Fintech

Digital banking startup Mercury has abruptly stopped service for startups in Ukraine, Nigeria and other countries

Published

9 months ago

23 July, 2024

abstract graphic of dollar bills in water

Digital Banking Startups Mercury no longer provides services to customers in some countries, including Ukraine, the company confirmed to TechCrunch.

Mercury made headlines earlier this year when he was involved in federal control through one of its partners, Choice Bank, on the practice of allowing foreign companies to open accounts.

The FDIC was “concerned” that Choice “had opened Mercury accounts in legally risky countries,” the information reported. Officials also reportedly chastised Choice for allowing overseas Mercury customers to “open thousands of accounts using questionable methods to demonstrate they had a presence in the United States.”

Mercury told TechCrunch in April that it was investing in its risk and compliance teams. In an apparent response to that federal scrutiny and as part of the company’s “ongoing commitment to compliance,” a Mercury spokesperson told TechCrunch on Monday that it recently updated its eligibility requirements and notified some customers that it could no longer “support them due to the address(es) provided or locations where we have seen frequent account activity.”

Some of those countries on the list of those who will not support are not surprising: North Korea, Iran, Libya, Russia. (A full list can be found Here.) But now the list also includes Ukraine, a country that was known for its strong and growing startup communityespecially before the Russian invasion.

Mercury said its policy change applies only to founders living in the country, not to founders living in the U.S. with a Ukrainian passport, responding to an earlier report by the Ukrainian founder Alyona Mysko, CEO and founder of Fuelfinance. Mysko Posted on LinkedIn On Monday Mercury closed his company’s bank account “because I have a Ukrainian passport!”

A Mercury spokesperson said the company supports and continues to support founders with Ukrainian passports residing in the United States, but has changed its policy to no longer support “companies with founders residing in Ukraine.”

But the spokesperson also admitted to TechCrunch that he had initially said he was banning founders with Ukrainian passports and later revised his decision, calling it a “mistake.”

“We made a mistake in our Help Center article, incorrectly stating that we couldn’t support founders with a Ukrainian passport,” the spokesperson told TechCrunch.

Mysko told TechCrunch that she has written to Mercury CEO Immad Akhund via LinkedIn and email, asking him to explain the situation. Mysko said she is now concerned that the situation is not limited to Mercury and is emblematic of “a problem in the entire banking system where banks do not distinguish Ukraine from Russia.”

The FDIC told TechCrunch that fintech companies like Mercury are not under its direct jurisdiction, but did not respond to our questions about any changes in its guidance on Ukraine.

Mercury Explains Why It Banned Ukraine

Mercury explained its decision to include Ukraine on the list of banned countries by saying that it had become “too complex” to support the country, given that current US sanctions programs.

“While Ukraine is not fully sanctioned, several regions of Ukraine are sanctioned. We have previously operated a region-based model to support as many customers in Ukraine as possible; however, supporting this policy while maintaining our rigorous compliance standards has become increasingly complex,” a Mercury spokesperson said, promising to “review” the policy in the future.

When asked what Fuelfinance was doing for a bank account, Mysko said the company got a second bank account at Chase after Silicon Valley Bank declined in March 2023.

He also referred to a similar case post X from Ukraine-based Lemon.io CEO Aleksandr Volodarsky on Monday who referenced Mercury, saying, “As a founder, you will eat sh*t all the time,” he wrote. “Today on my menu is @mercury throwing customers under the bus. From founder to founder, @I’m crazyThanks buddy, that’s tasty stuff.”

Mysko said she received a response from Mercury, but the startup will not reinstate her company as a customer. Mercury co-founder Jason Zhang also responded to her via email, which she Posted on LinkedInand said he agrees that this situation is unfair for founders in Ukraine; however, “it is a sad reality that we cannot support founders in Ukraine at this time.”

