Update: June 2020
EY announced €1.9bn of cash missing, CEO arrested, Wirecard AG filed for insolvency

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Is MCA legal in Turkey?

June 20, 2019

While ignoring our pleas for transparency, Wirecard has confirmed to industry participants that Brazil and Turkey represented 33% of MCA balances as of March 31st, despite their recent comments during this quarter that they were 50%. This would mean Brazil and Turkey represented €133M of the €400M at quarter end.

Curiously, Wirecard has never mentioned MCA in Turkey in a published document.

Our original analysis on Brazil estimates MCA at €19M, and we think, in a most extreme example, it could be as high as €63M. This implies Turkey takes up the lion’s share of the €133M of MCA that Wirecard has confirmed, meaning Turkey MCA ranges from €70M-€115M:

However merchant cash advance in Turkey is illegal under Law 6493 for non-bank payment service providers.

Swipe
 €M (unless stated)
MCA400
Brazil and Turkey as %33%
Brazil and Turkey MCA133
 
Our Brazil MCA estimate19
Implied Turkey MCA115
 
Maximum possible Brazil MCA63
Implied Turkey MCA70
 
Range for Turkey MCA70–115

We have commissioned an independent legal opinion to corroborate this point. Our Turkish law firm found the following:

“…it is not legally possible for e-money or payment institutions to provide a service like “Merchant Cash Advance” in Turkey. Such a case would be a clear violation of the regulations and therefore those offering this service are to be subjected to heavy administrative and criminal sanctions.”

Please find the full legal opinion here for further reading.

We note the irony that our law firm is called Bafin Consultancy.

To summarize: in June 2013 Turkey published Law 6493 regulating and issuing licenses for electronic money institutions. This law came into force in June 2015, and in November 2016 Wirecard Turkey received an e-money license. – (Source: 3Q16 WDI interim statement)

This is the only regulatory license that Wirecard owns in Turkey, and importantly they do not hold a banking license in Turkey.

The law is clear: electronic money institutions may not grant credit, and may not issue electronic money prior to the receipt of funds.

Is this the reason that a Wirecard quarterly report has never mentioned MCA in Turkey? We are preparing a submission for the Turkish banking regulator with these findings.

To clarify further - this presentation from the World Bank summarises the key rulings from Law 6493. It is clear about the prohibition of granting loans:

Hero

However, this illegality somewhat overshadows our view that Wirecard Turkey is not lending as much as €70M, or any amount close to this, to their merchant customers given the size and scope of Wirecard Turkey.

In August on the 2Q18 analyst call, the Wirecard CEO said:

“I can just say, Turkey is for us a quite insignificant market, I would say it's on EBITDA, probably, under 1%”

If Turkey EBITDA was 1% of total in 2018, €6M (of €578M), taking group EBITDA margin of 29% gives revenues of €20m for 2018, or €5M per quarter:

Swipe
 €M (unless stated)   
Revenue20A  
Take rate5%B  
TPV400C= (A / B) 
Monthly TPV33D= (C / 12) 
Credit as %59%E Source
MCA uptake50%F  
 
MCA estimate10G= (D x E x F) 
 
Brazil and Turkey MCA133   
Brazil estimate19   
Turkey estimate10   
 
Missing cash(105)   

Our research on the ground in Turkey actually shows the business is substantially smaller than the figures discussed above. The CEO’s "under 1 percent of EBITDA" is actually lossmaking on far smaller revenues.

As ever with Wirecard, more questions arise.

  • How large are the revenues in Turkey, how big is MCA, and is it legal?
  • Does Softbank intend to fund illegal lending in Turkey?
  • Where is the missing €105M if not in Brazil or Turkey?
  • How big is MCA in Asia?
  • How big is MCA in Europe?

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