Payoneer, a popular online payment processor used by millions of freelancers in different regions of the world has frozen all its prepaid Mastercard cards. This happened because Wirecard AG, a German payment processor and financial service provider filed for insolvency on 25th June 2020 because of a scandal worth $2 billion. The massive accounting scandal has led to the arrest of Markus Braun, who was the ex-CEO of the company and shook the company to its core.

Wirecard UK is authorized to issue electronic money and offer payment services to consumers by the UK’s own Financial Conduct Authority. As soon as the company filed for insolvency, the Financial Conduct Authority came out and imposed regulations to halt its financial activities.

Financial Conduct Authority Reaction

According to Financial Conduct Authority, 

  • Wirecard cannot carry out any financial activity
  • Wirecard can not dispose any funds and assets
  • Wirecard should inform their customers that they are no longer permitted to take part in any financial activity through a public statement on their website.

Due to this, millions of customers are unable to access online payment services and cards. They are unable to withdraw funds from their online accounts. Many banking and payment services apps are negatively affected due to this disruption in services.

The Financial Conduct Authority clarified that they have imposed these restrictions to protect the interest and money of Wirecard customers.  The Financial Conduct Authority states that “Effective safeguarding arrangements are critical to ensure customer money is protected and returned if the firm fails.” 

In fact, FCA has made an important condition and regulatory requirement for Wirecard’s ongoing Financial Conduct Authority authorization. The Financial Conduct Authority further adds, “Customers who are in financial distress because of the payment freeze may be eligible for a hardship payment from their local authority (only in the UK). Details can be found on our website.

 It should be noted that funds that exceed the maximum balance of Payoneer customer cards are held by Payoneer hence, it is not impacted by this temporary freeze by the Financial Conduct Authority. 

What About the Money?

Payoneer has announced that it is a temporary blockage of its prepaid card and assured its customers that card holder funds are safeguarded. Pockit, another app that is impacted by this disruption made similar claims. According to Pockit, “Customer money was protected in a ring-fenced designated client account with Barclays.” Anna Money, another app affected by this incident, issued a Q&A and said that customer money is safely stored in a separate account but questions are raised about whether the banking system has visibility into these funds or not.

According to Anna Money, “It is a requirement from the FCA that funds are stored in a ring-fenced account and the FCA complete regular audits to ensure the funds are stored correctly. All funds in the Barclays account belongs to Anna customers and cannot be used for any other purposes. Although the account was officially attributed to Wirecard Card Solutions, Anna had visibility of the Barclays account prior to the FCA suspension, and we saw no unusual activity.” The use of past tense in their statement raised a few eyebrows.

Anna Money co-founders conducted a live question and answer session on YouTube, where they admitted that they now have partial visibility of funds but were not quite sure about whether the money is in place or ring fenced. On the other hand, Viraj Jatania, CEO of Pockit, admitted that they no longer have any visibility over those accounts which are under the control of FCA. 

He said, “In some instances money does need to move out of those accounts, e.g. for settlement to MasterCard for transactions that took place or to the clearing schemes for faster payments and BACS.” According to him, customers should not be worried about their money moving out of their accounts because the only reason money might move out is for settlement of Mastercard transactions. 

Despite these assurances, customers are still skeptical whether they will ever get their funds or not. Who will reimburse customers if the financial institution fails? It is a grim situation especially for those who rely solely on these online payment processors and services.

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