David vs Goliath

Little-known fintech Wirecard overtakes Deutsche Bank

No more hedging: fintechs are it. Source: Imago/argum

The Germans are upset. The august Deutsche Bank, the biggest bank in Europe’s largest economy, is worth less than Wirecard, a cheeky fintech upstart.

Deutsche might have been established in 1870, have 95,000 employees, and reported revenues of €7 billion ($7.9 billion) in the first quarter of this year. Wirecard, meanwhile, founded in 1999 with 4,500 staff, had consolidated revenues of just €420 million from January to March.

But the stock market decided that size does not matter and by market cap, the newcomer has overtaken Deutsche in a milestone unthinkable to many.

Wirecard first listed on the Frankfurt Stock Exchange in 2000 and entered the TecDAX, Germany’s main tech stock index, in 2006. The company makes software to process card payments, online purchases and fraud prevention. So whether you swipe your card at a store, or tap in the numbers to buy a book online, Wirecard’s software is transmitting those details between you, your bank and the retailer, keeping your card details secret with its encryption.

That software is chewing through digits worldwide, from Europe to Asia, transmitting data to European banks, or to Chinese fintechs such as Alipay and WeChatpay. Wirecard also entered the United States’ market after taking on Citi Prepaid Services last year.

Now that investors have finally caught on to cashless payment companies, the fintech’s stock price has jumped by 80 percent this year to top €170, and by a whopping 150 percent in the past 12 months. Wirecard is now worth €21.3 billion, beating Deutsche Bank’s €21 billion market cap.

That’s also partly because the past years have seen Germany’s biggest bank head steadily downhill. It posted its third annual loss in a row last year and its share price now hovers around €10, a far cry from €92 at its all-time high in May 2007.

15 A tale of two stock prices-01

Better-than-expected results for this year’s second quarter provided a brief respite for Deutsche investors. But the German lender is now a collateral victim of the currency crisis unfolding in Turkey. The lender has little exposure to Turkey’s embattled economy, but its shares slumped amid fears the crisis could spread to other emerging economies and lead to loan defaults that could haunt European banks.

Wirecard’s stock market fortunes, meanwhile, make it the fourth-largest company operating in Germany’s financial sector. It has overtaken Commerzbank and Deutsche, though it’s still less valuable than insurer Allianz, reinsurer Munich Re and Deutsche Börse. Though Wirecard could also unseat the stock exchange operator, valued at €22 billion, in the near future.

Wirecard, which is based in Aschheim, a suburb of Munich, will probably qualify for the DAX blue-chip index in next month’s review of newcomers. It’s not just beaten both banks in terms of market value but has also outperformed Covestro, Heidelberg Cement, Lufthansa, Merck, RWE and ThyssenKrupp.

For some analysts, that tells you everything you need to know about Germany’s finance sector. Bold fintechs are gradually displacing staid banks struggling to adapt their business models to new technologies.

A bright future, duty-free

There’s one more ingredient in Wirecard’s stock market surge: a new partnership with Gebr. Heinemann, the biggest chain of airport duty-free stores in Europe. The fintech will integrate the most popular Chinese payment methods, including Alipay, into Heinemann’s central checkout system, starting with a dozen European airports then globally. Wirecard already makes almost half of its sales in Asia and now, tourists abroad can also use its technology at the till.

Boss Markus Braun, at the helm of the company since 2002, is also its largest shareholder. He sees opportunities abounding as retail goes digital. “There’s a huge growth potential for retail companies if they unite all sales channels via a uniform digital platform,” he told Handelsblatt.

Analysts agree. They forecast the company’s revenue will double to €3 billion between 2017 and 2020 and operating profit will jump by 154 percent to €799 million in the next three years. Meanwhile for Deutsche, a return to profitability this year would be a good start.

Jean-Michel Hauteville is an editor with Handelsblatt Global in Berlin. Christian Schnell covers financial markets for Handelsblatt from Frankfurt. Ulf Sommer reports for Handelsblatt on companies and financial markets. To reach the authors: hauteville@handelsblatt.com, schnell@handelsblatt.com, sommer@handelsblatt.com.

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