Over the last weekend, a number of African companies said their users would no longer be able to use virtual dollar debit cards for international online transactions like paying for streaming subscriptions or buying on Amazon. Flutterwave and Klasha, a Nigerian company that recently received investment from American Express, were among the companies to suspend the card feature.
One thread binding some of the affected companies (and users) is that the disabled virtual cards are provided by Mastercard through Union54, a Zambian fintech company. Though barely two years old, Union54 is an official Mastercard issuer in Africa and has risen sharply to become a key partner for the continent’s fintech startups. In April, it increased the seed money it has raised from $3 million to $15 million thanks to Tiger Global, the US firm, ostensibly signaling strong validation for the value it is creating.
But Union54’s relationship with Mastercard and its supposed value to the continent’s digital financial services ecosystem is facing its first major test, one that appears to be linked with a surge in fraudulent transactions on the cards it powers.
Reports that fraud, in form of frivolous chargeback requests, may have prompted the virtual card suspensions have been drawn from supposed internal memos in which Union54 complained that “there’s been a consistent increase in fraud cases emanating from our Bank Issuing Number (BIN)” – the first four to six digits on a typical electronic payments card.
“During one of our conversations with Mastercard, they declared that never in their history has there been such frequent instances or cases of card fraud from this region,” a Union54 memo said, according to Techcrunch.
Perseus Mlambo, CEO of Union54, said in a tweet on July 18 that the service suspension was because of an ongoing audit of the company’s system for compliance. Mastercard requested the audit, according to Mlambo. Mlambo, and Mastercard did not respond to requests for comment.
Mlambo’s explanation has not convinced some observers. “No need to shut down operations to do such an audit,” Andrew Alli, a veteran investor in and board member of various African companies, observed on Twitter.
On their part, the affected fintech startups did not give much of an explanation for why they have suspended Mastercard virtual card services, and did not mention an association with Union54. At least one other fintech startup, Sudo, also helps companies issue Mastercard virtual cards.
Flutterwave, whose virtual cards were accessible through a consumer app called Barter, told users the suspension is “due to an update from our card partner” and that the service will be unavailable for “an extended period.” Klasha said in an email to users that the “termination will also enable us to migrate our card services to Visa,” a move that supposedly will bring users “more perks.”
Virtual cards became popular in Nigeria because of the central bank’s increasingly restrictive limits on foreign exchange transactions with naira debit cards. With no specific timeline for when Flutterwave and others will bring back the service, a number of people will find themselves unable to complete international payments, a setback for cross-border commerce and financial inclusion.