The Country Manager of Verto FX, Austin Okpagu, has said that the recent closure of Nigerian startups’ accounts by a U.S. bank, Mercury, may further wane the interest of foreign investors in the country’s startup ecosystem.
Speaking in an interview with Nairametrics, Okpagu said most Nigerian startups that relied heavily on Mercury for their international payments now have their businesses disrupted. According to him, the disruption would have an extensive impact beyond their inability to make international payments.
“To a large extent, foreign investors’ confidence would wane with attendant impact on the day-to-day operations of these businesses. When this happens, it further creates barriers to global financial transactions, deters potential investors, and slows down overall growth within an ecosystem already plagued by low capital importation,” he said.
Innovation may be stifled
He added that the development may also lead to innovation stifling as startups would struggle with scaling their solutions globally or even maintaining their operations.
Describing the accounts closure as a critical setback for all Nigerian starups that were customers of the bank, Okpagu said the uncertainty created by this could effectively make founders frustrated and scrambling for viable alternative solutions which are often limited within the continent.
He added in the long term, the attractiveness of Nigeria to global investors and institutional partners as the tech hub of Africa could be severely hindered.
“Recently, we’ve seen top startup ecosystem enablers like Microsoft, among others, already scaling back their presence within Nigeria.
“This has a ripple effect for the region and not just Nigeria. I think this should be a wake-up call for stakeholders within the Nigerian ecosystem and should be an opportunity for introspection and the reduction over reliance on foreign institutions and invest in local financial institutions,” he said.
Cross-border payment issues in Africa
Okpagu noted that the recurring episode of account closures by global banks is an indication Africa needs to come together and invest in itself.
According to him, the state of cross-border payment infrastructure in Nigeria, and in Africa at large is evolving due to a complex interplay of regulatory changes, fintech innovations, and global economic pressures, creating both challenges and opportunities for businesses operating in the region.
“While there’s been progress, with the recent development of the Pan-African Payment and Settlement System (PAPSS) an offshoot of African Continental Free Trade Area (AfCFTA), there are still significant hurdles to cross.
“In Nigeria, we’ve seen some level of increased support from the Central Bank leadership for International Money Transfers Operators (IMTOs). These measures, to a reasonable extent, are aimed at increasing access to local currency liquidity for the timely settlement of diaspora remittances,” he said.
He added that Verto FX, a global B2B financial technology firm that enables businesses of all sizes to access enterprise-grade cross-border payments, has also been leveraging technology to address the inefficiencies and high costs associated with cross-border trades such as liquidity and interoperability challenges, and high transaction costs among others.
Backstory
Two weeks ago, Mercury, a U.S. bank that operates accounts for startups globally, notified Nigerian startup founders who have accounts with it of plans to close their accounts on August 22, 2024.
According to the Bank, Nigeria has been listed as one of the prohibited countries by its partners, hence, it would not be able to continue to operate an account for Nigerian startups and others from the prohibited countries.
The list of the prohibited countries published by the Bank on its website shows 37 countries mainly from Africa and the Middle East.
Aside from Nigeria, other African countries blacklisted by the Bank include Burundi, Cameroon, the Central Africa Republic, the Democratic Republic of Congo, Mali, Mozambique, Sudan, and Zimbabwe.
