Wirecard Scandal: The Frozen Funds and What it Means for Crypto

Wirecard

What is Wirecard?

Wirecard is a fintech payment processing company based in Munich, Germany. The firm functions as a bank, but it is not exactly one. 

Wirecard is a provider of digital payments services, with hundreds of thousands of merchants processing online payments through it. Basically, Wirecard acts as an intermediary between customers and banks. For instance, when someone tries making a payment with a credit card, Wirecard receives that payment, processes it, and settles the corresponding bank.

It prospered by making contactless payments seemingly effortless for its merchants, with customers like Apple Pay, Google Pay and Visa.

The scandal

The payment giant was recently caught in a scandal of $2 billion missing from its accounting books, which have seen the company’s value crash from €104 per stock price to a meagre €3.15, in less than a month.

Wirecard’s chief executive, Markus Braun, who steered Wirecard into becoming one of the financial technology giants in Europe, stepped down a few weeks ago and was recently arrested over false accounting and market manipulation. 

Markus reportedly cooked the books to make Wirecard look attractive to clients and investors. The management board claims that ‘there is a prevailing likelihood that the bank trust account balances in the amount of 1.9 billion EUR, do not exist

Thousands of accounts got frozen

Wirecard filed for insolvency, owing €3.5 billion in one of Europe’s biggest corporate failures, following the revelation that 1.9 billion euros of cash had gone missing from its accounts. 

Wirecard Card Solutions, a subsidiary of the German firm, is responsible for card issuance for the company’s clients. It has an ‘e-money licence’ which allows it to handle digital cash without fully becoming a deposit-taking bank.

The United Kingdom’s Financial Conduct Authority (FCA), which oversees Wirecard UK, decided to restrict Wirecard’s activities to protect customersʼ money. As a result, a temporary freeze was put in place, on all card activities. This freeze affected a wide range of clients, businesses and customers. 

Thousands of British consumers were unable to have access to their money. British banking applications including Curve, Anna, Pockit and U Account, were impacted by the ban as they relied on Wirecard’s systems to process payments. 

Crypto payment card providers Crypto.com and TenX were also affected by the freeze. Perhaps, the global freelancing community felt some of the most severe impacts within the temporary freeze as one of their most preferred alternatives for online payment services, Payoneer, relies on Wirecard Card Solutions to issue its prepaid cards outside the United States. 

Wirecard was recently cleared to continue regulated activities in the United Kingdom, following a decision from regulators after they successfully completed their audit. All affected businesses, organizations and customers can safely access their money once again.

What does this mean to the cryptocurrency and Blockchain community?

The banks are winning! 

Every shade of maximalists in the cryptocurrency ecosystem demand one thing, mass adoption of their ‘saviour’ coin for the most part, with their secondary interest in the coin price increase.

Several attempts at adoption campaigns have shown that the global transcendence of finance to cryptocurrencies cannot occur without the full involvement of the banks and fintech solutions. The inevitable irony of depending on the help of the jailer to break out of prison.

The brief period of restriction placed on Wirecard Card Solutions, in which customers could not access their money, is a blackout too long for 21st-century finance. 

Loot, a promising United Kingdom fintech app with over 200,000 users, went into administration (this means they got into debt, could not pay back and handed the company over to creditors), with Wirecard handling its card transactions in order to keep customersʼ funds safe. The fintech app is no longer active after gathering so many users. 

These frequent experiences have dented the trust of the people in fintech solutions, the supposed gateway of onboarding newbies into cryptocurrency. 

People will rather stick to the banks, as seen with a frustrated comment from a Loot user saying “Loot robbed everyone”  

Security of funds comes before the convenience of transaction. The banks provide this security to customers and the frequent failures of fintech solutions are the validation they need to stick to the rigid services of the banks. 

Can Blockchain payment channels fill the spot?

The Wirecard scandal reveals that there seems to be a growing blindspot for the fast-evolving financial systems and the failure in oversight by regulators.

Blockchain-based finance payment channels and currencies, still remain the most credible financial system. The immutability of transaction records and smooth exchange of cryptocurrencies across borders, at extremely low charges, is a commendable feature.

However, a lot of work has to go into the convenience of usage for Blockchain finance products. Education, mass adoption, UI/UX and a whole lot more. Should all these elements be put into consideration, the dominance of cryptocurrency would be nothing short of imminent. 

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