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Revolut CFO resigns following money laundering controversy

Posted by on Mar 1, 2019 in Bank, Banking, ceo, challenger bank, Drama, Europe, Finance, Financial Conduct Authority, financial services, Japan, jp morgan, money, monzo, N26, North America, reporter, Revolut, Singapore, TC, the telegraph, TransferWise, United Kingdom | 0 comments

This hasn’t been a good week for challenger bank Revolut . The company, which offers digital banking services and is valued at $1.7 billion, confirmed today that embattled CFO Peter O’Higgins has resigned and left the business.

The startup and O’Higgins have been under pressure after a Daily Telegraph report that revealed that Revolt switched off an anti-money laundering system that flags suspect transactions because it was prone to throwing out false positives.

According to the Telegraph, the system was inactive between July-September 2018, which potentially allowed illegal transactions to pass across the banking platform. Revolut did not contact the Financial Conduct Authority to inform the regulator of the lapse, Telegraph reporter James Cook said.

O’Higgins, who joined the company from JP Morgan three years ago, made no mention of the saga in his resignation statement:

Having been at Revolut for almost three years, I am immensely proud to have taken the company from £1m revenue to £50m revenue during this time. However, as Revolut begins to scale globally and applies to become a bank in multiple jurisdictions, the time has come to pass the reigns over to someone who has global retail banking experience at this level. My time at Revolut has been invaluable and I’m so proud of what myself and the team have achieved. There is no doubt in my mind that Revolut will go on to build one of the largest and most trusted financial institutions in the world.

In a separate statement received by TechCrunch, Revolut CEO Nik Storonsky said that O’Higgins had been “absolutely pivotal to our success.”

The resignation caps a terrible few days for Revolut, which was the subject of a report from Wired earlier this week that delved into allegations around its challenging workplace culture and high employee churn rate.

“Former Revolut employees say this high-speed growth has come at a high human cost – with unpaid work, unachievable targets, and high-staff turnover,” wrote guest reporter Emiliano Mellino, citing the experiences of numerous former employees.

Those incidents included prospective staff being told to canvass for new customers as part of the interview process. The candidates were not compensated for their efforts, according to Wired. Revolut later removed the demands from its hiring processes.

Revolut is headquartered in the UK, where it launched its service in the summer of 2015. Today, it claims over four million registered users across Europe — it is available in EEA countries — although it plans to extend its presence to other parts of the world are taking longer than expected.

The company said last year it aims to launch in Singapore and Japan in Q1 of this year — so far neither has happened — while it also harbors North American market plans. Entries to the U.S. and Canada were supposed to happen by the end of 2018, according to an interview with Storonsky at TechCrunch Disrupt in September, but they also appear to have been delayed.

Revolut is generally considered to be the largest challenger bank in Europe, in terms of valuation and registered users, but other rivals include N26, Monzo and Starling. Even Transferwise, the global remittance service, now includes border-less banking features and an accompanying debit card.

Source: The Tech Crunch

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Wonga investors inject £10M so cash-strapped payday lender can fund claims

Posted by on Aug 5, 2018 in Accel Partners, Balderton Capital, Dawn Capital, Europe, Financial Conduct Authority, hv holtzbrinck ventures, oak investment, online lending, United Kingdom, Wonga | 0 comments

If you were at Disrupt London four years ago you may remember more than a little awkwardness during an investor panel when two VCs that had invested in European payday loans firm Wonga declined to comment on what had gone wrong at their portfolio company in the wake of a £220M write down.

Yesterday Sky News reported that those same two, Accel Partners and Balderton Capital, are among a group of Wonga investors that have agreed to inject a further £10M (~$13M) into the business to help fund compensation claims related to its past censured practices.

We’ve reached out to Accel and Balderton for comment.

Prior to the latest emergency funding, Wonga had raised a total of around £145.5M, according to Crunchbase. Its 2011 Series C round was backed by investors including Accel, Oak Investment, Meritech Capital, 83North; while a 2009 Series B included Accel, Balderton, Dawn Capital, HV Holtzbrinck Ventures and 83North. It was founded in the UK in 2006.

By 2014 rising concern about the rates of interest being charged to vulnerable customers on short term loan products led to a regulatory intervention to clean up the sector, and Wonga agreed to write off the loans of 330,000 customers.

It also agreed to waive the interest and fees for a further 45,000 after admitting its automated checks had failed to adequately assess affordability. The algorithmic technology it had touted as its core IP had been lending money to people who did not have the income to pay it back.

The company was also censured by the Financial Conduct Authority (FCA) for sending fake lawyers’ letters to customers in arrears — and had to pay out a further £2.6M in compensation for that.

Four years later Wonga is still paying the bill for its past conduct — in the form of increasing numbers of individual compensation claims.

In a statement issued to Sky News, a Wonga Group spokesman said there has been a “marked increase” in compensation claims for legacy loans driven by claims management companies.

“Wonga continues to make progress against the transformation plan set out for the business. In recent months, however, the short-term credit industry has seen a marked increase in claims related to legacy loans, driven principally by claims management company activity,” the spokesman said.

“In line with this changing market environment, Wonga has seen a significant increase in claims related to loans taken out before the current management team joined the business in 2014. As a result, the team has raised £10M of new capital from existing shareholders, who remain fully supportive of management’s plans for the business.‎”

According to Sky News, Wonga was on the brink of insolvency when its investors agreed to inject more capital into the business, with CEO Tara Kneafsey‎ warning its institutional shareholders in late May the company risked becoming insolvent without a capital injection.

Following the shredding of its original business model — with the FCA’s cap of 0.8 per cent per day for all high-cost short-term credit loans applying from January 2015 — Wonga has been loss making for the past several years, reporting a £65M loss for 2016 and just over £80M for 2015.

And Sky reports that its latest emergency fundraising took place at valuation of just $30M (£23M) for the business.

This represents a swingeing haircut for a company that, in 2012, had believed it was on a three-year growth path to a £15BN valuation, i.e. off the back of short term loan products that charged annual interests rates as high as 5,853% that were sold to hundreds of thousands of people who couldn’t afford to pay them back.

Wonga’s website now lists as “representative” an APR of 1,460% in an online FAQ — and further claims: “We’ve introduced lots of changes at Wonga to make sure we offer better, fairer loans to customers. We take a responsible approach and lend only to those we believe can reasonably afford to repay.”

As part of this process of ‘transformation’ — i.e. from algorithmic loan sharking to regulatory compliant short term lending — one recent focus for Wonga’s executive team to try to drum up ethical business has been on offering more flexible loan products.

Sky says Wonga’s board has previously expressed confidence it can build a sustainable business, and notes the company had been targeting a return to profitability last year but has yet to report its results for 2017.

According to its sources, Wonga’s cashflow situation has become so tight its board is evaluating the sale of some of its assets in addition to raising more debt.

Already last year wonga sold off its German payments business, BillPay, to Klarna — raising around £60M.

Source: The Tech Crunch

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