African startups are facing a major setback as Mercury, the digital banking solution that rose to prominence following the collapse of Silicon Valley Bank in March 2023, has announced it will be closing the accounts of users in thirteen African countries by August 22, 2024. This decision is a part of Mercury’s internal compliance changes, impacting businesses in a total of 37 countries.
For Nigerian tech startups, Mercury has been indispensable, providing a seamless way to handle dollar funding from both foreign and local investors. “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,” noted Tomiwa Aladekomo, a media tech startup founder who uses Mercury. “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 in a relatively predictable economy.”
However, Mercury has cited compliance concerns and the associated risks of banking in certain regions as the primary reasons for this decision. “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,” stated emails seen by TechCabal. With these new prohibitions, African startups incorporated in Delaware cannot open Mercury accounts unless the founders reside in the U.S.
The thirteen affected African countries—Burundi, Cameroon, Central African Republic, DR Congo, Congo, Liberia, Mali, Mozambique, Nigeria, Somalia, South Sudan, Sudan, and Zimbabwe—are not new to regulatory scrutiny. Some of these countries have been on the Financial Action Task Force (FATF) Greylist since 2023, flagged for deficiencies in money laundering and terrorism financing regulations. This greylisting complicates business operations, adding layers of risk and complexity. 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.”
This move by Mercury is seen as part of a broader regulatory crackdown on commercial banks in the US, which frequently partner with fintech startups. These startups, including Mercury, faced increased scrutiny after the insolvency issues at Silicon Valley Bank and Synapse. In December 2023, Choice, one of Mercury’s banking-as-a-service providers, revamped its KYC process over concerns that partner fintechs had lax user onboarding processes and might have violated money laundering or terrorism financing laws.
“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,” an executive at a Nigerian fintech told TechCabal, under the condition of anonymity.
This isn’t the first time Mercury has imposed such restrictions. In 2022, the bank unexpectedly limited the accounts of over a dozen tech startups, including those backed by American accelerator Y Combinator. Users were informed that their accounts were flagged and placed under review due to “unusual activity.”
Tomiwa Aladekomo also highlighted previous limitations imposed by Mercury’s partner banks, such as transfer limits to various countries, including Nigeria. “About 18 months ago, one of Mercury’s partner banks limited transfers to a ton of countries 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,” he explained.
As Mercury’s restrictions take effect, affected startups are left to seek alternatives such as Brex, Ramp, Wise, or fintechs like Leatherback, Raenest, and Graph.
Mercury’s stringent measures serve as a reminder of the complexities and risks associated with global banking compliance, particularly for fintechs operating in high-risk regions.