A member of the prestigious DAX30 Index in Germany and once valued at EUR 24 billion, Wirecard has been torn by a series of scandals. Back in 2016, the largely unknown research & investigations company Zatarra published a report accusing Wirecard in wide-scale corruption and corporate fraud. Then, in 2019 Financial Times (FT) published a series of articles sharing information about alleged accounting irregularities and roundtripping. To close the topic once and forever, Wirecard appointed KPMG to conduct an independent audit. Unfortunately, the audit report was not what Wirecard’s investors had hoped for. Even more, shortly after the report had been published, EY, the auditors of Wirecard, announced that they were not able to confirm the existence of EUR 1.9bn of cash.
Unsurprisingly, the shares of Wirecard plummeted and the valuation of the company went down to just EUR 5bn (as of June 18th, 2020) versus the EUR 24bn two years ago. To make the situation even worse, Wirecard announced that if certified annual and consolidated financial statements cannot be made available until June 19, 2020, loans made to Wirecard AG amounting to approximately EUR 2 billion can be terminated. Following the announcement, Moody's cut Wirecard credit rating to junk ( to B3 from Baa3, below investment-grade level).
Image: Yearly Performance – Source Wirecard
The waves of bad news have raised concerns and many customers of Wirecard considered ‘’Plan B’. Most medium and big merchants have ‘’dual’’ payment provider integration for a variety of reasons and may reroute payment transactions on relatively short notice. Still, in some cases, merchants will have to consider new vendor integrations.
Vendor selection criteria vary a lot but there are some common points.
Geographical coverage
Some clients may be operating in one country only (e.g. Germany) while others are likely to span operations across regions (e.g. DACH) or operate globally. Hence, a merchant that operates in the EU and China for example will be looking for a fintech vendor that can provide services across these territories.
Payment Methods
How many payment methods are to be supported? These depend on the userbase of the merchant and the geographical location. Visa, Mastercard, Diners, Amex, UnionPay, Allipay, Samsung Pay, ApplePay, Sofort, Ideal, SEPA, giropay, bank transfers, transfers to/ from digital accounts like PayPal, Payoneer, etc. are to be considered on a case by case basis.
Currencies
How many currencies are to be supported? For example, a merchant may be accepting payments in USD only but transferring payouts in EUR, GBP, CAD, JPY, etc.
Industry
Some payment providers specialize in providing solutions for marketplaces, e-commerce merchants, online gaming, etc. while others have a more unified approach.
Product portfolio
Wirecard has an impressive product portfolio that has been attracting big merchants having more complex needs including payment acceptance, acquiring, M-POS, prepaid cards, fraud & risk solutions, etc. These merchants are likely to look for a vendor that can cover all their needs versus selecting and integrating numerous vendors.
Fees
Fee comparison is never a straightforward exercise as there are various pricing models.
Tiered model
Meant to simplify a large number of processing rates, the tiered pricing model offers three basic tiers:
- Qualified;
- Mid-qualified;
- Non-qualified
A particular payment transaction may fall in any of these tiers based on criteria set by the processor. These may include but are not limited to card present versus card non-present transactions, same-day transactions, etc. Due to the complex classification of payment transactions, the monthly fees may fluctuate a lot in some cases. Tiered pricing is the most common pricing model.
Interchange-plus pricing
The breakdown allows merchants to see what part of the fee is going to the issuing bank and other parties involved and the mark-up of the payment processor. Overall, these pricing model usually results in lower fees versus the tiered pricing model.
Subscription/membership pricing
Offered by very few processors, this pricing model may result in even lower fees that the Interchange-plus pricing model. Often seen as a variation of the Interchange-plus pricing model, the subscription pricing model is based on the fees charged by issuing banks, card schemes and other parties involved in the processing of a payment transaction. Instead of paying a mark-up to the payment processor, merchants pay a monthly membership fee plus a fixed fee per transaction. The cost-efficiency of this pricing model depends on the transaction volume, industry, nature and size of the merchant’s business. Example: PaymentDepot
Flat/ Blended pricing
The easiest to understand, this pricing model is built around a flat rate for all transactions. It is often seen as a variation of the tiered pricing although the tiers are blended together. Naturally, this pricing model results in higher fees to be paid by merchants whose transactions would otherwise fall in the ‘’qualified’’ tier if tiered pricing is applied. However, depending on the nature and size of the business, the difference may be insignificant for some merchants. PayPal and Stripe are an example of flat /blended pricing
Ease of Integration and need for customization
Some e-commerce platforms like Shopify, WooCommerce, etc. provide configurable integration with selected payment providers making it easy for the merchants to start trading. Naturally, the majority of small and medium merchants stick to the provided options as this saves time, effort and costs. The same is valid for accounting software providers like Xero that offer integration with Stripe and PayPal and a payment link that can be automatically included in the invoices issued via Xero.
