Wirecard is 'beyond salvageable,' according to analyst | Hacker News Reader

Wirecard is 'beyond salvageable,' according to analyst

businessinsider.com

63 pointsfinphil50 comments

FYI, many prepaid cards in the UK are inoperable this weekend due to the failure of Wirecard, which they depended upon:

https://www.moneysavingexpert.com/news/2020/06/pockit--curve...

No clear answer of when these cards will be working again.

This will hurt disadvantaged people the most, who are more likely to depend on a prepaid card, just have the one card, or to find £100 being temporarily out of reach as more than an inconvenience.

Interesting, I have a Pockit account and haven't heard anything from them. Maybe because it's the weekend, but they usually send notification emails when their services go down sometimes for maintenance (card withdrawals were usually unaffected though)..

There are notification emails to affected customers this weekend, or at least, I have received 2 so far, so I assume that all affected customers got them. I'm not sure if all Pockit accounts are with Wirecard.

You can see more at the links that they give: https://twitter.com/PockitUK https://blog.pockit.com/important-update-pockit-accounts-tem...

I am thankfully, not substantially unconvinced by this account being frozen. But I am sure that it's not good for many Pockit customers or for Pockit's business.

My card says Wirecard, and the last email from Pockit was on the 20th ("Summer of cashback"). Strange.

But I'm not using it much, it's just a card for safe online purchases. Saved me twice, it's a good thing to have.

Right, I also see the words "issued by Wirecard Card Solutions Ltd" in the small print on the back of the card.

Getting the email might also be related to recent activity, e.g. when you last used the card?

Be aware that while it's good to have a backup card, this one is not going to save you today.

Slate Money podcast was surprisingly good on Wirecard this week. Three things popped out - that this had been widely claimed as a fraud (millions in business going through offices that were just postal drops etc) but the German "establishment" supported them because they had no native german payment processor otherwise (and once you were in the Dax 30 it's a big deal to declare fraud).

Also the failings of shorting a business - it's not enough to know they will collapse sometime, but you cannot keep covering your short for five years without wondering if the bet is worth it.

But really this is just yet another example of regulatory failure and it's hard to see how we fix it without destroying the culture of entrepreneurship

The regulators need to do a real investigation and not attack shorts and journalists. It's not easy to do real investigations, but not attacking investors and journalists is not hard.

How does investigating fraud destroy entrepreneurship culture?

Should we just turn a blind eye to every dodgy business practice to ensure some entrepreneur gets rich? Oh, wait...

At this point, if a company raised an SIO (Softbank Initial Offering) and starts with a W like WeWork and Wirecard, I'm going to look into it at least a hundred times or avoid it like the plague.

Agree, with the exception of the last paragraph. SOX didn't kill NASDAQ or the Dow. And if an entrepreneur is only successful because regulations are lax, not enforced and his business is ignoring corporate governance, that business doesn't seem to have any justification to exist in the first place.

Wow. I have really bought into a line sold to me subconsciously haven't I.

Yeah. Let's have proper regulation and policing.

Your comment reads as if regulations are some binary thing, the nature of regulation is critical to any meaningful discussion. Regulations can be reasonable guards against harm (fraud, pollution, safety, etc.) and they can also be part of a defensive moat that protects existing businesses via otherwise unjustified restrictions and imposes a "tax" on economic activity that hurts everyone.

SOX isn't the be-all-and-end-all of financial regulations and my understanding is that there is considerable regulatory nonsense inside SOX. Doesn't mean that there aren't good parts just that that the details do matter.

What’s a good thing that the culture of entrepreneurship has brought? If you were to “destroy” that culture, would it be impossible to achieve otherwise?

Electricity, the light bulb, the automobile, the washing machine, the air conditioner, the personal computer, etc etc. I really can't tell if this is a troll question or not. Clearly there was nothing stopping humanity from discovering these things 1000 years ago. What changed? A culture that balances capital and risk call achieve extraordinary things. There is no substitute for it.

everything you just named had little to do with what is today called "entrepeneurship" and more to do with either rigorous corporate scientific activity (the automobile), solitary tinkering (the lightbulb, early advances in software) or was simply the byproduct of genuinely, informal scientific pursuit.

