Startups in Africa, Ukraine, others face account closures by U.S. bank
It will close the accounts of users in 37 countries including 13 African countries.
In a move that has sent shockwaves through Africa's startup ecosystem, Mercury Bank, a popular US- based banking choice for African tech startups, has announced it will close the accounts of users in 37 countries including 13 African countries.
Effective August 22, 2024, startups in African nations including Nigeria, South Africa, and Kenya will no longer be able to operate or open an account with the bank and will be forced to seek alternative banking solutions.
Why is this happening?
The decision was attributed to revised account eligibility criteria. Specifically, Mercury will no longer support accounts for businesses with associated addresses located in these countries – the 37 prohibited countries.
For startups, maintaining a U.S. account, without actually being in the US, meant an easy way of managing funding raised from US VCs, paying foreign workers, and conducting treasury operations in US dollar. With Mercury's account closures, affected startups must now navigate the search for new banking solutions to continue their operations.
The move comes as no surprise to some, given the increasing federal regulatory scrutiny on U.S. fintechs and the broader banking sector following high-profile failures like Silicon Valley Bank.
Emmanuel Oyedeji
More concerns for African countries
Africa, often viewed as a high-risk region because of deficiencies in anti-corruption, terrorist financing, and financial crimes by international financial institutions, has borne the brunt of these tightening regulations.
Several of the affected countries, including Nigeria, have been on the Financial Action Task Force (FATF) grey list since 2023. This grey list means additional scrutiny adding another complexity to managing accounts for businesses in the affected countries. This easily contributed to Mercury's decision to enforce strict account closures.
For African startups, which have increasingly relied on US-based banking partners to facilitate global operations, the closure of Mercury accounts is a significant setback. Many had turned to Mercury after the collapse of Silicon Valley Bank in 2023, only to find themselves in a similar predicament.
Other countries blacklisted include North Korea, Ukraine, Iran, Libya, and Russia.
As the startup community grapples with this development, it is clear that the search for reliable and accessible banking solutions will be a top priority. The incident underscores the need for a more supportive homegrown financial infrastructure in Africa to foster innovation and growth.
