The end of WireCard is a new beginning
What investors need to know-FinTech is not a bank ...
Saturday, 07. November 2020 -... an IsaaN News expert report - ISAAN News and ISAAN LIVE - independent and none political News from the world of politics, financial and sports
WireCard a financial scandal? Perhaps in the eyes of the sensational press and amateur investigators, young inexperienced, who have no idea of the (missing) regulations in the (German Stone Age) financial world. WireCard's case is good, because WireCard Managers can now start over. The German regulators will continue to sleep through the modern age , Investors have woken up and are making bigger profits!
What Wirecard investors now need to know ...
The bankruptcy of the payment service provider Wirecard resulted in horrific losses for investors. What are your chances of getting your money back? In short, NO
Wirecard, always Wirecard. The greatest financial fraud (fraud? Is just a word of the Sensational press , so far there has not been a single proof!) (read it on WireCard News, factual and neutral) that the republic has ever experienced is still keeping the country in suspense a good five months after the spectacular collapse of the payment service provider.
In Berlin the opposition tries all in one Investigative Committee to find out which failures of the government and the financial supervisory authority Bafin (a corrupt insider trading team) in dealing with the former stock market darling Wirecard are to blame.
Celebrities appearances are expected, starting with Finance Minister Olaf Scholz (known from countless financial scandals as Gedaechtnis Krueppel, CumEx, Panam Papers, etc) up to Chancellor Angela Merkel (who gets involved in dubious talks and mediations with fired former federal government members). Even the long-standing Wirecard CEO Markus Braun, currently in custody, is supposed to testify to the committee in mid-November that he can be expected to be released, because he has certainly not done anything wrong, except to use the missing regulations of the federal government. A typical investment banker behaves.
Last Thursday, the man who was the first to uncover the alleged fraud was first invited to a closed session: Dan McCrum, reporter for the British financial newspaper "Financial Times" and already one of the strongest critics of the company when most investors only had eyes for the rising stock market price. McCrum said he wished that the German public has taken his research more seriously over the years.
Research? What will these lead to? As in all investigation committees, NOTHING!
As always, everything will fizzle out, whatever else, men and women Politicians will not accuse themselves of an injustice!
Wirecard makes around four times (!) as much margin as "others" - but why?
What is behind the hype about Wirecard? How good is the company really, how does the business model work, how does the insane stock market value of around 24 billion Euro? These are the questions that preoccupy the financial world. If you compare almost identical business models, there are huge differences in key metrics. How can that be?
The heart of all (FinTech) is a digital platform for processing payment transactions. If you believe the information provided by the companies, the platforms even offer an almost identical functionality.
Surprised? No, not necessarily. The classic types of payment processing such as acquiring are highly standardized services. The value chain (Gateway - Risk Management - Acceptance - Payment Processing) hardly offers any possibilities for differentiation. Speed and absolute reliability are a must. Performance indicators, over which providers could stand out such as the churn rate during the payment process or the conversion rate for fraud prevention ("conversion rate") should be all providers to be taken seriously have reached a level that barely allows any differentiation. Even artificial intelligence claims to have Even at Wirecard, it has long been part of risk management. Acquiring is a high-volume, very price-sensitive standard business - as is customary in mature industries.
Mature industry? Wirecard is a fintech, others speak of disruptive technology, "others" are banks and conventional service providers who are the modern age of digitization Platforms literally overslept (see related article by IsaaN News) ...
There is nothing disruptive about the value chain as such - it has been established for decades. What has changed dramatically in recent years, however, are customer access and the new (digital) payment methods. Here, the classic acquirers have lost the connection technologically and generally because they are with the internationally operating payment service Providers (PSP) have become overpowering competitors and that is the most important thing Governments are not digitized and thus there are no regulations and laws for the modern age in the PSP industry.
Conclusion, Wirecard did not cheat, but only used a large gap in the (German) legislation!
Here are some explanations:
To understand the displacement of the classic acquirer (banks) by the modern PSP (FinTech), a look back into the analog world helps: The acquirer at the conventional point of sale was usually the retailer's house bank. With the bank account, the customer was as good as won over to acquiring.
However, the developing online trade made far higher demands on a payment service provider than just establishing a data connection and the terminal with the cash register system of the dealer if the latter was even requested!
If you read old Wirecard AG business reports e.g. from 2004, then the company saw itself as an outsourcing partner for in-house IT processes in connection with Financial supply chain. Because online trading required a much higher degree of automation of financial flows and closer integration with internal processes than that stationary trade.
In diese Luecke stiessen die technologisch disruptiven Payment Service Provider heutiger Praegung z.B. die Wirecards?
I agree. For this deep integration of the payment processes into the internal processes of the customers, the acquirers of the old style lacked (who still live in the digital stone age today) the know-how. In the early years of online trading, individual customer solutions were perhaps still in demand, but Wirecard now has standardized gateways (developed by experienced developers in Asia and the USA) and a uniform payment platform that combines all payment methods across countries and allows a wide variety of payment methods. (Developments in the 21st century ERP.s for special user groups such as the world's second largest community, Muslims, with the most modern PSP platforms, here e.g. the ehalal platform)
With its own acquiring licenses, acquiring in the narrower sense has now become an element of the extended value chain of payment service providers. These payment platforms are the key asset specifically from Wirecard. Isaan News Expert B. once had the fun of counting how often the terms "platform", "payment platform" or "Software platform" appear in Wirecard's 2017 annual report.
