July 19, 2020 · 4 min read

June Rundown: Wirecard Scandal & Challenger Banks

June has been wild.

Scandal first.


$2.1B went missing (breaks out in a cold sweat).  Maybe it never existed (more sweat).

The German payments company Wirecard - that once amazed us by beating Deutsche Bank’s market valuation and kicking the country’s second largest bank (now the third) Commerzbank out of DAX index - filed for insolvency on June 25th after acknowledging that the missing $2.1B might never have existed. The auditors relied on ‘screenshots’ from a  third party to verify bank balances at OCBC of over €1Bn for three years running. Oh dear, Oh dear, it really is a case of ‘they didn’t ask for that last year’ pressure ruining the principles of auditing! 

Back in 2017, the Financial Times reviewed Wirecard’s clients and revealed that only a small group of significant customers (about 100 out of 203,000 reported clients and 107,000 real clients the FT identified) accounted for more than half of its sales, misleading its scale. 

A special audit delivered by KPMG in April and previous findings by the FT indicate that the other half probably never existed. The runner up sales contributors are adult entertainment businesses. Yes, porn sites and gambling sites (lockdown must-haves?) overlooked by other digital payments companies.

So, is ‘payment processing’ actually profitable? Not based on Wirecard’s numbers. At the height of the valuation in 2018, becoming part of the DAX index, the annual operating loss on core activities ballooned from €3m to €74m according to the KPMG report.  

Wirecard’s collapse has affected our Fintech pals in the UK, too. Wirecard’s fintech customers include - Curve, ANNA Money, Revolut, Pockit, U Account, FairFX. The UK’s FCA ordered Wirecard’s UK arm to stop serving its clients on the 26th of June. Curve has been able to very quickly migrate to Checkout.dom, a rival that has recently raised $150M. The FCA lifted the restrictions on the 30th.

What a month we’ve had!

Moving on to some exciting things happened in June

  • Checkout.com, a UK rival to Adyen, Wirecard, Stripe and Square, raised $150M valuing the company at $5.5B up from its previous $2B valuation.

  • New York-based healthcare payments and engagement platform Cedar secured a $102M Series C funding.

  • Mastercard acquired Finicity, a financial data aggregation company, for $825M. If you missed out on our open banking article, read here.

The infographic below shows the investment flowed into major payments companies in the past two years. So many still believe payment processing can be profitable!

How are the challenger banks doing?

  • In May 2020, Monzo said it would raise £70M - £80M of new funding at a 40% discount to weather the coronavirus disruption. A month later Monzo closed a £60M Series G round valuing the company at £1.24B slashed down from its previous £2B valuation. Participating investors include Y Combinator, Stripe, Vanderbilt University, Accel, Orange, General Catalyst and more. 

  • Varo raised $241M from a Series D round led by Gallatin Point Capital and The Rise Fund. 

We’ve mapped out major challenger banks’ valuation, funding and number of customers. The sizes of the circles show the number of customers and the banks that have secured funding during the pandemic are shown in orange bubbles. 

Most neobanks start with offering checking accounts and then move on to offering lending services. Upgrade, a neobank founded by the founder of LendingClub Renaud Laplanche, is taking a credit-focused approach (which is why Upgrade isn’t included in the infographic above). Upgrade has recently raised a $40M Series D round and is now valued at over $1B. Founded in 2016, 10 million individuals have signed up for credit (personal loans + credit cards) and now the company looks to add banking tools.