Mercury limits some accounts linked to African startups

Digital bank Mercury, which portrays itself as a bank for startups, has blocked multiple accounts tied to African IT startups.

The exact number of businesses affected by this limitation is unknown. However, many sources told TechCrunch that the number of businesses ranges from a dozen to thirty, with both well-established YC-backed companies and newer startups.

Mercury did not give any previous notice of the action, according to sources familiar with the matter, and it did not explain why the action was done, and no details were included in its first email to the concerned startups.

“Hi, Your access to the Mercury account for [company’s name] has been temporarily restricted. Let us know if you have any question or concerns,” read the first email Mercury sent out.

The San Francisco-based digital bank, which holds over $4 billion in customer deposits for more than 40,000 businesses in over 200 countries, told the affected startups that their accounts were flagged and put under review by the company's compliance team after it noticed some "unusual activity," but that it couldn't provide any further details until the review was completed,” according to Immad Akhund, the firm's CEO, in an email to clients.

“I am the CEO of Mercury. Since many of you have emailed/messaged me directly I thought it would be best if I just reached out directly,” Akhund wrote in the email. “We found out yesterday that our partner bank noticed unusual activity and asked us to lock and investigate a large set of accounts with linked activity. We are working through our due diligence on all those accounts and will be in touch with you individually with questions if we have any on your account or activity.”

He added that since there are so many accounts, it will take a bit of time assess them all, but it is the company's top priority internally, and more than ten employees were appointed to work on the matter. He apologized for the unexpected inconvenience and promised that the company will strive to avoid it in the future by implementing better procedures.

Mercury's decision to suspend these accounts without giving a reason has angered some founders and IT stakeholders, who have resorted to Twitter to vent their displeasure. Mercury's restriction came at an inconvenient time - the end of the month — when key commitments like as payroll and taxes should have been addressed; now, the founders claim, things will have to wait.

“There’s no concrete reason why we’re blocked. The last payment we made via the account was our Delaware Franchise Tax and we did that last week,” said Charles Dairo, co-founder and CEO of Beezop, one of many startups whose accounts were temporarily blocked.

While Beezop was fortunate in that they were able to send out their tax payment before the occurrence, several entrepreneurs have yet to file theirs, and inability to do so could result in a fine, given the deadline was Tuesday. Other entrepreneurs who used the bank on a more regular basis claimed that their pending transactions were being bounced, which was impacting their financial operations.

The company raised $120 million in a Series B fundraising round led by Coatue in 2021. The bank now has a market capitalization of $1.6 billion.

This episode has had negative consequences for the affected startups, but it has also tarnished Mercury's brand on the continent. Many African entrepreneurs and ecosystem actors have called for a boycott, while others have proposed an indigenous alternative that only services African entrepreneurs or black-owned enterprises.