Wirecard North America's big selling point is it's not Wirecard AG
Wirecard North America is seeking a buyer, an otherwise routine corporate move that requires a large number of assurances, given its parent company's descent into scandal.
The Philadelphia-based Wirecard North America is the former Citi Prepaid Card Services, which Wirecard AG acquired in 2016 and has since operated as a separate business. The subsidiary's prepaid expertise is a potentially attractive acquisition in an economic environment in which merchants and consumers will be more receptive to using prepaid cards as an alternative to cash.
The coronavirus has shut down thousands of businesses, with an unsteady pace of reopening and an accompanying economic crisis. As stores reopen they’ll be looking to lure uncertain shoppers; many have already offered prepaid cards and gift cards as a way to maintain relationships with customers during lockdown.
“When sales are soft many companies launch incentive programs to get shoppers shopping again,” said Tim Sloane, vice president of payments innovation at Mercator Advisory Group. “Many of these incentive programs use prepaid cards such as those Citi and now Wirecard specialized in.”
The Citi program that Wirecard acquired is unique because it helps merchants with creative marketing and rules, and drove the highest return, Sloane said. “The focus on effective marketing approaches and the ability to manage card funding are two areas that make incentive card products unique, perhaps so unique that many traditional card processors find the incentive segment daunting.”
But in seeking a buyer, first Wirecard North America had to address the elephant in the room. The Munich-based Wirecard AG is awash in scandal and financial stress that followed months of reports of more than $2 billion in accounting irregularities, questions about whether clients actually were clients, the resignation and arrest of its former CEO, a move to insolvency and the potential of Visa and Mastercard cutting ties with the company.
Wirecard AG has drawn comparisons to the infamous Enron scandal of the early 21st century in its potential negative impact on other parties, such as European fintechs that relied on Wirecard AG to process payments and the German regulators tasked with oversight.
As such, Wirecard North America stressed several times its corporate distinction from Wirecard AG, using the phrase “substantially autonomous” and mentioning clients such as Sunrise Banks, Fifth Third Bank and Peoples Trust Company have “verifiable documentation” of accounts. Wirecard North America added all contractual obligations will continue to be honored and other relationships will be sustained and operated without disruption. Wirecard North America also noted it uses Visa and Mastercard licenses on behalf of its bank partners and does not hold the licenses directly. Wirecard North America did not provide comment for this story by deadline.
The former Citi prepaid unit has more than 2,500 prepaid programs spanning incentive, compensation and corporate cards for industries such as telecommunications, health care, electronics, consumer goods and the public sector.
The prepaid industry in the U.S. includes several competitors such as Netspend, Green Dot, Galileo and others. Large merchant acquirers and the third-party mobile wallets are also potential landing spots for the Wirecard North America business.
Gig economy firms are another potential market for prepaid cards, and there is a competitive market to serve contract workers that is getting more attention during the pandemic. Prepaid card companies are increasingly pairing prepaid cards with early wage access programs.
“Prepaid’s a very attractive market, and the coronavirus has made it even more so, primarily as a replacement for cash,” said Richard Crone, a payments consultant, adding Wirecard and all prepaid providers are often subject to pressure on practices such as fees and unused funds. That makes the prepaid industry no stranger to controversy, meaning any M&A deal will likely draw scrutiny from buyers and regulators.
“In Wirecard’s particular situation, the careful evaluation of corporate culture and professional ethics is magnified in the due diligence of the company,” Crone said.