A familiar clarion call for “local solutions” to yet another problem limiting the continent.
Frankly, we all live in a constant fear that our foreign bankers wouldn’t just wake up one day and block the hell out of us. Unfortunately, the alternatives are few and far in between. There are reasons startups use foreign banks, one of which isn’t that our banks are the greatest.
So, I quite understand the outrage and the inconveniences, which may even mean life and death scenarios for startups caught in the crossfire.
But my experience in banking, KYC, and fraud management have shown me that you sometimes can’t jump to an immediate conclusion without understanding the details and nuances of what went down.
Most fintech banks we hear about, Mercury, Brex, etc. are not licensed. And there is nothing wrong with that: most digital banks run off the license of another regular bank until they can get theirs. The Mercury bank at the center of the brouhaha is using the license of Evolve Bank and Trust in the US. Like a typical digital bank would tell, you are forever at the mercy of your host. If the host Compliance team isn’t comfortable with some transactions, you either do something drastic or get shut down. The devil has never been scarier or the blue sea deeper.
And this isn’t a US thing – it is a banking thing across the globe. For example, this happened to TeamApt when they had to find alternatives to their virtual account products because Providus bank shut them down abruptly. The legend of how they survived this madness should be told.
Furthermore, while this may have happened to a lot of “African startups” nobody knows the limit of it. For a more holistic story, was this against African startups all, or does it include other non-African startups whose cries we haven’t heard? Did they suspend all African startups on their books or just some? Or was it some types of startups that got shut down? If you don’t know, you don’t know.
And lastly, even if we ran our own banks but the regulators come because of issues regarding certain clients, the bankers would always choose their franchise over a customer. We have seen licensed fintechs in Nigeria cut off errant customers on their platforms.
First, I must say that the "cover art" that comes with each edition is always awesome! Never a bad one. Kudos to the designer....
I particularly enjoyed the letter and can see why you couldn't resist sharing. I would argue that the term "Nigerian Startup" is a scam since they're mostly incorporated outside.
I do have a question though. I have heard some say the investments in Nigerian startups means increased forex inflow into Nigeria. Since they are holding the forex in foreign accounts, do they then contribute to forex inflows into the country?