Wirecard goes bust - implications for Revolut?

Brendan Burgess

Brendan Burgess

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There is no connection between Wirecard and Revolut.

But as I understand it, they are both payment processors. They are not banks.

So the customers of Wirecard are not covered by the banking guarantees in either Ireland or Germany.

www.irishtimes.com

An Post freezes 50,000 pre-paid cards in German Wirecard scandal

Listed director of Irish Wired unit faces questioning after collapse
www.irishtimes.com www.irishtimes.com

The once high-flying German fintech company Wirecard filed for insolvency on Thursday after admitting it had lost €1.9 billion from a largely fictional balance sheet. With its former chief executive Markus Braun facing a fraud investigation, and out of prison on €5 million bail, the company cited its unsustainable debt position as the reason for seeking court protection in Munich.

There was a clear fraud in Wirecard which was not picked up by anyone including EY, the auditors, for a few years.

I would think that it's a difficult business to make money from.

Brendan
 
Surprised this story hasn't got more attention here. It raises a number of very serious questions about these Fintech companies. Will be interesting to see if client money has been ring fenced and is as safe as claimed. If EY couldn't even confirm a deposit account with over a billion euro actually existed, I am not sure I would be that confident that they were adhering to the rules around client money.

Would also make me look closer at entities like Revolut even if there is no direct relationship.
 
It's quite extraordinary.

Revolut is still privately owned.

Wirecard had been a DAX30 member for several years, supposedly subject to all the reporting, audit and disclosure requirements involved with a public listing.
 
Sunny said:
It raises a number of very serious questions about these Fintech companies.
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Couldn't agree more. The Deposit Guarantee Scheme, or it's equivalent in other countries, should be extended to include Fintech because the nature of the services on offer is so "bank like".
 
TLO said:
The Deposit Guarantee Scheme, or it's equivalent in other countries, should be extended to include Fintech because the nature of the services on offer is so "bank like".
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The banks have to set aside huge amounts of capital and are subject to heavy regulation.

The likes of Revolut has comparatively little regulation.

Why should the banks pay to guarantee their competitors?

Brendan
 
TLO said:
Couldn't agree more. The Deposit Guarantee Scheme, or it's equivalent in other countries, should be extended to include Fintech because the nature of the services on offer is so "bank like".
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That's the rub though - if some of the Fintech service companies were required to put as much redundancy and capital aside and subject to the same expectations as those falling under state guarantee schemes, they might find it wasn't quite so cheap to provide the services.
 
I think the important thing to remember when using these new start ups, is that they are not banks.
. As pointed out these apps are not covered by any guarantee scheme and although they promise that the money is safely lodged in protected bank accounts, the money is not secure should the company go bust.
I was horrified to discover that my daughter had loaded 5000 euros on to her Revolut app. She has returned the money to her BoI account now, but I am sure there are many people who use these apps as a primary bank account.
Use them as you need them, and only put small amounts of money onto the prepaid facilities.
It's, effectively, the same as gift cards, and we know the trouble they cause when companies go bang.
 
Brendan Burgess said:
The banks have to set aside huge amounts of capital and are subject to heavy regulation.

The likes of Revolut has comparatively little regulation.

Why should the banks pay to guarantee their competitors?

Brendan
Click to expand...

And that's why I never hold more than €100 in my Revolut account. As with the cheap online brokers, they have to be making money somewhere, otherwise they'll go bust and how safe is your money then?
 
I keep some Sterling and dollars in Revolut but wouldn't feel comfortable with large amounts or using it as a primary account. I'm thinking about using the junior accounts though. Again, it wouldn't be huge amounts.
 
Sunny said:
Surprised this story hasn't got more attention here. It raises a number of very serious questions about these Fintech companies. Will be interesting to see if client money has been ring fenced and is as safe as claimed. If EY couldn't even confirm a deposit account with over a billion euro actually existed, I am not sure I would be that confident that they were adhering to the rules around client money.

Would also make me look closer at entities like Revolut even if there is no direct relationship.
Click to expand...
NoRegretsCoyote said:
It's quite extraordinary.

Revolut is still privately owned.

Wirecard had been a DAX30 member for several years, supposedly subject to all the reporting, audit and disclosure requirements involved with a public listing.
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This should raise more questions about the auditors rather than other players in the industry. The 'big four' have had similar issues
 
We can't lump all Fintech into risky. Doesn't n26 have full bank protection? They appeared to have better protection than revolut when I investigated some time ago.

Edit: yes they do, here is the link

support.n26.com

Guaranteed Money Protection - N26 Support Center

N26 Bank complies with the rules of the German financial regulatory authority and protects your money accordingly. Learn more about the topic here.
support.n26.com support.n26.com
 
Revolut has a Lithuanian banking license but never rolled it out beyond there which would make me wonder. N26 have a banking licence is my understanding
 
Dublinbay12 said:
This should raise more questions about the auditors rather than other players in the industry. The 'big four' have had similar issues
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Of course it raises questions for the auditors but you can't bury you head in the sand about the industry either. I know people who have saved up large balances in their revolut vaults and when I asked them, they tell me it is like having money in the bank. It is nothing like having money in a bank. The technology that these fintech companies come out with is great but you are basically leaving your money with a loss making technology company if you have a large balance with companies like revolut.
 
Sunny said:
Of course it raises questions for the auditors but you can't bury you head in the sand about the industry either.
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It's a fair point. Personally I don't understand Revolut's business model (likewise paypal's) and I've never felt comfortable leaving anything more than small sums with them.

Compare it to an industry that does something tangible. Fintech presents challenges for regulators and auditors to know what is going on.

I doubt this would have been possible in an industry that does something tangible like making furniture.
 
Sunny said:
Of course it raises questions for the auditors but you can't bury you head in the sand about the industry either. I know people who have saved up large balances in their revolut vaults and when I asked them, they tell me it is like having money in the bank. It is nothing like having money in a bank. The technology that these fintech companies come out with is great but you are basically leaving your money with a loss making technology company if you have a large balance with companies like revolut.
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Wirecard is a payment processor, Revolut is a bank, these companies are essentially different industries and are regulated differently. We should not mix the two up.
 
RedOnion said:
No it's not, unless you are a customer in Lithuania.
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Revolut is an online bank, you are referring to the location of their banking licence. Wirecard and Revolut are different businesses, and the premise being made here of connecting WireCard and Revolut because they are FinTechs is wrong.
 
Dublinbay12 said:
Revolut is an online bank, you are referring to the location of their banking licence.
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When you open a Revolut account you are not dealing with the known as Revolut Bank UAB.

You are dealing with Revolut Payments UAB which is a licensed e-money institution.

Revolut's marketing is (perhaps deliberately) misleading on this.
 
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