Many users of banking apps powered by technology provided by Wirecard Card Solutions had never even heard of the company when its German parent collapsed into insolvency last week.
But shortly after Wirecard filed for insolvency on Thursday, they suddenly found their accounts had been frozen, as millions of UK consumers and small business owners were dragged into the fraud that toppled the payments group.
How have UK banking customers been caught out?
Wirecard Card Solutions (WCS), the UK subsidiary of Wirecard, has quietly become a crucial part of the British fintech scene, providing the technology to enable consumer-facing start-ups, such as Pockit and Curve, to issue prepaid cards and process payments before they were regulated to do it themselves.
As late as last Thursday evening, senior Wirecard executives in the UK had been telling clients that the German parent company’s problems had “absolutely no relationship” with WCS, according to Boris Dyakonov, co-founder of business banking start-up Anna Money, which also relies on Wirecard technology.
But on Friday morning, the UK watchdog forced Wirecard’s UK division to cease all its regulated activities.
While the Newcastle-based WCS is run and regulated separately from Wirecard AG, the Financial Conduct Authority said it had forced the UK business to stop activities to protect customer deposits and ensure it did not transfer any of its own assets to the German parent company.
As a result, customers — from business owners to cryptocurrency enthusiasts — that had signed up to digital accounts with companies using Wirecard systems were unable to make payments or access their money.
Users of the Anna app were told they had less than an hour to withdraw funds before all 20,000 accounts were frozen. By Sunday afternoon, angry customers were threatening legal action, as the company’s executives sought to reassure them via a live video.
Who is affected?
Although millions of customers are potentially facing disruption, the problem is much more severe for some. Many WCS products are not designed for everyday use. Multi-currency cards issued by companies including Sainsbury’s Bank and Asda, for example, are used for foreign travel, which has been largely halted by the coronavirus pandemic.
One of the biggest companies involved in user terms is Curve, which has more than 1.3m accounts. Curve is designed to consolidate multiple cards into a single account, meaning it is used more frequently — but all of its customers are likely to have alternative ways to make payments.
More seriously affected are smaller companies such as Anna and Pockit, which provides accounts for people who struggle to access mainstream banks. Pockit has about 500,000 customers who rely on the app to pay direct debits and receive wages and benefits payments.
The Department for Work and Pensions has had to set up a dedicated team to assist Pockit customers who suddenly had nowhere to receive essential benefits payments due to be paid on Monday.
Doorstep lender Morses said on Monday that its digital current accounts had been temporarily frozen, meaning customers could only view their balances. It said U Account customers' money was held with Barclays, meaning the funds were “ringfenced and not at risk”.
What will happen now?
All the money held by affected customers should be safely in accounts at third-party banks, meaning that everyone should get their money back eventually. In the meantime, however, companies are scrambling to find a solution.
Curve was already working to reduce its reliance on Wirecard and was aiming to be operational again — on different systems — by Monday morning. But the task will take longer for companies starting from scratch.
“Any switching project in normal circumstances takes up to nine months,” Mr Dyakonov told customers on Sunday afternoon. “We’re aiming for 10 days to two weeks.”
WCS said it was working with the FCA to lift the suspension, which would solve the problems more quickly. Mr Dyakonov said the regulator “told us to come back for more news on Monday” — but neither the FCA nor WCS has commented on how long the restrictions would be in place.
The FCA on Friday advised that “customers who are in financial distress as a result of the payment freeze may be eligible for a hardship payment from their local authority”.
The reputational blow to companies reliant on Wirecard technology could be longer lasting, particularly because many of these app-based banks were already facing a battle to convince customers to move away from the mainstream lenders.
Michael Kent, chairman of payments group Azimo and an early investor in Curve, said the Wirecard issue “will impact customer trust, regulation and maybe even investment in the consumer fintech sector for years”.
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