The Wirecard scandal has brought a dark cloud over the global financial technology space. The company positioned itself as a digital platform in the realm of financial commerce, offering both business clients and consumers a full range of innovative added-value services for digital payments: online, mobile, and at the point of sale. Sounds good. Sounds useful. It seems that they were driving fintech innovation to drive ecommerce and online sales.
However, the former darling of the fintech world has found itself embroiled in fraud, breach of trust, false accounting and market manipulation, to name just a few misdemeanors that have been levelled at the company over the past few years. Between 2011–14, and according to the Financial Times, the German-born company was able to raise €500m from shareholders to buy up “obscure payments companies across Asia in a series of oddly structured deals, starting in Singapore”, which is where it went on to have its Asia HQ. Investors clambered to be in on the buzz of this German uber-fintech [Softbank no less, amongst others]. And we know that investors love growth metrics and aggressive expansion, and this is what Wirecard seemed to be delivering.
Only they weren’t. But I shan’t regale you with the timeline of Wirecard milestones and mishaps here — the FT has documented it very well.
Fintech or Human F…. k up?
The media and industry commentators have been universal in branding this a case of fintech-fraud. But I would argue, pretty forcibly, otherwise. We cannot just label this a fintech issue and here’s why, in the simplest of terms
- Due to the monumental accounting errors over a number of years [by some of the world’s largest and most costly auditors], around €1.9billion simply vanished. Well, it never existed. Human error.
- German regulators were already looking into short selling accusations around Wirecard in 2016. Nothing meaningful was achieved by the regulators, and the company still continued to operate in the same vein on an even grander and more global scale. The regulators were not set up in such a way to understand what Wirecard was doing, and certainly not in a position to rein them in. Human error.
- Furthermore, on regulation in the payments space, whereas in the more tightly regulated banking sector [traditional banks] the likes of Wirecard would not have passed banking’s conflict testing, and no such stress testing or structure has been developed for this market. Human error.
- Even within the company, there seems to have been no independent, robust corporate governance that was instilled and directed from the top downwards that would have also had a more transparent approach to accountability at every level of the organisation. Human error.
Do you see the pattern here? The flaws, the issues, the wrong doings weren’t a fault of the fintech world; they were the fault of humans and human incompetence. People didn’t do their jobs, the regulators didn’t do their jobs, even the investors didn’t do their jobs when it came to due diligence. Collectively, they were blinded by the sexiness of “fintech” and its ability to build the future.
But let us not walk into the future blind. Let us understand the power and opportunity that financial technology brings us, but also the problematic nature still of processing hundreds of millions of transactions. Money, and all of its associations, can lead to mis-trust and suspicion. When we’re moving money around, what is actually happening to it? Where does it go? Who has sight of it?
We must remember the basics when we’re building any business. What do I mean by this? Trust, and building trust with your customers, your employees, your investors — trust at every level is essential. Also, we need to build companies where people are allowed to ask questions — even the tough ones — so that they can be better informed. This is also a critical part of the trust building process. At Wirecard, were the right people asking the right questions? It seems not. Not until it was too late and they were faced with the evaporation of €1.9billion.
At Sparkle, from day one — in fact, before day one — there were some fundamentals that we knew we would have to deliver, in order to build solid foundations for our company. We went through the rigorous process of obtaining a banking licence with the CBN; that alone made us ask ourselves a lot of questions in regard to our accountability and fiduciary responsibility of people who entrust their valuables to us. What values do we have to uphold not just to ourselves, but our processes and if we get it right our customers would also appreciate how these values bring out the best in them?
Navigating the regulatory framework of the CBN made us scrutinise every single financial and corporate governance aspect of Sparkle, before we even started building the product. Imagine if Wirecard had done the same? Furthermore, we chose to partner with global experts — the likes of Visa for payments processing and Microsoft for cloud computing and data science, to make sure we could deliver the best service. They, like the CBN, before agreeing to partner with us, scrutinised our model and platform; we knew if we wanted heavyweights like Visa and Microsoft on board, we had to do our own due diligence, before opening ourselves up to their due diligence. Questions, transparency, governance — to build trust. As we take money from physical to digital, the same levels of hard questioning are an absolute must. In fact, I’d say that digital money movement in some ways requires even deeper levels of trust, because users cannot see it or feel it. But they need to feel trust
So why don’t I want you to call me a fintech? Because I believe the term has lost its edge and its power. To get in front of and excite investors — it gets wheeled out ad infinitum by excitable founders, desperate to sign that Series A cheque. It has become a go-to umbrella term for almost all technology companies. But the mis-application of the term “fintech” is also detrimental to the wider financial technology space. Why is this important? Because, whilst we work hard to bring more people into the financial system, in a bid to increase financial inclusion [especially in emerging markets] we need to make sure we sell the right story. Wirecard as a fintech fraudster narrative isn’t going to help. We need to tell the story as it is; Wirecard is a company that forgot the basics and one that was plagued by human errors at a most egregious rate.