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The Pity of Wirecard, Part I: Oliver’s Army

SINGAPORE — Few companies can explain their meteoric growth as alluringly as Wirecard AG.

According to one of its preferred narratives, Wirecard presents itself as Europe’s leading financial technology innovator, a globe-spanning developer of white label code and applications that companies can use to help build their own online payment systems.

In Wirecard’s telling, its software removes the friction from electronic payments for both merchants and consumers. And in another narrative, it is a nimble bank, steadily generating low-risk revenue through the sale of integrated banking and credit-card processing services to businesses, and prepaid credit cards to consumers.

To date, investors have found the prospect of owning shares in a company that is simultaneously driving a technological shift in consumer behavior while growing profits irresistible. Last September, Wirecard entered the German corporate establishment when it displaced Commerzbank for inclusion alongside the likes of BMW and Bayer on the blue-chip DAX index, a closely followed roster of 30 of Germany’s biggest companies.

By late January, Wirecard’s market capitalization was almost 24.6 billion euros.

And on Jan. 30 that all changed, perhaps forever.

That’s the day the Financial Times published an exposé detailing a Singaporean law firm’s investigation of a host of alleged accounting irregularities in Wirecard’s Asian operations, and its stock price was pummeled. A German regulatory intervention that banned short selling of Wirecard’s shares through April 18 (a clear indication that the company’s tale of a short seller conspiracy had found some official support) did stabilize the stock price, but not before 10.6 billion euros of market capitalization were erased.

A close read of the May 2018 preliminary findings of the Singaporean law firm, named Rajah & Tann, suggests that a significant percentage of Wirecard’s success in the Asia-Pacific region — the most striking component of its growth story for the past three years — may be attributable to dubious transactions that inflated both the balance sheet and income statement. (On April 18, Wirecard, through London law firm Herbert Smith Freehills LP demanded that the Southern Investigative Reporting Foundation remove from this article a link to a document with the Singaporean law firm’s findings, arguing it does not represent a formally concluded investigation and that its publication represents a breach of the expectation of attorney-client privilege.)

On March 26, Wirecard released a statement on the Rajah & Tann report that concluded the suspect transactions would not have a material financial effect on the company’s 2018 results. It did acknowledge that “a few local employees” in Singapore might have unspecified “criminal liability” under that country’s law but no specifics were provided.

Documents obtained by the Southern Investigative Reporting Foundation show that Wirecard’s Asian success story is just that — a tale or myth fed to investors designed to propel the share price ever higher. The only thing that was keeping Wirecard’s regional operations from being exposed as a financial black hole was a single unit that Wirecard desperately wanted to keep concealed.


Meet CardSystems Middle East FZ LLC, a tiny, Dubai-based entity with a long name on Wirecard’s ever-expanding organizational chart. Don’t waste time looking for information on CardSystems in Wirecard filings. Apart from a few very brief mentions in annual reports, there’s no other reference by Wirecard.

CardSystems built a complex ecosystem of payment processors and banks that economically girds a series of gambling, adult entertainment and dating or companionship websites whose content is problematic enough that Wirecard decided it can’t have its name associated with them (even though it has a well-established track record of working with such content).

Moral and reputational concerns aside, any business that can succeed only when its core operation is hidden behind a daisy chain of lightly regulated banks and shell companies is probably going to cause investors a migraine one day.

Wirecard’s management has not been forthright about where its rapid earnings growth has come from. As recently as March 29 the company was telling investors that porn and gambling represented about 10 percent of its total transactions.

If Wirecard were to drop this line of business, then more than one-third of its operating profit would go out the door. This is a fact that Wirecard CEO Markus Braun does not touch upon when he makes speeches about the importance of optimism to Europe’s digital business community.

CardSystems essentially functions as a veiled middleman, linking various pornographic and gambling content providers to a network of payment processors and so called acquiring banks. Many of the payment processors operate behind a series of fake websites of the sort described in a June 2017 Reuters investigation.

