As a result, German administrators have been called upon to sell key assets like its UK entity, Wirecard Card Solutions (WCS), which has already settled card payments for 70 fintech clients, including Revolut, Pockit, Soldo and Curve.
Railsbank, a competing banking and payment infrastructure provider, will now acquire the remaining assets of WCS, customers and a number of employees, according to people informed on the matter. London-based Railsbank confirmed to Sifted that it had given WCS a purchase terms sheet, which is expected to be finalized in November, but declined to comment on the amount.
Founded in 2016, Railsbank now joins an army of around 140 potential buyers who have reportedly been in talks to buy Wirecard’s various divisions.
“A large number of investors from around the world have already contacted us interested in acquiring the core business or independent and operational business divisions,” Michael Jaffé, the insolvency administrator, told the Wall Street Journal in July.
WCS reported a pre-tax profit of £ 2.5million in 2018, according to Companies House Filings, but it is believed to have depended on its parent company to cover a large portion of its costs.
The subsidiary then fell into disarray when it was briefly suspended by the British regulator, the FCA, in June following the insolvency of its parent company. Its fintech clients were also forced to go out of business, simultaneously freezing hundreds of thousands of customer accounts for days.
Several fintechs have since migrated to new precautionary payment issuers, leaving WCS with a reduced customer base, for which it provided card issuance, account reloads and other e-money services.
Still, if the deal goes through, Railsbank will be well on its way to becoming one of the largest providers of banking as a service in Europe.
Railsbank in the wings
Prior to the sale, Railsbank founder Nigel Verdon spoke about WCS’s unstable future and lessons learned from the debacle.
While some questioned the FCA’s decision to suspend WCS given the disruption it caused, Verdon defended it. He argued that suspension of WCS was the only viable way to ensure the safety of consumers’ money, given the legal “ambiguity” surrounding the protection of funds in bankruptcy and the potential of German liquidators of Wirecard. to claim consumers’ assets as their own.
“The FCA probably made the right decision here even if it is drastic,” Verdon told Sifted at the time. “There was a very good chance that the administrator would come and liquidate WCS [thereby risking consumer assets] before a sale could take place, ”WCS’s report likely faced unrelated cash flow issues.
“It is naive to think that WCS is a really profitable business. A subsidiary like this relies on its parent company to cover a large portion of its costs, so if the parents go bankrupt, it cannot support the subsidiary.
He then joined calls in July for the regulator to improve its advice on e-money institutions like WCS, arguing that a review is overdue and could prevent future disruptions.
“The WCS saga could have been avoided if the right regulatory regime had been in place,” Verdon told Sifted in the wake. “The Wirecard scandal has brought to light [that] fundamental changes must be made to the sector to ensure healthy growth and market stability. ”
“This is Enron for the fintech industry. This will create a breach, ”he also noted.