Lingering questions as Wirecard ends payment services in Singapore

FOR many, the writing was on the wall. The Monetary Authority of Singapore (MAS) on Wednesday directed Wirecard to cease its payment services, and have all related entities return all customers' funds by Oct 14.

A scant press statement on Thursday morning from Wirecard said it "regret(s) MAS's decision", and that it would work "with MAS" to minimise disruption to payment services. "The cessation of regulated payment services will affect all card payments at merchants using Wirecard's payment platform, as well as the usage of pre-paid cards issued."

As The Business Times reported earlier, merchants using Wirecard services have since June been seeking out alternative payment providers. The massive accounting scandal tied to the German-based fintech would have undoubtedly caused anxiety among merchants relying on the Wirecard network. Wirecard collapsed into insolvency in June after admitting that 1.9 billion euros (S$3.04 billion) in cash was missing from its books.

And to be clear, there are many alternatives available, including sturdy banks with years of experience in the payments business, and younger fintechs.

Merchants clued in on the global situation should have taken the pre-emptive step to shift their payment options. They would want to mitigate reputational and operational risks by preventing disruptions down the road - as would be the case today with Wirecard now ceasing its services.

But there remain unanswered questions from Wirecard. Chiefly, it remains unclear how many merchants will be affected by this disruption.

For context, Wirecard is not a small fry in Singapore. It shot to prominence in the Republic and this part of the world after it bought over the customer portfolio of Citigroup's merchant-acquiring business some years back.

Following the announcement in 2017, Wirecard said that its portfolio of clients in Singapore, Hong Kong, Macau, Malaysia, Taiwan, Indonesia, the Philippines, Thailand, India, Australia and New Zealand translated to more than 20,000 merchants in the region. A Reuters report further suggested - according to unnamed sources then - that about 70 per cent of the business was out of Hong Kong, Singapore and India.

Thousands of merchants in Singapore are left exposed. If Wirecard was committed to minimising disruption, as it said on Thursday, there should be more information provided on the scale of its operations in the Republic, or what's left of it.

It is also terrible timing that Wirecard sits in a grey area of regulation. As Singapore moved to adopt a new payments regulation regime, Wirecard was operating under a grace period ranging from six months to a year to apply for the relevant licence. In this time, entities with this grace period such as Wirecard were offering regulated payment service without a licence.

To be clear, MAS wields the power to impose directives on Wirecard entities, which enjoyed a grace period only given their intentions to secure the necessary licence. But for an entity with a sizeable presence in the payments space until recently, this grace period left a possible regulatory loophole if not for MAS's overarching powers to command directives.

Separately, Singaporean R Shanmugaratnam, a director of Citadelle Corporate Services, now faces 11 charges, including five charges slapped on Wednesday for allegedly faking five more letters in early 2017 stating bogus balances held in his company's accounts. Citadelle is one of two companies related to Wirecard that the Singapore authorities are investigating.

Citadelle has reportedly handled money for Wirecard in a trustee capacity. However, it is not licensed to provide such services in Singapore, and is not supervised by MAS. The regulator has placed Citadelle on the Investor Alert List on its website.

All in, it is a lesson for the books, especially as businesses are increasingly global in nature, and present various jurisdictional challenges for local regulators to jump through to ensure the soundness of the domestic operations of a global business. Against this context, that grace period may have been too long, if the underlying domestic payments market is to hum steadily along.

The final question comes from the future of payments in Singapore. To be sure once again, there are indeed various payment options available, and that once Wirecard merchants move to other payment processors, this issue would be largely resolved on the consumer front.

And in fact, digital payments have jumped in recent times, as a health crisis prompted consumers and business to adopt safe-distancing measures, including in the handling of money.

But in the interim, customers may have to dig out notes and coins to pay for a cup of coffee because the Wirecard terminal is down.

NETS told The Business Times on Friday night that as a unified point-of-sale (UPOS) terminal - a terminal that accepts both credit and NETS payments - is issued by NETS, not Wirecard, a UPOS terminal will continue to function and NETS payments will go through. (amendment note)

Other e-payment options, such as SGQR, are indeed available. But they remain less ubiquitous than they should be today.

Now, that mere memory of having to jingle for loose change to pay for a cup of coffee because the out-of-commission terminal is associated with a scandal that grabbed international headlines, can deter cashless payments. This is specifically for those who have only just adopted digital payments after getting over this fear of making payments without what they have known as a tangible storage of value - that is, physical dollars and cents.

It is a pity then, that while the Wirecard fiasco can very likely be resolved in good time on the consumer front, it may unwind some of the ongoing efforts to convince late adopters to digital payments that cashless options are the better way forward.

Amendment note: The article has been amended to say that because a unified point-of-sale terminal is issued by NETS, the terminal continues to accept NETS payments.