African fintechs have been caught in a difficult situation, needing to shut down their virtual card service. Flutterwave, the most valuable African fintech, was called out for gross misconduct.

Earlier in July 2021, a Kenyan court froze the accounts of Flutterwave, Boxtrip, Bagtrip, Elivalat, Adguru, Hupesi, Cruz, and one Simon Ngige over allegations of money laundering and fraud. Moreover, a report from the US Department of Justice shows that Ping Express admitted to transmitting more than USD 167 million overseas, including USD 160 million transmitted to Nigeria, without seeking sufficient details about the sources or purposes of the funds involved in the transactions, or the customers initiating the transmissions. The company now faces five years of probation and a fine of up to USD 500,000.

The present – suspending virtual card services Now, a group of African fintechs including Flutterwave, Eversend, Busha, GetEquity, and Payday are suspending their virtual card services due to a policy update from their card partner – Union54. Union54 said the policy update was necessary mainly due to the commercial inflexibility and inability to move quickly to implement technical solutions that are required to solve the operational issues that are experienced. Flutterwave, for example, told customers via email that they would not be able to access its virtual dollar card service from July 17.

Hence, customers would be unable to create new virtual dollar cards, fund existing ones or make online and in-store payments and purchases with them. Subsequently, other African fintechs such as Eversend, Busha, GetEquity and Payday sent identical messages giving various timelines between July 17 and 18. In the past couple of years, virtual dollar debit cards provided by fintechs have proved a lifeline to many Africans and replaced local alternatives from banks whose cards have transaction limits.

With these virtual cards, customers (individuals and businesses) can make international online transactions on platforms such as Alibaba, Google, Amazon, Netflix, and Spotify. What is Union54? Union54 acts as an ‘issuing bank’ and can provide debit cards (physical and virtual). The startup plays an essential role in the growth of the African fintech space with its card issuing product.

In May 2022, Union54’s Bank Identification Number (BIN), the first four to six numbers on a payment card, was temporary suspended because of some operational issues. According to TechCrunch, the main issue Union54 had been experiencing since its launch was chargeback fraud. Here, cardholders claim to have not initiated purchases before proceeding to dispute a transaction, placing a complaint, and contacting the issuing bank for a chargeback.

 Union54 discovered that cardholders were increasingly attempting to defraud merchants by requesting chargebacks after their orders had been fulfilled. Many cardholders also tried to make purchases with empty cards, according to Union54. At first, Union54 decided to stop authorising card payments on June 16 and cease operations by June 30.

In the first memo, Union54 said its API would no longer be available from July 1. However, the fintech pushed the shutdown to July 18 as Mastercard, which requires merchants to maintain a chargeback rate of less than 1.5% of transactions, gave Union54, which also doubles as an acquirer, an ultimatum to improve its processes.