Wirecard AG (WPI:DE) has emerged as one of the most embarrassing financial debacles in years in Germany. The implosion of the Fintech has demolished the reputation of the former CEO Markus Braun who was subsequently arrested following the revelation of €1.9 billion in missing funds. Terminated Wirecard COO Jan Marselek is still missing and said to be somewhere in Asia. The company has filed for bankruptcy protection as, currently, there are more questions than answers. Shares in Wirecard have nosedived from around €100/share to trade in the single digits as investors get wiped-out.
There has been a good amount of navel-gazing and finger-pointing from both elected and appointed officials in Germany. The European Commission has initiated its own inquiry as everyone attempts to sort out what went wrong for the once prominent member of the German DAX.
Crowdfund Insider has received several comments regarding the Wirecard tragedy from the digital asset sector. These opinion’s are shared below:
Jeff Truitt, Chief Legal Officer at Securrency stated:
“An old management principle holds: “You don’t get what you expect. You get what you inspect.”
Truitt said the Wirecard scandal is shocking because marquee institutions apparently failed to detect systemic fraud.
“Ernst & Young, the Dax index, and the German regulator BaFin are each known for their quality and reliability, yet unscrupulous actors at Wirecard seem to have engaged in wrongful activity for far longer than they should have. Despite the highest standards, the system failed. The only hero in the saga seems to be the Financial Times, which started reporting on accounting irregularities at Wirecard as early as 2015 in its “House of Wirecard” series. Wirecard originated as a payment processor for gambling and porn sites and does not appear to have branched out to service crypto firms in any meaningful way. As reported yesterday, Wirecard’s UK subsidiary issued two crypto payment cards which have now resumed operation. Few of the press articles relating to Wirecard mention virtual currency at all. Payment card issuers like Curve and Pockit have experienced disruptions as a consequence of the Wirecard collapse that are likely to persist for a while.”
Seamus Donoghue, VP of Sales and Business Development at METACO said:
“Wirecard AG, a payment service provider that began processing payments for gambling and pornographic websites 20 years ago, has grown to become a bluechip DAX listed German tech darling. With a peak market capitalization of 25 billion dollars, it counts Olympus, Getty Images, Orange, and KLM among its customers. As a payment service provider, merchants use it to accept payment through credit cards, PayPal, Apple Pay, and others. When Wirecard admitted that $2 billion might be “missing”, despite recovering from similar rumors over a year ago, its shares crashed from over €100 per share in mid-June, to a low of almost €1 a share, only to recover to around €3 per share as of today.”
Donoghue said that beyond the obvious damage to the auditor’s reputation that for over three years did not identify any irregularities and gave unqualified sign-offs on Wirecard’s financials, the most immediate victims from this scandal will be the equity and debt holders.
“In the longer term, this may result in a significant reputational hit for Wirecard’s partners. Given Wirecard’s origins working in sectors that other mainstream payment processors avoid, the firm was one of the chief issuers of prepaid credit cards for Fintech and crypto startups. Clients of Crypto.com and TenX, both Asia based crypto startups, saw their clients unable to use their cards immediately following the scandal – although according to recent reports, client funds have otherwise been unaffected. The reputational blow to the Fintech companies using Wirecard’s technology may be considerably more enduring: the argument that such companies could offer new services and products like cryptocurrencies, while their processes and funds were as safe as with traditional mainstream financial service providers, has been weakened.”
Donoghue noted that crypto markets have NOT been immune to scandals citing the recent report by the Ontario Securities Commission (OSC) regarding QuadrigaCX. The OSC revealed the crypto exchange as a Ponzi scam.
“QuadrigaCX or Wirecard will not be the only “bezzles” that emerge at this end of cycle period, however, they do present strong arguments for accelerating the adoption of decentralized payment models such as Bitcoin, where there is a single transparent source of truth that can be verified by anybody. Bitcoin’s immutable ledger largely eliminates the need for manual audits that rely on paper trails–bringing real-time compliance and oversight,” Donoghue said.
He added that many “cost frictions” in the existing payment infrastructure could be solved by simply removing intermediaries and counterparts through the use of a crypto-based payment solution, such as Bitcoin, which would radically reduce costs and de-risk current payment infrastructure.
“The building blocks to make this transition are evolving rapidly, with the recent news that payment giant PayPal is planning to offer Bitcoin to its 325 million customers. Overall, the ability to transition to a new more transparent, safer, and fairer payment framework is getting closer by the day,” claimed Donoghue.
Andrew Howell, Lead Blockchain Engineer at Blockdaemon said that crypto companies that use Wirecard as a card issuer have run into a number of challenges over the years. For instance, Crypto.com’s cards were blocked and have only recently started shipping in Europe, taking away from the initial hype amongst users who had to wait a long time to receive their cards.
Howell said that TenX is another company that had issues with Wirecard’s service.
“On a personal note, I paid for a TenX card back in 2018 and received it only a week before it was shut down. TenX lost my business since I didn’t bother waiting around for 2 years until they secured a new card issuer. I’m sure this was the case with many other users, and this will likely have a reputational effect on the company that is irreversible. Both Crypto.com and TenX are big players in the crypto debit card space and were gaining significant traction and customers. Unfortunately, both companies have been severely set back due to issues surrounding Wirecard. Customers may lose faith in these companies if they do not have their funds reimbursed in a timely manner and if the companies cannot get their cards reactivated or alternatively find a replacement card issuer in the near term.”
Howell added that in his opinion, this likely won’t affect new entrants to the crypto space as crypto debits cards have predominantly been acquired by enthusiasts who have been around the industry for a while.