Wirecard’s real business was based on a limited number of customers

Wirecard has relied on a small number of customers for the majority of its actual sales, according to an internal company spreadsheet showing the real business behind the fintech group’s facade for the first time.

The German payments company filed for insolvency last week after acknowledging that € 1.9 billion of cash probably “did not exist” and that the business that accounted for about half of its reported revenues had been misrepresented.

A snapshot of Wirecard’s customers in 2017, reviewed by the Financial Times, provides an indication of the company’s true size and shape, with just 100 customers accounting for more than half of its sales.

The paper provides new evidence that Wirecard has completely misled the market as to its scope. It also shows that it has processed payments for a variety of controversial activities that have attracted regulatory scrutiny in a number of jurisdictions.

In 2017 Wirecard publicly claimed to serve 33,000 large and medium-sized merchants and 170,000 small businesses, a global reach that has helped make the company an investment sensation.

The internal file seen by the FT, titled “Customer List – January-June 2017 (Global)”, suggests that Wirecard’s customer base was actually much smaller and much more unbalanced.

Prepared by staff at the request of then CEO Markus Braun, a huge spreadsheet was shared via email between 10 employees in October 2017, showing 107,000 customers, with the transaction volume and resulting Wirecard sales generated by each. . As a payment processor, Wirecard generates revenue by withdrawing a portion of merchant transactions.

The file examined by the FT shows figures equivalent to roughly half the volume of sales and transactions that the company reported for the first six months of 2017. It seems likely that it represents the real business. Wirecard’s statements last week, a special KPMG audit, and previous FT reports indicate that the other half of the reported business may never have existed in reality.

Wirecard did not respond to a request for comment.

An attorney for former Wirecard boss Mr. Braun, who was arrested last week on false accounting charges and released on bail, said “the assumptions and imputations” in the FT’s questions on the slip calculations were “incomprehensible” to his client and “obviously based on information taken completely out of context”.

Braun was providing “absolute and unlimited cooperation to the Munich prosecutor to clarify criminal liability,” he said.

In 2017 Braun boasted of Wirecard’s cutting-edge technology, including “a data layer that now also takes into account new and cutting-edge tools in the field of machine learning and artificial intelligence.”

To generate information about their customers, however, Wirecard staff needed to use an unsophisticated Excel spreadsheet that reflected the same weaknesses as the documents described in a special KPMG audit. Thousands of customer names appear to be duplicated. The Financial Times also ruled out six Indonesian financial institutions that allegedly contributed € 200,000 in sales on an unlikely € 190 billion in transactions, likely the result of using the wrong currency.

The remaining figures show € 292 million in sales from processing € 18 billion in transactions, compared to € 616 million in revenue from processing € 37.9 billion in payments that Wirecard incurred at the time. .

A disproportionate amount comes from a small group of major customers, including UK-based online bank Monzo, Hungarian low-cost airline Wizz Air and Marathon Alderney, the parent company of online gaming site Marathon Bet. The top 200 contributed 193 million euros in sales, two-thirds of the total, according to the file.

Wizz Air and Monzo no longer use Wirecard. Marathon did not respond to a request for comment.

Other examples of Wirecard clients include Cypriot online brokers Rodeler and Hoch Capital, which were recently banned from operating in the UK by the Financial Conduct Authority. They did not respond to requests for comment.

The 21st largest customer in the first half of 2017 appears to have been a Polish entity used by Qnet, a Hong Kong-based multilevel marketing group, which faced complaints in India that it had adopted pyramid-like behavior.

“Wirecard has been very good to us in the sense of the rates it offers us,” said Zaheer Merchant, director of corporate affairs at Qnet. Pointing to a 2017 ruling in India, he said: “The supreme court order we have received is that Qnet is not a scam company.”

The vast majority of customers listed in the Wirecard spreadsheet were small: 67,000 small customers in Brazil together contributed just € 9 million in sales over the period. Another 30,000 customers were listed as jointly responsible for 1.7 million euros of transactions in the half year and zero sales.

A significant chunk of the rest comes from the pornography industry, with some customers paying unusually high fees for payment processing.

Wirecard’s roots lie in payment processing for pornographic and gambling websites and its willingness to continue working with customers in adult entertainment was unusual for an established “buyer”, industry jargon for a company that belongs to the Visa and Mastercard networks and helps companies to take payment cards.

“Most shoppers do not behave in an adult manner due to reputation issues and the risk of charges being canceled due to consumer complaints,” said Chris Jones, a payments expert who manages PSE Consulting. These businesses tend to be managed by high-risk payment specialists.

The German company appears to have an unusually profitable relationship with a collection of nearly 4,000 pornography, dating and related customer service websites registered by 175 companies in the UK and Cyprus.

Pornographic websites on the network typically advertised three-day free trials, before charging $ 39.95 per month afterwards. Wirecard maintained around 15% of the transaction volumes generated by these customers in the first half of 2017, according to documents reviewed by the FT.

This is comparable to rates of around 3% the German company charged to larger porn providers, such as Luxembourg-based LiveJasmin and US-controlled Chaturbate.

Charging such a high rate raises new questions about Wirecard’s compliance with anti-money laundering regulations.

Nicolette Kost De Sèvres, Mayer Brown’s attorney, said that in terms of anti-money laundering monitoring, “this is a serious trigger, 15 percent. In business practices I wonder why the merchant would agree to pay so much with the competition and availability of payment processors. ”

Many of the pornographic websites were nearly identical in structure, administration, and use of similar dated technologies. More than 1,200 websites have been registered by 68 allegedly independent UK companies, for which the directors and owners all provide the same correspondence address in Essex.

While registering for free trials or subscriptions at sites on this network, the FT repeatedly found that transactions were automatically blocked by the card issuer or that attempts were made – for example from the mytrashyamateurex.com website – to deceptively authorize charges. higher than advertised prices. Letters of request for comment sent to 137 people associated with the companies were not answered.

Wirecard appears to have processed at least € 30 million in high-margin transactions for these porn and dating sites over the period, generating € 4.5 million in sales from the British and Cypriot companies behind them. Overall, the group would be Wirecard’s sixth customer at the time.

Additional reporting by Alice Hancock in London

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