Wirecard’s fall is a warning to runaway fintech successes - THE TIMES
In the days before the traditional banks almost crashed the financial system, when the word “fintech” meant little to most people, a couple of guys from the world of technology created a business linking banks to mobile phones so that people could make payments and manage their finances on the go.
The year was 2003 and the business was Monitise. In some circles, Alastair Lukies and Steve Atkinson were seen as the UK’s answer to the tech visionaries of Silicon Valley.
Monitise had its teething problems, but great things were expected of it. By 2014 it had a valuation of £1 billion, relationships with lots of big banks and appeared to be on the brink of leading a fintech revolution.
That was not to be. Instead, the business was sold to America’s Fiserv for just £70 million in 2017, bringing to an end a limping few years in which it lost many of its deals with financial institutions.
There are various reasons why Monitise did not fulfil its early promise. The decisive blow was a decision by Visa, when Monitise was flying high in 2014, to sell its 15 per cent stake in the business. Visa decided to develop its own mobile payments system rather than use Monitise.
Another factor — perhaps even one that played into Visa’s decision — was that Monitise was being compared, unfavourably, with another pioneer in online payments, Germany’s Wirecard. Monitise was growing, but analysts wanted to know why it could not achieve the seemingly fly-away success of Wirecard.
In 2012, for example, Monitise reported it had grown its business by almost 60 per cent, but its shares fell as investors were disgruntled it was not more. The Analyst Research, a firm of independent researchers who have been critical of Wirecard for years, pointed out in a 2014 note that Monitise had yet to make a pre-tax profit and had pushed back the time it said it would need to achieve its financial targets. But at the same time, Wirecard was rated at a premium to payments giants Visa and Mastercard.
Could Monitise have succeeded if there had been no Wirecard? Probably not in its form at the time. There were too many entrenched interests among banks and payments companies keen on keeping things the way they were, while Monitise also struggled from its over-enthusiastic overseas expansion and the grind of its early decision to list on the Aim market.
It has taken years for the balance of power to shift, and it has only happened to a degree, but these days fintechs are taking a slice of the pie from banking and payments incumbents.
Being first can reap great rewards, but it can also lead to tragic failures. First Direct, owned by HSBC, is one of the success stories from the early days of telephone and online banking. In contrast Egg, born out of the insurer Prudential, was seen by many as one of the UK’s strongest trailblazers, but like Monitise, did not fulfil its potential and was broken up and sold.
Being a pioneer is all the harder if you are up against those who claim to be visionaries, but then appear to be fraudsters. The fallout from Wirecard is greater than the insolvency of the Munich-based parent company. It is also in the missed opportunity of others.
Monitise’s investors were frustrated its growth was not faster and profits did not come quicker. Perhaps they would have been more patient if there was not a comparison to be made with a company where profits were growing, as it turns out partly driven by contracts with high-risk gambling and pornography sites. Perhaps others would have entered the market too if there had been no Wirecard.
Fintechs the world over are likely to take a knock from the widening scandal at Wirecard, as investors question their sky-high valuations compared to the hard reality of how much cash is actually coming through the door. Britain’s fintech sector should be one of the relative winners, due to its reputation for robust business practices and regulatory oversight. That was hard won in part by Monitise.
Katherine Griffiths is banking editor of The Times.