He went on to say that the company does not put Ukraine “in the same category as Russia.” He also said that in Mercury’s compliance and risk management and U.S. sanctions against regions of Ukraine, “there are commonalities in the controls and systems that we have to put in place.”

Nigerian founders in the US have also been affected

Ukraine is not the only country affected. Mercury also included Croatia and Nigeria in its list.

Two Nigerian founders living in the US recounted similar experiences to TechCrunch. According to the founders, who asked not to be named, Mercury will close their accounts in the next 30 days despite their startups being domiciled in the US. It’s unclear whether Mercury is using passports, rather than local addresses, to make these decisions. In an updated policy, Mercury said, “If you are domiciled outside of one of these countries, please contact support@mercury.com for assistance in opening your account.”

For the founders in Nigeria, this is not their first rodeo with Mercury. In 2022, Mercury limited almost 30 accounts connected to tech startups in Nigeria and other African countries, most of which had already been through US-based accelerators, including Y Combinator and Techstars.

Nigeria and some countries on the Mercury list, including Croatia, are present The “grey list” of the Financial Action Task Force (FATF) which means they are subject to additional controls due to deficiencies in their anti-money laundering, counter-terrorism financing and proliferation financing regimes.

Regarding the recent development, Benjamin Dada, a fintech partnership expert from Nigeria, told TechCrunch, “But a client from Nigeria is not at the same level as a client from Iran or North Korea, in terms of risk. Because they failed to put in place the right compliance infrastructure that makes their banking partners and the partner bank regulators comfortable, they are having to do a mass pruning of their client base to demonstrate that they are now more conservative in onboarding clients.”

African fintechs, including Raenest, Verto and Leatherback, which provide US accounts to businesses, will look to seize this opportunity and acquire some of the interested customers.

“This is not the first time that African companies have been threatened with disruption by companies like Mercury and Wise. For us, Africa was on the table from the beginning, from partnership to compliance, and it was not put at the end of the conversation,” Raenest co-founder Richard Oyome told TechCrunch.

Geek Ventures Managing Partner Ihar Mahaniok posted on Xadvising founders with Mercury accounts to open another account just in case. And to founders in general, “We don’t recommend opening an account with Mercury; they have proven to not be a reliable bank. Fortunately, there are much better options out there.”

Mercury responded to Mahaniok’s post with the same statement sent to TechCrunch regarding why it changed its policy towards Ukraine.

Additional information is provided by Rebecca Szkutak.

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Fintech

US Agencies Request Information on Bank-Fintech Dealings

Published

9 months ago

30 July, 2024

FinCrypt Staff

Federal banking regulators have issued a statement reminding banks of the potential risks associated with third-party arrangements to provide bank deposit products and services.

The agencies support responsible innovation and banks that engage in these arrangements in a safe and fair manner and in compliance with applicable law. While these arrangements may offer benefits, supervisory experience has identified a number of safety and soundness, compliance, and consumer concerns with the management of these arrangements. The statement details potential risks and provides examples of effective risk management practices for these arrangements. Additionally, the statement reminds banks of existing legal requirements, guidance, and related resources and provides insights that the agencies have gained through their oversight. The statement does not establish new supervisory expectations.

Separately, the agencies requested additional information on a broad range of arrangements between banks and fintechs, including for deposit, payment, and lending products and services. The agencies are seeking input on the nature and implications of arrangements between banks and fintechs and effective risk management practices.

The agencies are considering whether to take additional steps to ensure that banks effectively manage the risks associated with these different types of arrangements.

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Fintech

What changes in financial regulation have impacted the development of financial technology?

Published

9 months ago

30 July, 2024

FinCrypt Staff

Exploring the complex landscape of global financial regulation, we gather insights from leading fintech leaders, including CEOs and finance experts. From the game-changing impact of PSD2 to the significant role of GDPR in data security, explore the four key regulatory changes that have reshaped fintech development, answering the question: “What changes in financial regulation have impacted fintech development?”

