Wirecard has relied on a small number of customers for the majority of its actual sales, according to an internal company spreadsheet that shows for the first time the real activity behind the facade of the fintech group.
The German payments company filed for bankruptcy last week after admitting that € 1.9 billion in cash “probably did not exist” and that the company which represented around half of its reported income had been misrepresented.
A snapshot of Wirecard customers in 2017, reviewed by the Financial Times, gives an indication of the actual size and shape of the business, with just 100 customers accounting for more than half of its sales.
The document provides further evidence that Wirecard has completely misled the market about its scale. It also shows that he has processed payments for a variety of controversial companies that have undergone regulatory review in a number of jurisdictions.
In 2017, Wirecard publicly said it served 33,000 large and mid-sized merchants and 170,000 small businesses, a global reach that helped make the company an investment sensation.
The internal file consulted by the FT, titled “Client List – January-June 2017 (Global)”, suggests that Wirecard’s client base was in fact much smaller and much more imbalanced.
Prepared by staff at the request of then-General Manager Markus Braun, a huge spreadsheet was shared via email among 10 employees in October 2017, showing 107,000 customers, with Wirecard transaction volume and sales generated by each. As a payment processor, Wirecard generates revenue by taking a share of merchant transactions.
The file reviewed by the FT shows figures equivalent to roughly half of the sales and transaction volume reported by the company for the first six months of 2017. This probably seems to represent the real business. Wirecard statements last week, a special audit by KPMG and previous reports from the FT indicate that the other half of the reported activity may never have actually existed.
Wirecard did not respond to a request for comment.
A lawyer for former Wirecard chief Mr Braun, who was arrested last week on suspicion of false accounting and released on bail, said “the assumptions and imputations” in the FT’s questions on the sheet. calculation were “incomprehensible” to his client and “obviously based on information taken totally out of context”.
Mr. Braun was providing “absolute and unlimited cooperation to the Munich prosecutor to clarify criminal liability,” he said.
In 2017, Mr. Braun boasted of Wirecard’s cutting-edge technology, including “a data layer that now also takes into account new cutting-edge instruments in the field of machine learning and artificial intelligence.”
However, to generate information about their own clients, Wirecard staff had to use a simple Excel spreadsheet that reflected the same administrative weaknesses described in a special KPMG audit. Thousands of customer names appear to be duplicates. The FT also ruled out six Indonesian financial institutions that allegedly contributed € 200,000 in sales out of an improbable € 190 billion in transactions, possibly due to the use of a bad currency.
The remaining data shows € 292 million in sales from processing € 18 billion in transactions, compared to € 616 million in revenue from processing € 37.9 billion in payments claimed by Wirecard to the era.
A disproportionate amount comes from a small group of large customers, including UK online bank Monzo, Hungarian low-cost airline Wizz Air and Marathon Alderney, the parent company of online gambling site Marathon Bet. The top 200 contributed € 193 million in turnover, or 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 multi-level marketing group headquartered in Hong Kong, which has been the subject of complaints in India over whether it s ‘was engaged in a pyramid scheme.
“Wirecard has been very good to us in terms of the rates it offers us,” said Zaheer Merchant, director of corporate affairs at Qnet. Referring to a 2017 judgment in India, he said: “The Supreme Court order we received was that Qnet is not a fraudulent company.”
The overwhelming majority of customers listed in Wirecard’s spreadsheet were tiny: 67,000 small customers in Brazil together contributed just € 9 million in sales during the period. Another 30,000 customers were listed as responsible together for 1.7 million euros of transactions during the six months and zero sales.
A significant portion of the rest comes from the porn industry, with some customers paying unusually high rates for payment processing.
Wirecard’s roots lie in processing payments for pornographic and gambling websites, and its willingness to continue working with clients in the adult entertainment arena was unusual for an established “acquirer”, industry jargon for a business that belongs to the Visa and Mastercard networks and helps businesses take the card. Payments.
“Most acquirers will not be adults due to reputation issues and the risk of fees being waived due to consumer complaints,” said Chris Jones, a payments expert who heads PSE Consulting. These cases are usually handled by high-risk payment specialists.
The German company appears to have an exceptionally lucrative relationship with a collection of nearly 4,000 pornography, dating and associated customer service websites registered with 175 companies in the UK and Cyprus.
Porn websites on the network typically advertised three-day free trials, before charging $ 39.95 per month afterward. Wirecard retained around 15% of the transaction volumes generated by these customers in the first half of 2017, according to documents reviewed by the FT.
This compares to the rates of around 3% the German company charged the biggest 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, lawyer at Mayer Brown, said that in terms of anti-money laundering surveillance, “the 15% is a serious trigger. In business practice, I would wonder why the merchant would agree to pay so much with the competition and availability of payment processors.
Many pornographic websites were almost identical in structure, administration, and use of similar dated technology. Over 1,200 websites have been registered by 68 so-called independent UK companies, for which the directors and owners all provide the same Essex correspondence address.
When subscribing to free trials or subscriptions to sites in this network, the FT has repeatedly found that transactions were automatically blocked by the card issuer or has undergone attempts – for example by the site mytrashyamateurex.com – deceptively authorize charges above the advertised price. Letters requesting comment sent to 137 people associated with the companies have not been answered.
Wirecard appears to have processed at least € 30m in high margin transactions for these porn and dating sites during the period, generating € 4.5m in sales from the UK and Cypriot companies behind them. In total, the group would have been Wirecard’s sixth customer at the time.
Additional reporting by Alice Hancock in London