African Startups in 13 Countries to Lose Greatly after Mercury Bank Announces Closures
Effective 22nd August this year, American digital bank, Mercury Bank will close all business accounts in 37 countries around the world – a move that has caused jitters within the continental startup ecosystem.
Some of the affected African countries will include Nigeria, Sudan, South Sudan, Cameroon, Burundi, Congo Republic, DRC, Zimbabwe, Somalia, Mali, Liberia, Mozambique, and the Central African Republic.
The digital bank based in San Francisco is heavily relied upon by startups operating within the continent especially because a massive chunk of the funding for the ecosystem is generated in the US.
The prompt move has roused lamentations from tech startup founders on social media who have regarded the action as discriminatory, citing that they have no choice but to look for alternative banks to furnish their operations.
“We regret to inform you that due to the 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 mentioned ones),” read an email from the bank.
Nigeria is perhaps the biggest African startup hub with 60% of VC funding obtained from the US. Moreover, many of the founders are even based in the US to ground themselves in a mature and well-funded ecosystem before spreading out links to their native countries. This is done to cement trust in the product invented, as well as maintaining valuable networks that come in handy during funding.
“Mercury closed my accounts too even with founders living in the US. No proper process or appeal, just carry and go if you have ties to Nigeria. The exact policy that even caused this isn’t even well-explained,” said Akintunde Sultan, co-founder of AltSchool on X (formerly twitter).
The bank, which was established in 2017, grew to become one of the most integral service providers for growth-stage startups in the continent alongside the Silicon Valley Bank which collapsed in March 2023.
According to Tech Crunch, the takeover of the Silicon Valley Bank by the Federal Deposit Insurance Corporation (FDIC) drove more than 26,000 customers to Mercury Bank – most of them being startups. This led to the bank accumulating an additional US$2 billion in new deposits.
It is still unclear why the bank took the decision but word on the web suggests that it is part of the regulatory requirements meant to combat money laundering and terrorism funding.
The Financial Action Task Force (FATF) determines countries which are hotspots for these vices and the countries whose accounts shall be closed appear on its greylist. Non-African countries on the list include Russia, North Korea, Myanmar, Pakistan, Iran, and surprisingly – Ukraine.
Mercury Bnak raised US$ 120 million in their 2021 Series B round. Their accelerated growth, however, brought about the need for more scrutiny considering that they predominantly served enterprises in need of dollar accounts in high-risk countries.
In 2022, the bank restricted bank accounts belonging to some bullish startups in Africa as part of its compliance strategies.
The closure of the Silicon Valley Bank should have been a wakeup call for African tech startup founders to diversify their capital holdings. While transitioning from US-based banks may not be easy due to the over-reliance on VCs located there, it would be a worthwhile attempt to evade the inconveniences brought about by tightened regulations.
There exists a few but promising alternatives for startups in Africa which can be viable alternatives. They include : Raenest, Verto, and Cleva.
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