PSD2 revolutionizes access to financial technology
GDPR Improves Fintech Data Privacy
Regulatory Sandboxes Drive Fintech Innovation
GDPR Impacts Fintech Data Security

PSD2 revolutionizes access to financial technology

When it comes to regulatory impact on fintech development, nothing comes close to PSD2. This EU regulation has created a new level playing field for market players of all sizes, from fintech startups to established banks. It has had a ripple effect on other markets around the world, inspiring similar regulatory frameworks and driving global innovation in fintech.

The Payment Services Directive (PSD2), the EU law in force since 2018, has revolutionized the fintech industry by requiring banks to provide third-party payment providers (TPPs) with access to payment services and customer account information via open APIs. This has democratized access to financial data, fostering the development of personalized financial instruments and seamless payment solutions. Advanced security measures such as Strong Customer Authentication (SCA) have increased consumer trust, pushing both fintech companies and traditional banks to innovate and collaborate more effectively, resulting in a dynamic and consumer-friendly financial ecosystem.

The impact of PSD2 has extended beyond the EU, inspiring similar regulations around the world. Countries such as the UK, Australia and Canada have launched their own open banking initiatives, spurred by the benefits seen in the EU. PSD2 has highlighted the benefits of open banking, also prompting US financial institutions and fintech companies to explore similar initiatives voluntarily.

This has led to a global wave of fintech innovation, with financial institutions and fintech companies offering more integrated, personalized and secure services. The EU’s leadership in open banking through PSD2 has set a global standard, promoting regulatory harmonization and fostering an interconnected and innovative global financial ecosystem.

Looking ahead, the EU’s PSD3 proposals and Financial Data Access (FIDA) regulations promise to further advance open banking. PSD3 aims to refine and build on PSD2, with a focus on improving transaction security, fraud prevention, and integration between banks and TPPs. FIDA will expand data sharing beyond payment accounts to include areas such as insurance and investments, paving the way for more comprehensive financial products and services.

These developments are set to further enhance connectivity, efficiency and innovation in financial services, cementing open banking as a key component of the global financial infrastructure.

Sebastian Malczyk

General Manager, Technology and Product Consultant Fintech, Insurtech, Miquido

GDPR Improves Fintech Data Privacy

Privacy and data protection have been taken to another level by the General Data Protection Regulation (GDPR), forcing fintech companies to tighten their data management. In compliance with the GDPR, organizations must ensure that personal data is processed fairly, transparently, and securely.

This has led to increased innovation in fintech towards technologies such as encryption and anonymization for data protection. GDPR was described as a top priority in the data protection strategies of 92% of US-based companies surveyed by PwC.

Arid Islam

Financial Expert, Sterlinx Global

Regulatory Sandboxes Drive Fintech Innovation

Since the UK’s Financial Conduct Authority (FCA) pioneered sandbox regulatory frameworks in 2016 to enable fintech startups to explore new products and services, similar frameworks have been introduced in other countries.

This has reduced the “crippling effect on innovation” caused by a “one size fits all” regulatory approach, which would also require machines to be built to complete regulatory compliance before any testing. Successful applications within sandboxes give regulators the confidence to move forward and address gaps in laws, regulations, or supervisory approaches. This has led to widespread adoption of new technologies and business models and helped channel private sector dynamism, while keeping consumers protected and imposing appropriate regulatory requirements.

George Blandford

Co-founder, UK Linkology

GDPR Impacts Fintech Data Security

A big change in financial regulations that has had a real impact on fintech is the 2018 EU General Data Protection Regulation (GDPR). I have seen how GDPR has pushed us to focus more on user privacy and data security.

GDPR means we have to handle personal data much more carefully. At Leverage, we have had to step up our game to meet these new rules. We have improved our data encryption and started doing regular security audits. It was a little tricky at first, but it has made our systems much more secure.

For example, we’ve added features that give users more control over their data, like simple consent tools and clear privacy notices. These changes have helped us comply with GDPR and made our customers feel more confident in how we handle their information.

