend or receive money.

How UK fintechs reacted

In times like this, standard messages such as, “We’re working hard to fix this” would be expected from large corporate operators. There’d be little customer support, and any support that was offered would be defined by a boilerplate response approved by many different internal teams.

Fintechs are different, though. Their key focus is usually on the customer experience and that was clearly evident in the Wirecard situation. They couldn’t do much until the FCA removed the restrictions, so they had to try and make the best of a terrible situation.

Their initial responses were mixed. ANNA Money urged users to try and withdraw their cash, despite the freeze. Pockit claimed it was still business as usual. Curve urged users to carry a second card. 

After word got round of the Wirecard Card Solutions restrictions, the fintechs were quick to establish a blog to keep customers updated. Their social media teams went into full swing to reassure customers with messages of support.

Curve deserves a special mention here. The payment card and expenses management app developer had already started a move away from Wirecard as part of a broader strategy, but the restrictions turned that process into a top priority. After just 60 hours, Curve moved the entire platform away from Wirecard to get it back up and running again. An incredible effort.

A blow for fintech trust

For years fintechs have been trying to win consumer trust in the face of criticism that they’re not “grown up” enough to face major financial problems.

They’re often celebrated for being great when things go well, but the tides turn quickly when things go wrong. Corporates are not immune to the phenomenon, but it hits startups much harder.

As the saying goes, trust takes years to build and seconds to break, so the Wirecard meltdown was particularly unwelcome after a bruising lockdown period for UK fintechs.

A fall in spending meant lower interchange fees - a material revenue stream for them - and a tighter funding market made VC funds even more difficult to find.

A service outage like this means refunds of any monthly fees that they’d normally charge. Not to mention the overtime costs of employees working night and day on a fix. 

Luckily, the outage was restricted to a few days so hopefully it won’t cause any fintechs to go under, but it’s certainly a dent in the cash runway that hit at the wrong time.

What happens now?

It’s tricky to say how the FCA will react in the longer term. The regulators could go one of two ways: they tighten up restrictions to make the process more laborious for fintechs, or they do nothing.

Based on many of the recent scandals, it’s probably the latter for now. Which is good for the sector because a tightening of the rules could stifle innovation in the UK.

There’s a fair chance that Wirecard Card Solutions Ltd will be put up for sale by the German liquidators. Would this be the perfect opportunity for a fintech reliant on Wirecard Card Solutions to snap up the company? 

Perhaps, but the wider point here is that moving away from Wirecard and having backup systems in place will now be a top priority for many fintechs. 

In startups, you’re often jumping from fire to fire so building backup plans can sometimes be left until there is a fire. The Wirecard fiasco is that fire, and I expect we’ll see fintechs battle over the coming weeks and months to transfer their services away from Wirecard and win back consumer trust.

The UK fintech sector has experienced a knockback, but looks like it might be able to weather the storm without a major collaps. As for the future of Wirecard… we just need to wait and see what happens next.

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