Mums unable to feed their children. Young people unable to pay rent. People unable to receive their benefits. Payments due for essential items like insurance and bills, all frozen

From a post about “#FruityFrittataFreelancerFriday” to this Tweet in just over two hours, Friday was a tough day for ANNA Money and its customers:

ANNA Money @ANNAMoneyUKWe are urgently recommending you withdraw your money from your ANNA account as soon as possible. This is due to the FCA placing requirements on our UK payment provider.

Can you imagine how you’d react if your bank gave you a handful of minutes to move your money to another bank account? 

Incredibly, as we are now all aware, this is what actually happened for some people in the UK on Friday. At least ANNA Money tried to communicate the impending account freeze, it seems that other providers froze clients accounts with no notice.

My first thoughts turned to an academic argument between the merits of holding an account that was covered by the Financial Services Compensation Scheme (FSCS) and an account that ring fenced my own money. I recalled conversations many years ago considering how a financial instruction might ‘pay away’ stricken funds within a seven day window.

I then wondered about the impact on the companies who had chosen to purchase underlying services from Wirecard – what it might mean for their future and the consequences for Fintech regulation, competition and innovation.

But, as important as these things are, we must not lose sight of the fact that whilst ultimately the customers money might safe, a situation where funds are not accessible for an undefined time is a real and immediate issue.

Bailey Kursar summed this situation up very well:

Mums unable to feed their children. Young people unable to pay rent. People unable to receive their benefits. Payments due for essential items like insurance and bills, all frozen.

What’s happened to Wirecard has directly made these already vulnerable people more vulnerable.

Bailey Kursar, Co-founder and CEO, Touco

Bailey’s whole article on this subject is definitely worth a read – link.

Yesterday, the Emerging Payments Association (EPA) wrote an Open Letter to the FCA in response to their decision to freeze Wirecard accounts.

The Emerging Payments Association (EPA) and its members strongly urged the FCA to unfreeze Wirecard Card Services accounts, or facilitate a solution to enable safe access to e-money by e-money holders affected, as soon as it can, for the sake of cardholders, companies and their employees, and the UK fintech industry. 

Without this freezing being removed rapidly, the EPA believed that there would be significant and lasting damage to individuals, companies and the UK’s current and future prospects as leaders in Fintech.

The EPA stressed that the FCA decision to freeze Wirecard accounts is having a significant impact on three groups of stakeholders:

– Cardholders, especially the financially excluded

Friday was payday. Those receiving payments onto their prepaid accounts such as Pockit and The Change Account which includes vulnerable people, those without access to mainline banking, those with low incomes on benefits programmes, and young people, will not receive them. They will be unable to pay other bills including food, utilities and Direct Debits. A few will be merely inconvenienced, but many will suffer and some will become emotionally distressed and traumatised, with unknown consequences to their wellbeing and health.

‘One company whose cardholders are largely financially excluded reported over the weekend that their call centre has been overloaded with desperate cases. Some were even threatening suicide because they have no money at all. These cards are their only form of spending, encouraged by Fintech and accelerated by Covid-19. Knowing that the money is securely held in a safeguarded account does not mean anything to them. They need access to the funds. Now.’

Neil Harris, Chairman of The Inclusion Foundation CIC 

– Payments companies and their employees

The EPA believes that the suspension will impact more than 150 companies and thousands of their employees. Not only are revenues no longer flowing, but the costs to service cardholders and to move to alternatives to Wirecard Card Services, a process that takes several months, are significant. The EPA predicts dozens of corporate failures, hundreds of job losses and significant reductions in tax payments, unless the freeze is removed right away.

– Fintech and the UK’s reputation

The EPA state that we are all proud of the UK’s leadership on the world stage of financial technology. It has brought investment, commerce, jobs and taxable profits to our country. Unless the suspension is reversed soon, the EPA predicts significant and irreparable damage to the UK’s reputation for having a thriving, balanced Fintech industry supported by an understanding and enabling regulator.

Urging the FCA to release the restrictions on Wirecard Card Services as soon as they can, for the sake of cardholders, the payments industry and the UK, Tony Craddock from the EPA concluded:

Our industry has weathered the storm of the Covid-19 crisis well and enabled the steady digitisation of our society. As soon as the balances of Wirecard Card Services’ cardholders have been assured and are in the UK, please unfreeze its accounts; for the sake of excluded cardholders, the payments industry and the UK’s reputation as a leading fintech hub.

The longer this lasts the more likely it is to create:

  • A crisis of confidence among consumers. Consumers have come to trust digital payments and services from non-banks enabled by the e-Money regulations that have worked well over the last 15 years
  • A crisis of confidence among clients of the emerging payments industry, who have come to rely upon Fintechs to provide high quality, secure services, and those who service it.

Tony Craddock, Director General, Emerging Payments Association

As at 00:01 on the 30 June 2020 the FCA acted and unfroze all Wirecard Card Services accounts – this should mean that customers with underlying accounts should be able to access their money during the course of today (30 June).

What next?

Bailey Kursar concludes:

If we really believe in building a new, fairer financial services system then we should react with more empathy when the problems in our industry hit those less fortunate than ourselves.

Over the coming days I hope we can push for practical ways we can help the hundreds of thousands stuck without access to their money. I hope the FCA completes their investigations ASAP, but what if they don’t? What can we do?

And over the coming weeks I want us to look inward. What would be the impact on your users and the wider community if one of your key suppliers went offline? What plans do you have in place for that?

Are there lessons we can learn about better explaining what we do, and how, to consumers?

As this issue unfolds and is, ultimately, resolved what part of the solution can you be?

This piece originally featured in this week’s Payments, Payments, Payments newsletter: