Wirecard: Picking up the pieces

Originally published in The AltFi Weekly Newsletter on Monday, for more like this sign-up now.

This weekend hundreds of thousands of people went to an ATM, only to have their card declined.

Families discovered that salaries, received only days ago, are now inaccessible.

Lone parents with young children struggled to access their savings.

And small businesses, just trying to stay on their feet amid a pandemic, are now locked out of their finances.

All of them customers of e-money accounts from the likes of Pockit, Soldo, U Account, FairFX, Glint and many more, companies that are themselves victims of Wirecard’s sudden demise.

Pockit, which has over 500,000 vulnerable users who can’t access traditional banking services, published a blog post with advice that included links on how to “find a food bank near you”.

(Bailey Kursar, co-founder and CEO of Touco, put together a heartbreaking post capturing some of the hardships being faced. I’d highly recommend you give it a read.)

At the same time entrepreneurs and fintechs, including those listed above, were thrust into a weekend of chaos as they desperately look to save their businesses after their key supplier was frozen by the FCA.

Curve was among the few that managed to get its service back up and running this morning, others were not so lucky.

“I think there will be casulalties, because the biggest factor in fintech is trust,” Draper Esprit’sVinoth Jayakumar told me on the phone this morning.

“Trust is broken, and it’s not any fintech’s fault, but it is fintech’s fault.”

So what happens next?

Firstly, the Wirecard mess will be resolved.

This morning the FCA said it had made good progress assessing the UK subsidiary’s books, although it added that restrictions cannot yet be lifted.

UPDATE 30-06-20 – The FCA has now lifted its freeze on Wirecard UK.

Secondly, some fintechs will fall.

The reputational damage caused by the Wirecard debacle, during a time when cash is tight and venture capital is scarce, will be too much for some.

Finally, the regulatory landscape for electronic money and payment institutions will be reviewed.

The ease at which entrepreneurs have been able to create new financial institutions (Monzo started as a prepaid Wirecard) has enabled the modern fintech revolution as we know it.

But the fact that many of these fintechs have become core financial services in the lives of millions, without the same regulatory rigour and consumer protection as traditional banks, is a problem.