After Silicon Valley Bank failed in March 2023, Mercury, a digital bank based in San Francisco, emerged as the go-to financial partner for African companies. However, by August 22, 2024, Mercury would cancel the accounts of its customers in thirteen African countries, leaving them frantically searching for other financial options. Users in 37 countries will be impacted by the new limitations.
Citing the emails seen by TechCabal: “Due to recent changes in how we determine account eligibility, we are no longer able to support accounts for businesses with associated addresses located in these countries.”
African startups incorporated in Delaware are not permitted to open Mercury accounts with the new restrictions unless their founders are US citizens.
Mercury acknowledged these worries, but the fact that certain impacted nations have been on the Financial Action Task Force’s (FATF) Greylist since 2023 hasn’t helped. Due to gaps in laws pertaining to money laundering and the financing of terrorism, the countries on the list are under closer examination.
A 2023 KPMG report, holds that: “Greylisting adds another layer of risk and complexity to businesses that already perceive Nigeria as a high-risk country for anti-corruption and other financial crime risks.”
The thirteen African nations impacted by the restrictions include Burundi, Cameroon, Central African Republic, Democratic Republic of the Congo, Congo, Liberia, Mali, Mozambique, Nigeria, Somalia, South Sudan, Sudan, and Zimbabwe.
The digital news brand was informed by an executive at a Nigerian fintech company who wished to remain anonymous in order to talk candidly: “Mercury is going zero tolerance on banking companies in sanctioned regions. It is easier to close all Nigerian accounts than to spend extra effort on verifying legitimacy.”
The limitations come in the wake of Silicon Valley Bank and Synapse’s insolvency and other fintech company problems, as well as the regulatory assault on US commercial banks who frequently collaborate with fintech startups like Mercury.
One of Mercury’s banking-as-a-service suppliers, Choice, redesigned its KYC procedure in December 2023 as a result of worries that partner fintechs, including Mercury, had inadequate customer onboarding procedures and had broken laws pertaining to money laundering and terrorism funding.
The digital news brand was told by Tomiwa Aladekomo, the founder of a media tech business that uses Mercury, that: “About 18 months ago, one of Mercury’s partner banks limited transfers to a ton of countries (including Nigeria, of course) to a $10k limit. So if you wanted to send $300k to Nigeria, you’d have had to do 30 transfers, which would be flagged.”
Adding: “So the new rule is likely because one of its partner banks has insisted.”
Almost a dozen internet businesses, including some supported by renowned American accelerator Y Combinator, had their accounts abruptly blocked by Mercury in 2022. In response to “unusual activity,” the bank informed certain customers at the time that their accounts had been tagged and were being examined by its compliance team.
For Nigerian software businesses that seek dollar capital from both domestic and international investors, banks like as Mercury have grown to be extremely essential.
Aladekomo stated that: “For startups, if you’ve received capital in the US, it’s easier to keep your capital in dollars in the US and only bring what you need for your operational needs to Nigeria.”
Furthering: “You can pay any of your foreign workers directly from the US, which is an easier place to do business with the world from. You can also do treasury management in the US (i.e. earn interest on whatever portion of your money you’re not using) in a relatively predictable economy.”
However, Fintech companies including Leatherback, Raenest, and Graph, as well as Brex, Ramp, and Wise, are alternatives for the impacted startups.