On the other hand, payment provider integration can be a complex exercise for big merchants running their business on proprietary technology platforms that have been built in-house. The technology stack, need of customization, availability of resources both in-house and/or provided by the vendor is to be considered along with all other criteria.
Which fintech vendors are likely to be the ‘’payment provider of choice’ for Wirecard’s clients?
Depending on the size and nature of the merchant’s business and the criteria above, some payment providers are more likely to be selected than others.
Big merchants operating globally
By default, these merchants have complex needs. Most of them have to support many global and local payment methods, e-wallet, prepaid cards, POS or M-POS solutions, risk and fraud solutions, KYC, etc. Omnichannel solutions and the payment providers offering them are on top of the list.
Rapyd
Known as fintech -as-a-service or BaaS company, Rapyd supports 900+ payment methods in over 100 countries. Empowering almost all possible use cases, Rapyd is a great choice for global businesses, especially those that need to support cash and card-less transactions as the company has a over 2 million ATMs in its network.
Rapyd offers 4 platforms: Collect, Disburse, Wallet and Issuing addressing various use cases. Rapyd’s solutions are tailored to marketplaces, gig economy, banks, fintechs, eCommerce, lenders, remittances and B2B payments.
Skrill
Now part of Paysafe, Skrill has strong positions in the EU. The company supports 100+ payment methods and 40+ currencies via a single integration. Quick Checkout, Rapid Transfer and Digital Wallet address the needs of merchants operating in various industries. Shopping Carts is a product specifically for e-commerce merchants allowing easy activation of a Skrill merchant account via all major shopping carts.
Needless to say, Skrill offers chargeback protection and fraud and risk management solutions.
Adyen
Operating globally, Adyen is the payment provider of choice for many e-commerce merchants. It offers global acquiring and local payment connections around the world, POS, card issuing, risk management, fraud, customer insights, etc. Adyen has an extensive partner network including Oracle Retail, Magento, Salesforce, NetSuite, etc.
Ingenico
A global payments provider, Ingenico operates in 170+ countries through over 30 million terminals. Its Global eCommerce solutions are preferred by many eCommerce merchants big and small. POS, Omnichannel and Mobile solutions and SMB payments are also included in the pack. Apart from eCommerce, Ingenico attracts travel, transportation, retail and hospitality merchants.
Small and medium merchants operating in the EU
Challenger Banks
Offering low fees and supporting multiple payment methods, challenger banks like Revolut, Monzo and N26 are attractive for small and medium merchants. The ease of integration, prepaid cards (both physical and virtual) and spend optimization solutions make them attractive to small and medium businesses in the EU. N26 is particularly popular in Germany and likely to attract local merchants.
Stripe
Attractive to many merchants both in the US and EU, Stripe offers transparent pricing and straightforward integration. There are dedicated solutions for subscription businesses, invoicing and payment acceptance supporting many payment methods including WeChatPay, Alipay, SOFORT, SEPA, iDeal, etc. Stripe also offers:
STRIPE CONNECT – used by marketplaces & platforms;
SIGMA – advanced business analytics and reporting;
ATLAS- incorporation for startups;
RADAR – fraud prevention and machine learning;
ISSUING – both physical and virtual cards;
TERMINAL – programable in-person payments
We are yet to see how Wirecard and its clients will navigate their businesses. In all cases, it’s likely that most merchants that have relied on a single payment provider before will consider a ‘’dual’’ integration in the future.
About the author:
A fintech, payments and business transformation expert, Lilia Stoyanov is a professor at Zigurat Business School, Barcelona and Angel Investor & CEO at Transformify.