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Exclusive: Wirecard UK to be bought by Railsbank after downfall of parent company

The UK subsidiary of the discredited German fintech is being scooped up for an undisclosed amount

By Isabel Woodford

Disgraced German payment group Wirecard has found a buyer for its UK division in competitor Railsbank, Sifted has confirmed.

Wirecard announced in June that it was unable to locate $2bn worth of cash in its trust accounts, causing the company once valued at $13bn to collapse into bankruptcy.

As a result, German administrators were called in to sell off key assets like its UK entity, Wirecard Card Solutions (WCS), which once settled card payments for 70 fintech clients including Revolut, Pockit, Soldo and Curve.

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Railsbank, a rival banking and payments infrastructure-provider, will now acquire WCS’ remaining assets, clients and a number of employees, according to people briefed on the matter. London-based Railsbank confirmed to Sifted it had given a purchase term sheet to WCS, set to be finalised in November, but declined to comment on the amount.

Founded in 2016, Railsbank now joins an army of around 140 potential buyers reported to have been in talks to buy Wirecard’s various divisions.

“A large number of investors from all over the world have already contacted us who are interested in acquiring the core business or the independent and successfully operative business divisions,” Michael Jaffé, the insolvency administrator, told The Wall Street Journal in July.

WCS recorded a £2.5m pre-tax profit in 2018, according to Companies House Filings, but is believed to have depended on its parent company to cover a large chunk of its costs.

The subsidiary then fell into disarray when it was briefly suspended by the UK regulator, the FCA, in June following its parent company’s insolvency. Its fintech clients were also forced to cease operations, simultaneously freezing hundreds of thousands of customer accounts for several days.

Several fintechs have since migrated to new payment issuers as a precaution, leaving WCS with a reduced client base, for which it provided card issuance, account top-ups and other e-money services.

Still, if the deal goes through, Railsbank will be on track to become one of the biggest banking-as-a-service providers in Europe.

A spokesperson for Wirecard confirmed in a statement that the company was in “discussions” with Railsbank, but added “no final transaction documents have yet been agreed [and] we are also continuing to work on other contingency planning for the business.”

Railsbank in the wings

Prior to the sale-talks, Railsbank founder Nigel Verdon had been vocal about WCS’s unsteady future and the 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 suspending WCS was the only viable way to guarantee the safety of consumer money, given the legal “ambiguity” around fund-safeguarding in the event of bankruptcy, and the potential for Wirecard’s German liquidators to claim consumer assets as their own.

“The FCA has probably taken the right decision here even though it’s drastic,” Verdon told Sifted at the time. “There was a very high chance of the administrator coming in to liquidate WCS [thereby risking consumer assets] before a sale could happen,” flagging WCS was likely facing independent cashflow issues.

“It’s naive to think WCS is a truly profitable business. A subsidiary like this relies on its parent company to cover a lot of its costs, so if the parents goes bust, it can’t support the subsidiary.”

He later joined calls in July for the regulator to improve its guidance around e-money institutions like WCS, arguing a revision is much overdue and could prevent future disruption.

“The WCS saga could have been avoided if the right regulatory regime had been put in place,” Verdon told Sifted in the aftermath. “The Wirecard scandal brought to light [that] fundamental changes should be made in the industry to ensure healthy market growth and stability.”

“This is the Enron for the fintech industry. It’s going to create a dent,” he also noted.

Railsbank Founder and CEO, Nigel Verdon

This piece has been updated to include Wirecard’s comments

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Lana Tahirly Abdullayeva
Lana Tahirly Abdullayeva

M&A activity is an integral part of any market developments and it’s nice to see the individual FinTechs as well as the ecosystem overall evolving and maturing to this point. It feels like a great opportunity for the Wirecard employees and customers to continue and progress with their ultimate mission. I’m sure it’s a breeze of some fresh air that is very welcome by many after those painful distractions … Hats off to Nigel, Clive and the rest of the team at Railsbank (despite the challenging market), for being brave and visionary, for stepping up and pivoting from their plans,… Read more »

Helen Child
Helen Child

Great exclusive @Isabel Woodford.

This certainly is good news for the industry. It will undoubtedly help to create calm and an orderly market. As well as providing customers with much needed certainty. I can only begin to imagine the huge amount of stress this must have been for them.

To share some more objective comments on Nigel’s track record and the power of Railsbank’s platform this is definitely worth a read, especially #2 Things you should know:

https://sytaylor.substack.com/p/fintech-brain-food-august-23-2020

Open Banking Excellence (OBE)
Open Banking Excellence (OBE)

Nigel Verdon and team Railsbank are OBE Heroes for a good reason. They didn’t miss a beat to respond to the global pandemic. They showed how with strong leadership, an entrepreneurial mindset and the power of their technology it’s possible to come up with tangible support to distribute financial aid to those who really need it. From idea to Apple app store in just 8 days, they launched LightningAid! #leadership at its best! They embody the best of the fintech spirit – thinking of people first and finding solutions to complex problems.

Nick Martin
Nick Martin

At Mission Plus, we’ve had a great experience working with Railsbank and have loved watching their growth trajectory. I’m with Lana’s comment, it feels like a great opportunity for Wirecard customers to continue their mission under the wings of Nigel and his team.

Paul
Paul

Busiest I have seen the comments for a story. Intriguing.

Helen Child
Helen Child

Great exclusive. @IsabelWoodford Well done!

This is fantastic news for the industry. It will provide the calm and orderly market that we all need. It will bring certainty to customers who have been through, what I can only imagine has been a hugely stressful and challenging time.

For more objective industry analysis on Nigel’s track record and Railsbank’s technology, this is great reading:

https://sytaylor.substack.com/p/fintech-brain-food-august-23-2020

Jack
Jack

The price of wire card is going to rocket back up in November

Jeff Stevens
Jeff Stevens

All BS from Railsbank. They should get their own tech sorted as many emails with crashes across their clients. Maybe Wirecard purchase includes tech they need as theirs does not scale and clients should be cautious using Railsbank if they need reliability. Also Visa investment is window dressing as its a regional in kind service. Nigel is well known in the industry as a marketing guru but dig deeper and their tech is not upto spec.

Cui Bono
Cui Bono

Nonsense. Railsbank tech is solid. We spoke to several of their customers (which we picked). They all raved about Railsbank.

Nigel Verdon
Nigel Verdon

Jeff, this is Nigel Verdon, your post was pointed out to me by a few clients as they felt several of your statements are hearsay and not fact. So here are the facts. To be honest I have never been called a marketing guru ever in my life so am not sure how you came to that conclusion, but thank you for the compliment. I actually happen to be an Engineer by training, with two engineering degrees from University of Warwick (my co-founder also has an Engineering Degree form Warwick). Unfortunately, I cannot find a Jeff Stevens in our CRM… Read more »

David Townsend
David Townsend

Railsbank were the first people to trust us to move money. The banks gave us lead times of 6 months+. I was told by a major high street bank that “The API thing will be ready for the end of 2020”, but they were still not sure whether they’d deliver in that time. I had no issues with their tech and they remain an integral part of the London Fintech startup space. Constructive criticism is essential to any business but ill-informed comments like the one above damages not only Railsbank but the credibility of all the smaller Fintech players to… Read more »