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Digital banking startup Mercury abruptly halts services for startups in Ukraine, Nigeria, other countries

TechBrunchBy TechBrunchJuly 23, 20247 Mins Read
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Digital banking startup Mercury has stopped providing services to customers in some countries, including Ukraine, the company confirmed to TechCrunch.

Mercury made headlines earlier this year when it came under federal scrutiny over its practice of allowing foreign companies to open accounts through one of its partners, Choice Bank.

The FDIC was “concerned” that Choice “opened Mercury accounts in countries that posed legal risks,” the Information reported. The agency also reportedly accused Choice of opening thousands of accounts for overseas Mercury customers “using questionable methods to prove their U.S. domicile.”

Mercury told TechCrunch in April that it was investing in its risk and compliance team. As part of its response to the federal investigation and the company's “ongoing commitment to compliance,” a Mercury spokesperson told TechCrunch on Monday that the company had recently updated its eligibility requirements and notified certain customers that it was “no longer able to assist them due to either the address they provided or the location where frequent account activity was recorded.”

Some of the countries on the list of countries not to be helped are surprising, including North Korea, Iran, Libya, and Russia. (You can see the full list here.) But Ukraine, which was known for its vibrant and growing startup community, especially before the Russian invasion, is now on the list too.

Mercury said the policy change only applies to founders who live in Ukraine, not to founders who live in the U.S. and hold a Ukrainian passport, responding to an earlier report by Ukrainian founder Alyona Mysko, CEO and founder of FuelFinance, who posted on LinkedIn on Monday that Mercury had closed the company's bank account “because I hold a Ukrainian passport.”

A Mercury spokesman said the company continues to back founders who hold Ukrainian passports and live in the United States, but has changed its policy so that it will no longer support “companies whose founders are based in Ukraine.”

However, a spokesperson confirmed to TechCrunch that the company had initially said it would ban founders with Ukrainian passports, but later corrected that as a “mistake.”

“We had an error in our help center article which erroneously stated we couldn't support founders with Ukrainian passports,” a spokesperson told TechCrunch.

Misko told TechCrunch that he had asked Mercury CEO Imad Akhund to explain the situation via LinkedIn and email. Misko said he was concerned that the situation was not unique to Mercury, but symbolic of “a system-wide problem with banks not distinguishing between Ukraine and Russia.”

The FDIC told TechCrunch that fintech companies like Mercury don't fall under its direct jurisdiction, but did not respond to our questions about whether its guidance regarding Ukraine has changed.

Mercury explains why it banned Ukraine

Mercury explained its decision to add Ukraine to the list of banned countries because it had “become too complicated” to assist the country given the current US sanctions program.

“While Ukraine is not subject to comprehensive sanctions, several regions of Ukraine are. Historically, we have applied a geographical model to support as many customers in Ukraine as possible, but supporting this policy while maintaining our strict compliance standards has become increasingly complex,” a Mercury spokesperson said, promising to “reconsider” the policy in the future.

Asked what Fuel Finance is doing for its bank account, Misko said the company secured a second bank account with Chase Bank following the March 2023 collapse of Silicon Valley Bank.

She also referenced a similar X-post from Ukraine-based Lemon.io CEO Alexander Volodarsky on Monday, in which he mentioned Mercury, writing, “As a founder, you always get a bad rap,” adding, “What I get today is @mercury victimizing its customers. As a founder, @immad, thanks, dude, that's a deliciously bad rap.”

Mysko said she received a response from Mercury, but the startup doesn't plan to reinstate her company as a client. Mercury co-founder Jason Chan also responded in an email she posted to LinkedIn, saying he agreed with how unfair the situation is for Ukrainian founders, but that “it is an unfortunate reality that we are unable to support Ukrainian founders at this time.”

He added that the company does not put Ukraine “in the same category as Russia” and that “there are commonalities in the controls and systems that we have to put in place” to manage Mercury's compliance and risk, as well as U.S. sanctions on the Ukrainian region.

Nigerian founder living in the US also affected

Ukraine isn't the only country affected: Mercury also adds Croatia and Nigeria to the list.

Two Nigerian founders living in the US also told TechCrunch of similar experiences. The founders, who requested anonymity, said Mercury plans to close their accounts within the next 30 days, even though their startups are based in the US. It's unclear if Mercury uses passports rather than local addresses in making such decisions. In the updated policy, Mercury said, “If you're based outside one of these countries, please contact support@mercury.com for assistance opening an account.”

This is not the Nigerian founders' first deal with Mercury: In 2022, Mercury capped about 30 accounts linked to tech startups from Nigeria and other African countries, most of which had already gone through U.S.-based accelerators such as Y Combinator and Techstars.

Nigeria and some of the affected countries on the Mercury list, including Croatia, are on the Financial Action Task Force's (FATF) “grey list” and are subject to additional scrutiny due to deficiencies in their regimes to combat money laundering, terrorist financing and proliferation financing.

Commenting on the recent developments, Benjamin Dada, a Nigerian fintech partnerships expert, told TechCrunch: “However, Nigerian customers are not at the same level in terms of risk as customers in Iran or North Korea. Their failure to put in place the right compliance infrastructure to reassure their banking partners and their partner bank regulators has forced them to do a massive pruning of their customer base to demonstrate that they are now more conservative in onboarding customers.”

African fintech companies that offer US accounts to businesses, such as Raenest, Verto and Leatherback, are seizing the opportunity to try to win over some of the affected customers.

“This is not the first time African companies have faced threats of service interruption from companies like Mercury and Wise. For us, Africa has been on the table from the beginning, from partnerships to compliance, not tacked on at the end of the conversation,” Raenest co-founder Richard Oyome told TechCrunch.

Ihar Mahaniok, managing partner at Geek Ventures, also posted on X, advising founders with Mercury accounts to open another one just to be safe, and saying for founders in general, “I don't recommend opening an account with Mercury. They've proven to be an unreliable bank, and thankfully there are plenty of better options out there.”

The Mercury responded to Mahaniok's post with the same statement it sent to TechCrunch about why it changed its policy on Ukraine.

Additional reporting by Rebecca Szczak.

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