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Illustration: Sarah Grillo/Axios

Wirecard is a prime example of a company that fell between the regulatory cracks — until it was too late.

The state of play: The story of Wirecard, a fraud-ridden German payments giant, is well known at this point; it's best told by the Financial Times' Dan McCrum, who broke most of it. Along the way, Wirecard used its inflated valuation in Germany to buy legitimate if not particularly profitable card processing businesses in the U.S. and U.K.

  • Background: Reloadable prepaid debit cards are becoming increasingly popular as an alternative to bank accounts. But when you sign up for one, it's rarely clear which companies you're actually relying on.

Driving the news: After Wirecard imploded, its U.K. regulator, the Financial Conduct Authority, hurriedly shut down the U.K. subsidiary. The result was that some 1.8 million individuals and 20,000 businesses were locked out of their accounts.

  • Those customers didn't even know they had a relationship with Wirecard. They had signed up with other fintechs, bearing names like Curve, Anna, and Pockit.
  • The apps used Wirecard to move money in and out of bank accounts at Barclays Bank. That money, it seems, was safe — but it couldn't be accessed while Wirecard U.K. was shut down.
  • The FCA unlocked the accounts this week.

Could the same thing happen here? Yes.

  • How it works: Wirecard North America is up for sale and isn't responding to requests for comment. But payments expert Richard Crone says that any number of entities might have had the ability to follow the FCA's lead and shut down Wirecard's U.S. operations, including private-sector companies like Visa and Mastercard, as well as partner banks like Fifth Third Bank.
  • Wirecard North America's primary regulator was the FTC, says Crone, and the FTC is not really a financial-services regulator. The company would also have been technically regulated by a patchwork of state-level money-transfer licenses.

What they're saying: "When banks were doing all the processing, it was pretty straightforward who the regulators were," says Crone. "The FTC is far less aggressive."

The bottom line: America's banks are generally well regulated; our fintechs generally aren't. Even if they don't hold customer money, their failure could still cause real hardship for millions of Americans.

Go deeper

Biden will reverse Trump's attempt to lift COVID-related travel restrictions

Photo: Tasos Katopodis via Getty

The incoming Biden administration will reverse President Trump's last-minute order to lift COVID-19 related travel restrictions, Jen Psaki, the incoming White House press secretary, tweeted.

Why it matters: President Trump ordered entry bans lifted for travelers from the U.K., Ireland, Brazil and much of Europe to go into effect Jan. 26, but the Biden administration will "strengthen public health measures around international travel in order to further mitigate the spread of COVID-19," Jen Psaki said. Biden will be inaugurated on Wednesday, Jan. 20 and Trump will no longer be president by the time the order is set to go into effect.

Dominion sends cease and desist letter to My Pillow CEO Mike Lindell

Photo: Stephen Maturen/Getty Images

Dominion Voting Systems on Monday sent a cease and desist letter to My Pillow CEO Mike Lindell over his spread of misinformation related to the 2020 election.

Why it matters: Trump and several of his allies have pushed false conspiracy theories about the company, leading Dominion to take legal action. It's suing pro-Trump lawyer Sidney Powell for defamation and $1.3 billion in damages, and a Dominion employee has sued Trump himself, OANN and Newsmax.

Off the Rails

Episode 5: The secret CIA plan

Photo illustration: Aïda Amer, Sarah Grillo/Axios. Photo: Zach Gibson/Getty Images

Beginning on election night 2020 and continuing through his final days in office, Donald Trump unraveled and dragged America with him, to the point that his followers sacked the U.S. Capitol with two weeks left in his term. This Axios series takes you inside the collapse of a president.

Episode 5: Trump vs. Gina — The president becomes increasingly rash and devises a plan to tamper with the nation's intelligence command.

In his final weeks in office, after losing the election to Joe Biden, President Donald Trump embarked on a vengeful exit strategy that included a hasty and ill-thought-out plan to jam up CIA Director Gina Haspel by firing her top deputy and replacing him with a protege of Republican Congressman Devin Nunes.