(A brief aside: Deutsche Payment, one such payment processor that used a network of fake websites to mask illegal offshore gambling transactions, appears to have been controlled by Wirecard, which owned its trademark. According to the Internet Archive, for many years the Deutsche Payment website redirected visitors to Wirecard Austria’s site. Wirecard did not disclose the corporate connection but removed the Deutsche Payment link from its website shortly after the Reuters article was published.)

In return for this matchmaking, CardSystems receives an agreed-upon cut of the payment processing fee.

With this network in place, Wirecard can maintain a legal and reputational distance from what executives in its Alscheim, Germany, headquarters call “emotional content,” apparently referring to the gambling and porn operations.

(Although many institutional investors won’t relish being even indirectly exposed to porn and gambling, processing payments for this type of subject matter is perfectly legal in many countries.)

CardSystems’ internal financial projections for 2018, obtained by the Southern Investigative Reporting Foundation, reveal it was expected to generate sales of 450 million to 500 million euros, and earnings before interest, taxes, depreciation and amortization (or EBITDA) were slated to be an eye-popping 200 million euros. (EBITDA is a frequently cited and controversial yardstick for profitability that leaves out capital expansion and financing costs.)

Based on Wirecard’s 2018 preliminary results, CardSystems may have contributed about 22 percent of the company’s revenue and almost 35 percent of EBITDA. (Wirecard executives familiar with the unit’s performance of last year said they believed that it met or slightly exceeded these targets.)

Still, that’s tiddlywinks compared with what CardSystems meant to Wirecard in 2017,  since, according to the Federal Gazette publication of Germany’s Ministry of Justice and Consumer Protection, CardSystems accounted for 126.7 million euros or slightly less than 50 percent of Wirecard’s net income.

For all its impressive sales and profits, CardSystems is practically a one-person operation. It’s the brainchild of longtime Wirecard veteran Oliver Bellenhaus, who runs it out of his home office in what is currently the world’s tallest building, the 200-story Burj Khalifa in Dubai.

Nailing down a specific number of CardSystem employees proved difficult for the Southern Investigative Reporting Foundation. Probably fewer than a dozen employees are dedicated to the unit’s business, according to current and former Wirecard officials who spoke on the condition of anonymity out of fear of litigation.

CardSystems is a gold mine for Wirecard but its structure should check almost every box on a list of things guaranteed to raise an auditor’s hackles. The first issue is the size of its revenue relative to the small size of its workforce, a disparity especially pronounced given the sheer size of CardSystem’s business. In order to have its accounts pass muster with auditors, Wirecard officials classified about 60 Dubai-based company employees as assigned to CardSystems, but in reality they were on the company’s books at a different subsidiary.

Bellenhaus has complete operational control over CardSystems and has managed to keep a few banks, primarily ones located in Eastern Europe, engaged in his referral network. This is no mean feat since most established acquiring banks have stopped processing payments connected to porn websites, given the industry’s high charge-back rates. Apart from a stray press release issued in 2010, just about the only place the 45-year-old Bellenhaus is publicly quoted or referenced is on the websites of a Latvian bank and a Vilnius law firm.

(Charge-backs differ from traditional refund claims in that they involve a consumer’s essentially going over a merchant’s head and asking his or her bank to forcibly remove funds from a business’s bank account. When they are processed often enough, the time and expense involved rapidly begin to wipe out profitability for the acquiring bank.)

Bellenhaus did not reply to an email seeking comment. And in response to a question about CardSystems’ staffing levels, Wirecard spokeswoman Iris Stoeckl disputed that the unit’s head count is small, stating that 200 sales and tech staffers work at its Middle East and North Africa hub. She did not directly address a question about CardSystems’ virtual absence from company filings other than to note, “[Wirecard] cannot disclose any additional figures beside the figures disclosed in our annual audited report.”

There’s little evidence that Wirecard’s profile in the internet’s darker corners is diminishing. Consider the recent YouTube video on which Alexis D. Vyne, a transgender adult entertainer and film actor, shows how the company processes payments for, a Canadian website popular with individuals seeking escorts and sexual services. (Over the past several months, ads placed on LeoList were linked to four human trafficking arrests in the Greater Toronto area.)

