Chocolate Finance takes $374m hit in 2-week withdrawal spree

Chocolate Finance customers made around S$500 million (US$374 million) in net withdrawals during a “bank run” over the last two weeks, slashing the firm’s assets under management (AUM) by some 40%.

However, founder and CEO Walter de Oude insists that it was in no way a “meltdown.”

In fact, he sees it as a success that the asset manager’s platform was able to handle the deluge of withdrawals in an automated and orderly manner.

Chocolate Finance’S CEO Walter de Oude and brand ambassador Henry Golding (L-R) / Photo credit: Chocolate Finance

“I’m really, really proud of the robustness and resilience of our business and systems as we’ve gone through a really, really crazy week,” he tells The Business Times.

Communications failure

The genesis of Chocolate Finance’s troubles, arguably, lay in its decision to pull the plug on transactions via payment services provider AXS.

As part of its customer acquisition strategy, Chocolate Finance had a partnership with rewards platform HeyMax, offering a two-mile-per-dollar reward for all spending categories, including bill payments.

Chocolate Finance’s withdrawal from AXS means customers can no longer pay their bills using the platform’s debit card.

However, de Oude says some customers were exploiting and abusing the HeyMax-Chocolate Finance partnership via AXS payments.

“We had people spending S$300,000 (US$224,400) on bill payments and cycling money and paying insurance premiums on other people’s behalf, and just general misuse,” he explains.

Only a small number of customers were involved in that, according to de Oude.

“But I absolutely agree that our knee-jerk reaction to that could have been managed much better,” he adds.

De Oude also admits that Chocolate Finance’s communication around halting AXS payments was “a mess.”

This prompted some customers to head for the exit. More mayhem ensued as the platform later paused instant withdrawals and Visa debit card transactions.

Lessons learned