The consumer app of Africa's most valued startup, Barter, told customers via email that they would not be able to access its virtual dollar card service from July 17. Customers wouldn't be able to create new virtual dollar cards, fund existing ones, or make online and in-store payments with them.
The same messages were sent by other African fintechs between July 17 and 18. The virtual dollar card service disruption was attributed to an update from a card partner, Union54.
When we wrote about Union54 in April, it had just raised a seed extension, bringing its total seed round to fifteen million dollars. There are other coverages here as well.
Union54 acts as an "issuing bank" and can provide debit cards as a result of being a Mastercard Principle member. The startup is an essential part of the growth of the African fintech space. The first four to six numbers on a payment card that identifies a card issuer were temporarily suspended by Union54 due to operational issues.
In a memo sent to its clients in May, Union54 said it had resolved several of the issues, but some remained. Due to our partner's commercial inflexibility and inability to move quickly to implement technical solutions that are required to solve the operational issues we, there were some fundamental blockers to Union54 operating a long-term, profitable card issuing product.
The main issue since its launch was chargeback fraud, according to sources. In this case, the issuing bank is Union54 and the cardholders claim that they did not initiate purchases before proceeding to dispute a transaction. The transaction amount will be removed from the merchant's account if Union54 feels the claim is valid.
Union54 sent a follow-up memo to its clients that confirmed what sources had said about these chargebacks. There has been a consistent increase in fraud cases since we launched. During one of our conversations with Mastercard, they said that they had never seen such a lot of card fraud from this region.
After further investigation, Union54 found that card issuers were trying to cheat merchants by requesting chargebacks after their orders had been fulfilled. Union54 said that many people tried to use empty cards. Union54 didn't state that the cards could be used by fraudsters to perform transactions without the knowledge of the original card holders.
Merchants who are hit with chargeback fees can ask the issuing bank to reverse the fee. International merchants such as Facebook, AliExpress, and AliExpress reported Union54's BIN to Mastercard, which resulted in its number being suspended.
Union54 stopped authorizing card payments on June 16 and ceased operations on June 30. To allow for the defunding of cards and refunds of remaining float deposits, as well as for our clients to access any user, card or transaction data required for your ongoing operations, the two week period was set. The first memo said that Union54's application programming interface would be unavailable from July 1. Mastercard gave Union54 an ultimatum to improve its processes after it pushed the shutdown to July 18.
The company was not able to redeem the situation despite the extension. The memo states that Union54's efforts weren't deemed enough by Mastercard as clients' virtual dollar cards failed more frequently.
Union54 wants a resolution soon. Mlambo said the audit shouldn't take more than a couple of weeks. The memo stated that the company would be working with its partners, merchants and Mastercard to get its cards service back up.
There was a follow-up memo.
For a relatively new market innovation like ours, we are aware that we will be prone to challenges such as this periodically. We want you to know that we did everything possible up to the last minute to avoid this, but unfortunately, it was impossible to remedy on the go. Please accept our sincerest apologies for the impact on your business and rest assured that the card service will be back, better and stronger. The USDC Wallets Infrastructure and International USD Wire Service to 79 countries is still fully functional. In the next few days, we will be adding endpoints for Local Currency Payouts to 25 countries to huge trade corridors across Asia (China), Europe and Africa as well.
According to some industry analysts, the event calls for better KYC/AML compliance checks in the card issuing space.
The news didn't shock those playing in compliance because of the fraudulent activities in the space A region with a lot of fraudulent activities might be raised by a card scheme. Lanre Ogungbe, co-founder of Identitypass, a Nigerian digital compliance and security company that delivers seamless identity verification solutions to African businesses, said that providers will probably want to withdraw from the markets in that situation.
Kyc is not the A-Z of security checks, but it does backtrack and trace fraudulent transactions. The compliance and security side of things seem to be placed more emphasis on the aesthetic side of things. Within the past few weeks, there have been fraud allegations against executives and companies in the region.
Virtual dollar debit cards have proved to be a lifesaver for many Africans and replaced local alternatives from banks with transaction limits. They are able to make international online transactions with these cards. Customers who have had to rely on these virtual cards built on Union54's back end expressed their displeasure on social media. Many have begun searching for alternative options, which include Sudo Africa, another card issuing platform and other Fintechs which claim to be unaffected by Union54's downtime.
Zambian card-issuing startup Union54 raises $12M led by Tiger Global
Nigeria’s Sudo Africa raises $3.7M pre-seed for its card-issuing API platform
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