Bringing CardSystems into the daylight ought to prompt some pointed questions from investors, and one of the first orders of business should be establishing how much business is really being done by that company for Wirecard.

Some basic extrapolation suggests that without the profits from CardSystems, Wirecard’s regional income statement would be awash in red ink.

In 2017 Wirecard’s annual report stated Asia-Pacific sales and EBITDA were, respectively, 619.2 million euros and 153.4 million euros. Recall that CardSystems’ results are included within Asia-Pacific results, however. Thus, when CardSystems’ sales of 450 million euros and EBITDA of 175 million euros are deducted, Wirecard’s Asia-Pacific sales clearly lost money in 2017.

15 thoughts on “The Pity of Wirecard, Part I: Oliver’s Army

  1. Complete worthless !!!

  2. Lol. The press is not able anymore to fight against wirecard.

  3. Poor, real poor.

    Sloppily researched, hearsay,not the slightest hint of evidence.

    Praedikat particularly worthless.

    Too bad for the time I wasted reading.

  4. Thanks 🙂 And now i will buy more Wirecard shares.

  5. Keep up the great investigative work. And ignore the emotional haters, stick to the facts. Your ability / willingness to report objectively keeps our markets functioning. And I plan to make a donation to support it.

  6. Great research. It will be interesting to see if the German authorities will take up the case or if Singapore + E&Y will have to carry the load. Thank you for publishing the preliminary report of R&T. If it were not so sad, one would not stop laughing.

  7. Putting things together it is very reasonable to assume that Wirecard is big in money laundry for Eastern Europe states, i.e. Russian oligarchs. I like the lauding statement of Oliver in regard to the Lithuanian Law Firm how to open the financial gates to Europe. Wasn‘t it Swedbank, the biggest Lithuanian Bank, which laundered billions of Dollars/Euros for Russian business men ?

  8. “EBITDA a controversial yardstick”???

    Ok, you are a journalist and not a finance professional. Still, if what you write doesn’t make any sense, maybe just don’t write it at all. When reading such a statement, it just makes your entire article a joke.

    Also, where does the idea of regurgitating fake news from other journalists come from? The lazy guy at Bloomberg already stopped copy-pasting FT’s fake news articles, maybe you should do the same.

    Regarding digital payments at porn sites, online casinos or for bitcoin etc: how is paying for such services with a VISA credit card “bad” for the payment processor but not for VISA or the bank accepting the payment?

    You are barking up the wrong tree here, pal!

  9. So the critical comments on the article are deleted.
    That is great journalism indeed…

  10. Mr. Schultz,
    I monitor all comments and as I was traveling without WiFi access, I was unable to process them until just recently; ordinarily, the comments are processed much more rapidly. Please observe however that several other critical comments have been posted, so perhaps that removes the conspiratorial aspect of your concerns.

    To the crux of your comments, I’d point you to the deep well of literature out there that disputes the concept of EBITDA as a valid cash-flow measure, especially for companies like Wirecard that are regularly active in capital markets. For example, this is from 2002, this is Charlie Munger from 2017 and this is Forbes from 2011.

    I’ll let the personal scorn and contempt that drips from your comments stand.

  11. Burj Khalifa does not have 200 floors! XD If you cant even get that right how can you expect anyone to take the rest of this article seriously.

  12. He is not meant to think, but just to copy paste as he is told.

  13. Why should CardSystems Middle East have any employees? The most of us software devs in this field are hired as freelancers. Wirdcards software devs sit in Germany in the headquarter of Wirecard of course and maintain the servers (=data processing) remotely. The data centers are scattered worldwide. The devs are scattered wordlwide. The sysadmins are scattered worldwide, i dont know anyone of them. The same goes for al alam of course. There is no need to host servers inhouse or have devs and sysadmins working there.

  14. Great work, Roddy. Just viewed your recent interview with Real Vision.

  15. Listen Werner, I sympathise that you Wirecard shares are now worthless but stamping your feet and shooting the messenger is hardly going to plug the €2Bn black hole and make everything better.

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