None of those inventions were made because of VC hypecycles, or two billion in bogus bank accounts, or marketing and customer aqcuisition. In fact everything you named predates the era of high risk venture capital. It wasn't primarily a culture of entrepreneurship but a culture of tinkering and invention that got us those fundamental technologies.

I’m not sure why you’re conflating entrepreneurship with Silicon Valley-style VC.

because we're in the comment chain about wirecard and their behaviour is the result of that sort of culture. It's also still, despite the immense criticism touted around the world as something to emulate. You see billions of cash pumped into say, 'incubators' in Paris and other large cities around the globe with for the most part no results.

Wirecard is a financial services provider founded in 1999. I would not conflate their troubles with marginal contributions from start-up incubators that are chasing diminishing returns in the tech sector. The latter is just a result of a normal market cycle. Clearly, plenty of multimillion and multibillion dollar companies have been founded from start-ups in the past decade or two. And clearly we're reaching a point where it's more challenging to make a hit. That's ok, that's normal. Same thing happened in the auto industry 100 years ago:

https://en.wikipedia.org/wiki/List_of_defunct_automobile_man...

Look at all those manufacturers you never heard of.

Nonsense, Henry Ford invented the Model T invention at home working nights while he was by day working for the Edison Illuminating Company in Detroit, a company founded by the inventor of the light bulb, who himself invented it while burning midnight oil at home. It was clearly motivated and capitalized by the patent system and an effort to earn a profit. That is entrepreneurship.

https://www.history.com/topics/inventions/model-t

I would argue that businesses that were founded before bankruptcy law in 1898 were far more risky than modern ventures. In addition, there were no social safety nets to pick you back up if ended up impoverished in the 1890s. But that's quite a tangent from the core overarching theme of the modern era, in which entrepreneurial economies have consistently beat out command and control economies.

The main difference between today and 100 years ago, is now we have an abundance of capital. It was much, much harder to get capital back then. Even loans for houses were hard to come by.

>I would argue that businesses that were founded before bankruptcy law in 1898 were far more risky than modern ventures

For the individuals themselves possibly, not for the business model, because the high risk business model of today did not exist. In your own examples Both Ford and Edison worked on their inventions as a side hustle in addition to their regular jobs. They were not professional entrepreneurs when they worked on original inventions.

In fact this is almost necessarily true for any paradigm changing invention, it happens outside the status quo. As Schumpeter pointed out, as soon as someone is drawn into a formal mode of invention they're just replicating, not jumping ahead of what came before. Every truly important invention is entirely original almost by definition.

The defining feature of entrepreneurship today is that it is like a Keynesian beauty contest. You check a few boxes and we give X dollars for Y shares and we show you "how to do" entrepreneurship.

> Electricity, the light bulb, the automobile, the washing machine, the air conditioner, the personal computer, etc etc.

All of these inventions involved a real, tangible, desirable product, and they were successful because real people were willing to pay their inventors real money for them.

Increasingly, it appears that Wirecard was none of these things. A payment services company is not some sort of masterpiece of innovation, and one which was built on a foundation of financial fraud clearly does not have any net value to humanity.

> Clearly there was nothing stopping humanity from discovering these things 1000 years ago.

Of course there was. Technology does not exist in a vacuum.

All it would have taken, all these years, is a single phone call to a Philippines bank, apparently. Cmon, people didn’t want to know.

It’s not a regulatory failure. There were shareholders selling into the fraud, for a decade. Are they culpable? The Bernie Madoff beneficiaries were. There’s going to be an incredible amount of pain for many, many parties.

The reality is 9 out of 10 people on this forum would be happy selling Wirecard stock at “the right time.”

The most important asset of any financial institution is trust. Banks, fintechs need utmost trust from customers in order to run their business their business. Imagine Wirecard customers debating if they will continue to use Wirecard as payments as processor considering that they can't manage neither account for their own money.

> fintechs need utmost trust from customers in order to run their business

Wirecard has been repeatedly and very credibly accused of fraud and of cooking their books for the past decade. Clearly customers don't care otherwise they wouldn't have had any.