I believe that GDPR has made fintech companies, including us at Leverage, more transparent and secure. It has helped build trust with our users, showing them that we take data protection seriously.

Dr. Rhett Stubbendeck

CEO & Co-Founder, Leverage Planning

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Fintech

M2P Fintech About to Raise $80M

Published

9 months ago

30 July, 2024

FinCrypt Staff

Application Programming Interface (API) Infrastructure Platform M2P Financial Technology has reached the final round to raise $80 million, at a valuation of $900 million.

Specifically, M2P Fintech, formerly known as Yap, is closing a new funding round involving new and existing investors, according to entrackr.com. The India-based company, which last raised funding two and a half years ago, previously secured $56 million in a round led by Insight Partners, earning a post-money valuation of $650 million.

A source indicated that M2P Fintech is ready to raise $80 million in this new funding round, led by a new investor. Existing backers, including Insight Partners, are also expected to participate. The new funding is expected to go toward enhancing the company’s technology infrastructure and driving growth in domestic and international markets.

What does M2P Fintech do?

M2P Fintech’s API platform enables businesses to provide branded financial services through partnerships with fintech companies while maintaining regulatory compliance. In addition to its operations in India, the company is active in Nepal, UAE, Australia, New Zealand, Philippines, Bahrain, Egypt, and many other countries.

Another source revealed that M2P Fintech’s valuation in this funding round is expected to be between USD 880 million and USD 900 million (post-money). The company has reportedly received a term sheet and the deal is expected to be publicly announced soon. The Tiger Global-backed company has acquired six companies to date, including Goals101, Syntizen, and BSG ITSOFT, to enhance its service offerings.

According to TheKredible, Beenext is the company’s largest shareholder with over 13% ownership, while the co-founders collectively own 34% of the company. Although M2P Fintech has yet to release its FY24 financials, it has reported a significant increase in operating revenue. However, this growth has also been accompanied by a substantial increase in losses.

Source

Fintech

Scottish financial technology firm Aveni secures £11m to expand AI offering

Published

9 months ago

30 July, 2024

FinCrypt Staff

Aveni, Investment Management, AI, NLP, UK

By Gloria Methri

Today

To come
Aveni Assistance
Aveni Detection

Artificial intelligence Financial Technology Aveni has announced one of the largest Series A investments in a Scottish company this year, amounting to £11 million. The investment is led by Puma Private Equity with participation from Par Equity, Lloyds Banking Group and Nationwide.

Aveni combines AI expertise with extensive financial services experience to create large language models (LLMs) and AI products designed specifically for the financial services industry. It is trusted by some of the UK’s leading financial services firms. It has seen significant business growth over the past two years through its conformity and productivity solutions, Aveni Detect and Aveni Assist.

This investment will enable Aveni to build on the success of its existing products, further consolidate its presence in the sector and introduce advanced technologies through FinLLM, a large-scale language model specifically for financial services.

FinLLM is being developed in partnership with new investors Lloyds Banking Group and Nationwide. It is a large, industry-aligned language model that aims to set the standard for transparent, responsible and ethical adoption of generative AI in UK financial services.

Following the investment, the team developing the FinLLM will be based at the Edinburgh Futures Institute, in a state-of-the-art facility.

Joseph Twigg, CEO of Aveniexplained, “The financial services industry doesn’t need AI models that can quote Shakespeare; it needs AI models that deliver transparency, trust, and most importantly, fairness. The way to achieve this is to develop small, highly tuned language models, trained on financial services data, and reviewed by financial services experts for specific financial services use cases. Generative AI is the most significant technological evolution of our generation, and we are in the early stages of adoption. This represents a significant opportunity for Aveni and our partners. The goal with FinLLM is to set a new standard for the controlled, responsible, and ethical adoption of generative AI, outperforming all other generic models in our select financial services use cases.”