Railsbank will acquire Wirecard Card Solutions in an effort to accelerate its expansion across the UK and Europe

• BaaS provider Railsbank will acquire Wirecard Card Solutions.
• And Railsbank should market its global reach to fend off the threat of third-party providers.

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Under the deal, the UK-based Banking-as-a-Service (BaaS) provider will acquire Wirecard Card Solutions’ (WCS’) card technology, remaining clients, and some employees by November, per Finextra.

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WCS is the UK arm of the scandal-hit German payment processor, which filed for insolvency in June after failing to account for €1.9 billion ($2.3 billion) on its books. Visa-backed Railsbank’s API platform enables fintechs to access a range of banking and payments capabilities, including debit cards, issuing IBANs, and a Credit-Card-as-a-Service offering.

Despite WCS suffering client losses after being briefly suspended, the acquisition will likely boost Railsbank’s European expansion.

• The suspension paralyzed WCS’ clients’ operations. In a bid to protect the electronic money funds of consumers in safeguarded accounts, the Financial Conduct Authority suspended Wirecard’s UK operations over one weekend. Fintechs that relied on WCS were unable to operate, and their users couldn’t access funds — which harmed customer relationships. As a result, many fintechs have left the payment processor to develop in-house capabilities, such as neobank Revolut and card payment aggregator Curve, or have gone to competitors, such as Dutch payment company Adyen.
• Yet WCS remains an attractive acquisition with strong tech. The acquisition enables Railsbank to add WCS’ prepaid card solutions to its 50 existing card programs in the UK and EU, strengthening its position as a leading European BaaS platform. WCS’ services also have the potential to bring in steady revenue: It recorded a £2.5 million ($3.4 million) pretax profit in 2018 back when it had around 70 clients, according to the most recently available data.

However, other third-party providers are also making moves to fill the Wirecard-shaped hole in the market — and Railsbank should market its global reach to fend off the threat. German banking platform solarisBank recently raised $67.5 million and is reportedly considering acquiring Wirecard’s licensed German bank, Wirecard Bank AG, while payment provider PagSeguro Digital has agreed to acquire Wirecard Brazil.

As the market continues to compete for Wirecard’s stranded clients, Railsbank should emphasize its superior cross-border infrastructure, which will be further strengthened by WCS’ global payment capabilities. The API platform is present in not only Europe, but also the US and Asia, enabling fintech clients to offer banking services to a wider range of potential customers. SolarisBank by contrast is only available in six European countries.

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