Wells Fargo fraudulently created millions of fake checking and savings accounts. Did it break the "utmost trust" you assert is required? No.

RBS was found insolvent after the 2008 financial crisis. Surely insolvency violates this "utmost trust" benchmark? Haha. No.

Barclays was found guilty of fixing interbank interest rates (Libor). Massive scandal that was all over the newspapers. And yet, same question, same answer.

>Clearly customers don't care otherwise they wouldn't have had any.

Or they don't know.

In none of the cases of Wells Fargo, RBS or Barclays did institutional clients lose money. Wirecard May cause that. That’s the difference. Scandalous banks that keep my money aren’t great, but I’m not going to rush to stop banking with them.

In the case of RBS, the UK government stepped in, in November 2008, and "became the majority shareholder". That protected the institutional clients by keeping RBS in business.

I recall someone saying a couple of years later that RBS was a Bank, in the same sense that the Heritage Railway Association was a Train Operating Company. Harsh and funny, but with some truth to it.

Wells Fargo fraud only impacted foolish people who don't check their bank statements. If you did, you complain and the accounts go away.

Many banks were insolvent after 2008. The government fixed that.

Libor fixing us too complicated for most to understand and it mostly hurt you if you didn't ship around.

I'm fine with fraud as long as it mostly hurts those who can't be bothered. Still a happy client of Wells Fargo.

Wirecard has the problem of impacting diligent people who will actually take action against them.

I'd really prefer a bank i don't have to check and complain about. And maybe not just my bank.

There were numerous reports of PayPal withholding funds for unknown reasons and ruining people and businesses. Did these dent the trust? Seems not at all.

I'm not sure if this is a matter of trust or lack of choice in this case. There simply aren't too many options to achieve the same results as with PayPal. Every site I go to gives me several payment options but the only ones present across every one are PayPal and card payment. So if that's what the buyer uses, the seller doesn't get much of a choice either.

This. Based on the offerings I saw, Paypal is noticably cheaper than other options for basic small business use case ( minor ebay shop, small online store ). The charges are straighforward and easy to predict. Compare that to most other providers and you find yourself digging through reams for legalese with fees calculations that are ridiculously complex and, seemingly, designed to deceive.

I am not a big fan of Paypal and heavens know it has some major issues to address, but the entire field kinda sucks in its own unique way.

I think the biggest issue with the entire field is not respecting the users. They're treated as potential criminals, their livelihoods and money are not respected at all, they have no recourse to protest administrative action, etc.

Its a terrible experience overall. It has gotten better but still leaves a lot to be desired

Just like there's no way around the fact that a large portion of email is spam, there's no way around the fact that in the field of receiving money on internet, a substantial niche of potential users actually are criminals. Their volume of transactions is quite large, they are sophisticated and eager to try out new services, and they can rapidly direct the flow of (many) fraudulent payments to a new payment service provider or scale the exploitation of some cash-out system to thousands of accounts managed dozens of actual people (generally 'money mules' who get scammed themselves).

So if your service is friendly to that group of customers, no matter if accidentally through some process flaw or intentionally (because you're not treating criminals creating accounts as potential criminals), then you can (and will) suddenly get a lot of criminal activity. For a small service, as soon as organized criminals notice that your policies allow them to use you for making fraudulent transactions, they can quickly bring in much more transactions that any of your marketing activities.

The general result of doing what you propose is that it works until criminals notice a particular vulnerability in your processes/policies caused by excessive trust in users, and then suddenly you get a LOT of fraudulent activity which makes all your operations unviable. I've seen small merchants get a tenfold increase in transactions over a single week, with all of that increase being fraud, enabled by some weakness that is massively exploited until they close the weakness. Or close their business - for a small business, a single major fraud campaign can easily be enough to bankrupt them.

As a buyer none of that is my problem. PayPal sucks for sellers, but because buyers want it, it is used.

The main reason for PayPal success is that credit card providers don't offer secure one-time payments, and a way to cancel recurring payments.

Nobody really wants to give out details of their credit card (except maybe in the US) to random sites, and there is no alternative to PayPal.

