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Wirecard Acquiring is 'Dead': Who Will be Next?
In 2019, the UK Financial Times reported the Wirecard fraud and how it had taken several years for its auditors to expose what had been detailed as a 'financial reporting' fraud – i.e. a company that said it had €1.9 billion more in cash than the auditors could find!
But why did it fail? Why do other acquirers fail? Why did this one struggle? And what makes acquirers succeed?
But more importantly, who will be next?
Card acquirers fail each year, typically doing so quietly, and as a result of national regulator actions, card scheme sanctions or pressure. Once a regulator or the card schemes 'get their teeth into' these companies: it most certainly signals 'the start of the end'.
Many acquirers struggle to make profits, because of a combination of:
· High processing costs and thereupon small margins,
· The need to employ sales agents that take large cuts from the margins,
· The need to spread fixed costs across a broad/ wide number of merchant businesses,
· A hard and very competitive market, where acquirers undercut one another and seek to acquire volumes at the expense of profits,
· Increasing card scheme fees, that cannot always be quickly passed on to merchants.
Card acquirers must then:
a) have a 'volume business acquisition' strategy to distribute the 'costs of being an acquirer' over large numbers of customers and/or
b) Identify and choose a higher-margin, higher-risk business that they are likely to be able to service well, manage well, and where they control and understand the risks.
This brings serious challenges. In the case of Wirecard, we know from the reporting that:
a) Control mechanisms and governance controls were not strong. The incoming chairman in 2020 was appalled at what he found. The key executives were able to hide this: which demonstrates the significant failings of the independent board members along with second/third lines of defense in corporate governance.
The fact that the CEO and COO (and others?) were able to hide a €1.9 Billion 'hole', to control their independent board members and to control the 'message and direction' should never, ever happen. Equally and potentially, Wirecard were able to 'bully' and/or deceive the national regulators (BaFin especially), auditors and card schemes. So even though these people did not have their 'fingerprints on the daggers' they were all clearly also culpable.
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Page Updated Last on: Sep 23, 2020