Thursday’s bankruptcy filing on behalf of Wirecard marks a swift end to a company that had immense potential but was ultimately plagued by fraud and lax oversight. While the German regulator, BaFin, has its more-than-fair share of the blame, the way in which fintechs are regulated encourages this type of reckless descent into fraud.
Wirecard was supposed to be a knight in shining armor. Living, breathing proof that European innovation is alive and well and even more importantly: it can be done here at home instead of migrating to Silicon Valley. Once it got listed to the German DAX in 2018 and had its value soar just above €24bn ($27bn), it seemed that the good times for European tech were just starting.
Wirecard is neither the first nor the last European fintech to be this successful. It is, however, a particular combination of greed, fraud, gross oversight incompetence, and special treatment. All of which resulted in exactly what the German authorities have been trying to avoid: having this precious gem of technology and innovation shatter.
Regulating payments technology is not as easy as one might think. Although banks are arguably far more complex entities than fintechs, governments all over the world have more than a century of experience in how to police them. Digital payments are too new and innovate too quickly for current bureaucratized public institutions to effectively excerpt the necessary level of oversight.
Therefore, just like in the case of Wirecard, a laissez-faire attitude is adopted as to not hinder a special national gem that became synonymous with the country’s cutting-edge financial technology. More so, Wirecard benefited from an (un)intended protective shield from regulators and public servants, which it used not to push the limits of what it can revolutionise but to cook its accounting books.
While the demise of Wirecard with the arrest of its CEO and Thursday morning’s file for bankruptcy is a blow to the European fintech scene, there are two silver linings to come out of this situation. First of all, in a very public and very shameful manner, the German regulator learned a lesson for all other regulators: playing favourites will not protect a national unicorn, it will only give it the confidence to force the rules just a bit over here, then a bit over there, until fraud becomes a normalised modus operandi.
Second of all, there are many German and European fintechs that will just jump at the opportunity to take Wirecard’s place. One particular example that comes to mind is French payments powerhouse Ingenico, which has a lot going for it at the moment: a recent large merger with Worldline, the payments industry speeding up due to Covid-19, and now one of its major competitors going bust.
Wirecard could very well be just the scandal of the month for BaFin or it could be a much-needed reminder for it to do its one job: regulate. Nevertheless, European fintech innovation will not end with Wirecard, just as American IT innovation did not end with the 2001 crisis. The only thing left to do for watchdogs is to adapt to policing fintechs and balance proper oversight with not suffocating them.