San Francisco-based digital bank, Mercury, is set to disrupt the African startup ecosystem by closing accounts in 13 African countries on August 22, 2024. This decision, affecting a broader 37 countries, comes after a surge in African startups turning to Mercury following the collapse of Silicon Valley Bank in March 2023.
The bank cited changes in account eligibility criteria, with a particular focus on businesses with associated addresses in the listed countries. This includes a tightening of restrictions on Delaware-incorporated African startups, requiring founders to be US residents.
Contributing to the situation is the inclusion of several affected countries on the Financial Action Task Force (FATF) greylist, subjecting them to increased scrutiny for money laundering and terrorism financing risks. This, coupled with Nigeria’s existing high-risk perception, has amplified challenges for businesses operating in the region.
Industry experts suggest Mercury’s decision is a risk mitigation strategy in response to heightened regulatory scrutiny following the failures of Silicon Valley Bank and Synapse. Choice, a banking-as-a-service provider for Mercury, has also tightened KYC procedures amid concerns over lax user onboarding.
The move has sparked alarm among African startups heavily reliant on Mercury for dollar-denominated transactions, treasury management, and global operations. The sudden account closures echo a similar incident in 2022, where Mercury restricted multiple tech startups without prior notice.
Read also: TerraPay Scores $95 Million to Slash Remittance Fees in Africa.
As startups scramble to find alternatives, options like Brex, Ramp, Wise, and fintechs Leatherback, Raenest, and Graph are emerging as potential solutions. However, the transition will undoubtedly disrupt operations and require significant adjustments for affected businesses.
The crisis underscores the vulnerabilities of African startups operating in a global financial landscape marked by increasing regulatory complexities and the potential for abrupt changes in banking partnerships.
