By Paul J. Davies 

U.K. financial regulators froze the British operations of Wirecard AG, disrupting an upstart digital bank that depended on the now-insolvent German payments company.

Wirecard Card Solutions, based in Newcastle Upon Tyne in northeast England, isn't allowed to dispose of any funds or assets, or carry on its normal financial business, the U.K.'s Financial Conduct Authority said Friday.

Wirecard's U.K. business issued prepaid cards and electronic wallets for consumers and served as a backbone for other digital payments businesses. Some customers in the U.K. won't be able to access money on existing Wirecard prepaid cards or held electronically.

The financial regulator also said Wirecard's U.K. business wasn't covered by the Financial Services Compensation Scheme, which protects consumers from financial businesses that go bad.

A Wirecard spokesman didn't immediately respond to a request for comment.

Curve, a U.K.-based fintech, said its customers would be temporarily unable to use their cards because Wirecard had been shut down.

Curve, which has called itself the Netflix of banking, links users' various banking accounts in a single card or app. The company said it was already in the process of moving customers to its own card-issuing and e-money operations rather than rely on Wirecard.

Curve announced a deal this week to run Samsung's phone-based payments app in the U.K.

A Samsung spokesman couldn't immediately be reached for comment.

"Curve customers have today been informed that they are likely to see a temporary disruption to their service and are advised to carry an alternative payment method," Curve said in a statement. "This disruption is expected to last for a limited time only."

Wirecard's prepaid card service was an add-on to its main business providing software and terminals that collect credit-card payments for retailers in stores and online.

Prepaid cards store a set amount of value and can be used for shopping like credit cards. They can serve as gift cards, and some employers distribute them as incentive bonuses for workers. They can also be used by people without bank accounts or as a type of modern travelers check.

In 2017, Wirecard purchased Citigroup's U.S. prepaid card business for an undisclosed sum.

Wirecard shares crashed after auditors revealed a $2 billion hole in its accounts last week. Its market capitalization plunged to EUR250 million ($280 million) from nearly EUR13 billion, and on Thursday the company filed for insolvency in Germany.

It didn't appear that Wirecard's troubles were rippling through the wider payments industry. Though it counted hundreds of companies as partners and customers, many are likely to have backup payment-processing providers.

It is also possible that Wirecard's legitimate business was smaller than it appeared. The company's auditor, Ernst & Young GMBH, said Thursday there were "clear indications that this was an elaborate and sophisticated fraud, involving multiple parties around the world in different institutions, with a deliberate aim of deception."

Germany's financial regulator said Thursday it had appointed a special representative to oversee Wirecard Bank, a company subsidiary with EUR1.7 billion in deposits that wasn't part of the wider insolvency proceedings. The company faces ongoing government investigations in Germany, Singapore and the Philippines.

German prosecutors arrested Wirecard's former chief executive, Markus Braun, alleging he helped the company generate fake revenue and profit. He was released on bail Tuesday. His lawyer didn't respond to requests for comment.

Write to Paul J. Davies at paul.davies@wsj.com

 

(END) Dow Jones Newswires

June 26, 2020 11:18 ET (15:18 GMT)

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