Your time horizon is too short.

PayPal succeeded because they rode the eBay wave. Millions of people hit the site in its "online garage sale" phase, PayPal had three or four things that went for them: * As a seller, you could provide an experience less terrible than mailing a postal order with a basically instant and free onboarding process (compared with a real gateway) * As a buyer, it was typically easier and faster than postal orders, and they developed a reputation of being pushovers for fraud, which was important when dealing with "garage sale" tier merchants. * They were very aggressive with signup bonuses to acquire market share. $5 for new account + $5 for referral. * A lot of handwaving about the eventual revenue model. I recall wne it was "we'll survive on the float of customer balances, nobody will ever pay a credit card fee" and then a series of market shocks where they changed course-- all of which took place long after they had a critical market base.

This got them a major market presence-- to the point where I can recall Citibank being curbstomped with a similar product (c2it) despite even richer recruitment bonuses.

Eventually, they merged and sailed under eBay's flag and it was the default payment method there until quite recently. This created an :installed base" nobody else could compete with.

They then pushed their marketing towards "you don't have to give the merchant a card number" playing off security fears, but I suspect major secondary factors are "it's basically LastPass for payment methids" convenience (from before browsers offered to save card info) and that some people keep a PayPal balance as an "off the family books" way of financing their hobbies and such without the wife seeing your purchases on the statement.

PayPal is a company that illegally holds your money hostage. I am already trying for more than a year to get few thousands back fro them but it's impossible. You can't get any human on the phone there and they keep asking for more information per email.

Any company that only offers payment via PayPal is a lost sale. One of the reasons why I don't use Gumtree or eBay anymore

That sucks for vendors and is quite unfair, but it's quite reassuring for users. I know I'd rather use Paypal for vendors I don't trust if I can.

As a merchant you chose Wirecard because no other acquirer wants you business, see FriendFinder.

I keep hearing this “not salvageable” but this seems odd to me. Wirecard has been issuing physical cards for many companies and runs the payment systems for many large companies. The cost of switching off that infrastructure is high.

Why wouldn’t someone want to acquire a miniature wirecard after the bankruptcy is through?

Because the cost of pretending to be a way more profitable company is that you end up with a lot more expenses and debt than you would otherwise.

The cost of switching off that infrastructure may be high, but it's not borne by the creditors.

In any case, the article states that Visa and Mastercard will likely revoke the Wirecard license on their respective platforms and most if not all customers will seek an alternative payment provider long before the bankruptcy is through. Presumably most of the employees will have sought greener pastures by then as well. What is left is a company shell with (maybe) some source code but no customers, no license, no employees and the name of Wirecard haunting it. Possibly also some leftover liabilities. Might as well start a brand new company at that point, if you want to enter the payment processing industry.

I worked for a fintech company until 2018 and learned a lot about the payment ecosystem. At an industry event in 2017 (or maybe early 2018) I discussed with an industry veteran about a bunch of things and he mentioned wirecard, saying that nobody believed they had a profitable business and advised to stay away from them. I didn’t pay too much attention.. until last week!

The Wirecard stack so far:

https://news.ycombinator.com/item?id=23662704

https://news.ycombinator.com/item?id=23638624

https://news.ycombinator.com/item?id=23611347

https://news.ycombinator.com/item?id=23573386

https://news.ycombinator.com/item?id=23598824

https://news.ycombinator.com/item?id=23438323

This, from a year ago, reads interestingly now: https://news.ycombinator.com/item?id=19737344

Short video from the FT reporter who was investigated by German authorities and followed by people working for Wirecard: https://www.youtube.com/watch?v=u-8-QbDpqqw

Payoneer customers have been hit hard by this. And judging by the past, there's a slim chance of recovering their funds.

Somehow bitfinex keeps chugging along, though.

It’s almost as if cryptocurrencies have no intrinsic value, only extrinsic/speculative value.

Due diligence doesn’t matter to the people that expect a 10x or 50x gain.

You could have said the same about Wirecard a couple of months ago. Unsustainable things can go on for a surprisingly long time, until suddenly they don't.

Reply on news.ycombinator.com