Mercury to Shut Down Accounts for African Startups Amid New Eligibility Rules

 

Mercury, the San Francisco-based digital bank that has been a favored banking partner for African startups following the collapse of Silicon Valley Bank in March 2023, will be closing the accounts of users in thirteen African countries by August 22, 2024. This decision leaves many startups scrambling to find alternative banking solutions. The new restrictions will impact users in 37 countries globally.

Background and Reasoning

In an email to affected users, Mercury cited changes in account eligibility criteria as the reason for the closures. “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,” the email stated. This means that even African startups incorporated in Delaware will not be able to open Mercury accounts unless their founders reside in the U.S.

FATF Greylist and Increased Scrutiny

The move comes amid heightened scrutiny of countries on the Financial Action Task Force (FATF) Greylist. These countries are subject to additional oversight due to deficiencies in anti-money laundering (AML) and counter-terrorism financing (CTF) regulations. According to a 2023 KPMG report, “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 countries affected by the new restrictions are Burundi, Cameroon, Central African Republic, DR Congo, Congo, Liberia, Mali, Mozambique, Nigeria, Somalia, South Sudan, Sudan, and Zimbabwe.

Impact on African Startups

For many African startups, Mercury has been a critical banking partner, especially for those raising funds in U.S. dollars. The platform’s ease of use and ability to hold capital in dollars made it a preferred choice for startups looking to manage their finances efficiently. Tomiwa Aladekomo, a media tech startup founder and Mercury user, explained, “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.”

However, Mercury’s tightening of account eligibility follows broader regulatory crackdowns on commercial banks in the U.S. that often partner with fintech startups like Mercury. In December 2023, Choice, one of Mercury’s banking-as-a-service providers, overhauled its Know Your Customer (KYC) processes due to concerns about lax onboarding practices among partner fintechs.

Alternatives for Affected Startups

With Mercury withdrawing its services, affected startups will need to explore other banking options. Alternatives include digital banking platforms like Brex, Ramp, and Wise, as well as fintech startups like Leatherback, Raenest, and Graph. These platforms offer similar services and can help bridge the gap left by Mercury’s exit from the African market.

Conclusion

Mercury’s decision to close accounts in several African countries highlights the challenges and complexities of operating in regions with stringent regulatory requirements. While this move will undoubtedly disrupt many startups, it also underscores the importance of robust compliance frameworks in the fintech industry. Affected startups will need to swiftly adapt by finding alternative banking solutions to ensure continued financial stability and growth.

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