Shares in Australian fintech firm EML Payments may have jumped 35 per cent in a relief rally since it emerged late on Wednesday that the Irish prepaid cards business it acquired four years ago, PFS Card Services Ireland Limited (PCSIL), has been put into liquidation.
But investors are still counting the cost of the disastrous foray from its traditional business in gift cards into the prepaid debit cards – a fast-growing area in the era of ecommerce but also beloved by nefarious types.
The AU$264.5 million (€159.4 million) cost of the purchase of PCSIL’s parent, Prepaid Financial Services (Ireland), is dwarfed by AU$1.48 billion – or 80 per cent – that has since been wiped off the Australian company’s value.
Sirens originally began sounding in Dublin and Sydney in May 2021 – a year after the purchase was sealed – when it emerged that the Central Bank of Ireland had raised issues around anti-money laundering and counter-terrorism finance controls at PCSIL.
Almost four years later, the company had still failed to convince supervisors in Dublin that its systems and governance were up to speed. And documents filed with the High Court this week – as the company raised the white flag – show PCSIL was also in the crosshairs of financial authorities in France and Spain.
Prepaid cards have been around since the 1990s. But this segment of the financial world, which facilitates cashless shopping and digital transactions for people who do not have access to other forms of electronic payments such as standard debit or credit cards, has been growing rapidly in recent years – accelerated by the pandemic.
The parent of PCSIL was set up in 2008 by Navan native Noel Moran and his wife Valerie, originally working from the kitchen table of their London apartment in Paddington.
US-based Allied Market Research estimated in a report last year that the global prepaid card market will grow from $2.5 trillion (€2.3 trillion) in 2022 to $14.2 trillion in 2032.
However, aside from helping the unbanked and underbanked to participate in the modern economy, prepaid cards have also been a tool for fraudsters and terrorists.
Terrorists involved in the 2015 Bataclan attacks in Paris, for example, infamously used prepaid cards to anonymously pay hotel bills and other expenses – paving the way for the European Union to lower the monthly transaction limit on such cards to €150 before providers are required to carry out client due diligence.
The PCSIL affidavit accompanying its liquidation petition outlines in great detail how the company was unable – despite constant back-and-forth with regulators in recent years – to push through a satisfactory remediation plan.
[ Provisional liquidators appointed to prepaid card issuerOpens in new window ]
[ Australian fintech EML’s shares soar on move to liquidate Irish cards unitOpens in new window ]
Much of the problem with carrying out proper due diligence on customers appears to lie with the fact that its business model relied on using dozens of third-party distributors for the issuance of cards across 24 jurisdictions.
The Central Bank letter to PCSIL in October 2022, 17 months after the regulator first indicated plans to impose restrictions on the company, said it continued to receive “complaints that fraud has been perpetrated by customers of the company” and was still of the view that it was not complying with its customer due-diligence obligations.
PCSIL hired Fiona Flannery, a well-respected banking figure in Dublin’s International Financial Services Centre with experience of handling difficult situations and regulators, around that time as its chief executive. She had been installed as chief executive of Depfa Bank, the failed Irish-based but German-owned lender, when it was put into wind-down in late 2014 and oversaw the sale of the remnants of the bank seven years later to Austria’s Bawag.
However, its problems remained intractable and the regulator imposed a “nil growth” limit on the company in April. Flannery and other members of the Irish board decided on September 11th to resign en masse.
The writing was on the wall when EML unveiled the outcome of a strategic review, saying it planned to “refocus on core, profitable and cash flow positive businesses of gifting, Australia and UK”. (UK-based Prepaid Financial Services, a sister company of PCSIL, is unaffected by the Irish liquidation. However, EML put its other Irish unit, payments company Sentenial, which was bought in 2021 for an upfront payment of $108.6 million, on the market last year.)
A fresh Irish board made a decision – with the blessing of EML – to opt for liquidation after it became clear the Australian parent was done spending money trying to resolve its regulatory issues. PCSIL lost €7.4 million in 2022, a further €15.5 million in 2023, and is projected to lose an additional €3.5 million for the current financial year to the end of June.
“Is in a significantly financially-distressed position due to falling operating revenues, the need for substantial future investment in core infrastructure such as technology and operational efficiency (which the board believes will not be forthcoming) and a real and imminent risk that a number of key commercial counterparties will cease trading with it in the coming year,” the affidavit said.
Insolvency practitioners Kieran Wallace and Andrew O’Leary, of Interpath Advisory Ireland, were appointed as provisional liquidators on Wednesday.
Contacted by The Irish Times this week, Noel Moran said the demise of PCSIL was “hard to comprehend”, especially after the company “spent millions on third-party consultations” trying to remediate regulatory issues.
He previously claimed in an interview with this newspaper in late 2021 that EML had seen an opportunity on foot of the regulatory intervention to avoid paying out on a AU$110 million earnout tied to the original purchase deal. For EML shareholders, the foray into PCSIL has led to a blowtorching of a multiple of that amount.
The saga, meanwhile, has exposed a worrying gap in the toolkit of the Central Bank. While regulators are able to petition the High Court to have liquidators appointed to the likes of ailing banks, insurers and investment firms, it does not have such powers under legislation governing e-money companies such as PCSIL.
The Central Bank’s list of authorised e-money firms has gone from zero to 25 in under six years.
While the regulator always has the nuclear option of revoking a firm’s licence, this could have severe consequences for customers. FCSIL’s voluntary move to opt for an orderly liquidation – while remaining regulated – gives supervisors ongoing oversight.
Not least over the ongoing handling of €516 million of customers’ money across 2.4 million prepaid cards in issue.
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