108 times, including 9 times in the foreword by the CEO (Markus Braun who had studied the world of Fianaz for a long time). In the 2016 report, the terms only appear 68 times, including 3 times in the foreword.
For the German regulators and auditors (E&Y) who lived in the Stone Age, these were exciting terms with which they could not relate to anything and therefore did not understand anything about the plans of the WireCard board.
"As written, where there is no plaintiff, there is no judge"!
Modern platform PSPs like Wirecard have displaced the classic acquirers.
Right. The described core functionalities are the same for all FinTech companies. They offer the three common access routes (i.e. point of sale, online and mobile) and an almost unmanageable number to alternative payment methods (such as PayPal or Giropay, to name just two). Paying with credit card is still the dominant payment method internationally.
What was missing? WireCard recognized this, a digital Visa card and this is where the companies differ from Wirecard, Wirecard simply had the better and faster developers. More money from investors who could foresee that their investment will increase tenfold in a short time. As intelligent investors, they also knew when to get out.
The difference: You have to dig deep for that. There are differences, for example, in the data analysis tools. But here, too, the principle is that Wirecard offers dealers provide such evaluation tools. The dealers can then link and evaluate the data generated from the payment transactions with their own customer data.
User data, like on Google, these dates are worth gold.
Banned in Germany with its strict, almost hysterical data protection laws, but modern technology companies bypass these laws quite simply, the data is saved on servers abroad, because the Internet is free and cannot be regulated without the consent of all countries, which is not even possible in Europe.
Further examples of FinTech's advantages: With payment processing tools e.g. there are differences for marketplaces like Ebay, Etsy or Airbnb. Here one offers a special solution for this Trading platforms to carry out the payments to the marketplace dealers and at the same time the fundamentally higher regulatory requirements for payment processing (Keyword KYC, "know your customer"). But Wirecard also has a marketplace operator as a customer in Rakuten Deutschland GmbH, but does not provide any in this context special achievement. And if you want another example: Wirecard also offers what is known as "white label couponing": The company enables its customers to do so in addition to the pure couponing Handling of the payment process also voucher programs and thereby increasing the loyalty of the retailer customers. Whether such additional lines but ultimately a competitive advantage over the competition is difficult to judge. Such additional services do not seem important enough for real differentiation.
But there is an astonishing difference: Wirecard needs around ten times as many customers to achieve a transaction volume comparable to that of other PSPs. Why is that?
This is probably due to the fact that WireCard does NOT address large multinational companies as customers ... such as Ebay
Wirecard has a much broader customer base, but only makes a transaction volume of 2.5 million euros with an average customer. We no longer talk about multinational ones Companies, but through normal online shops.
With almost 4,500 employees, is Wirecard the bigger company or just the smaller one?
In any case, Wirecard works with a much greater effort. This applies not only to the personnel area, but in general. In this context, the costs are illuminating the provision of services, i.e. the entire personnel and material costs as well as the depreciation (excluding M&A), were 345 million euros at Wirecard (here the expenses for self-developed software and the other operating income cleanly deducted).
Here is the big difference to others , that is the 8 times higher workforce in development and IT and the associated costs. And still What is more astonishing are the immensely high investments at Wirecard in purchased and self-created software (again in million euros each), but that is the real difference, CONTROL ", the most important thing in the digital age, control of software and protection from Chinese copiers and thieves. Wirecard did everything right, total control of investments.
Wirecard justifies the larger budget, among other things, with the fact that six to seven percent of sales are reinvested in research and development. Because: every new technology is in Basically just a bridge to the next new technology. In addition, Wirecard also has its own bank (actually the bank is technically completely separate) - something additional Personnel required, for example to meet the requirements of regulation. Actually, one would assume that the company, which is turning a much bigger wheel, would turn to one To get a comparable transaction volume, the bottom line is that you get around less. But the exact opposite is the case: Wirecard posted pre-tax earnings of EUR 297 million in 2017 achieved, with comparable others it was only 92 million euros.
With others, the net margin is only 0.17%, with Wirecard it is 0.72%. Exactly - that is the key figure from which the decisive question is derived: How does Wirecard manage to get around four times the margin from an almost identical business model in a low-margin industry?
What about the differences? Wirecard points out its depth of added value, which results among other things from its own bank subsidiary - the company can use this bank subsidiary Offer its customers account services, for example. There can also be differences in the payment methods, one thing is for sure, Wirecard has a decisive advantage with Wirecard Bank, you can operate worldwide and also offer customers from difficult countries full banking services, services which are absolutely necessary in global digital trade. Wirecard is also the only PSP with a bank in the fast growing Asian market with a branch in Singapore.
WireCard has advanced too far into the digital modern age, has woken up envious people who discover that they are losers. WireCard had gotten involved with politicians who only did Saw profit. Unfortunately, envy and greed for profit became the enemy, sensational reports with completely distorted images brought the case. Like all pioneers, after the decline comes a new beginning, today it was WireCard, a brand name, tomorrow it will be the same people with a new name. Progress cannot be stopped, the digital future has not only begun we already live in it. Regardless of whether a government is digitizing or is sleeping deeply, the digital world is spreading at breakneck speed.
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