One of Africa’s most valued startups, Flutterwave, notified its customers via email last Friday about the latest change with their virtual dollar card.
In summary, it stated that customers would no longer be able to use their virtual dollar card service, fund existing ones, or use them to make payments or purchases both online and in-person.
Later, other African fintech platforms like Eversend, Busha, GetEquity, and Payday sent out similar messages, each of which provided a different timeline between July 17 and 18.
Let’s look at why Flutterwave and other African startups are shutting down their virtual dollar card services
The fintech startups have indefinitely suspended their virtual dollar card. However, they have attributed the disruption in the service due to an update from a card partner, which is Union54.
Union54 is an Application Programming Interface (API) that offers the issue of debit cards without the assistance of a bank or third-party processor.
The platform issues cards to anyone, anywhere in Africa. This includes customers, staff members, or stakeholders.
Union54, the first fintech from Africa and a member of the Mastercard Principle, serves as an “issuing bank” for both physical and digital debit cards.
With its card-issuing solution, the business is vital to developing the African fintech sector.
However, the platform began to experience some operational issues in May. These factors resulted in a temporary suspension of its Bank Identification Number (BIN), which is the first four to six numbers on a payment card that helps to identify a card issuer.
More of the issues facing Union54
In a message to its clients, Union54 said that while it had fixed a number of these problems, others still persisted. And as the platform looked for alternatives, it became clear that there were,
“some fundamental blockers to Union54 operating a long-term, profitable card issuing product, mainly 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 have experienced,.” the company issued in statement.
According to some other sources, chargeback fraud has been Union54’s biggest problem since the launch of the company.
Cardholders would argue that they didn’t make any purchases and will succeed in filing a complaint, further disputing the transaction, and contacting the issuing bank, Union54, to request a chargeback.
Union54 will take the transaction amount out of the merchant’s account and give it back to the cardholder if it validates that the claim is legitimate.
However, further research by Union54 revealed that customers were increasingly seeking to scam retailers by demanding chargebacks after receiving their orders.
According to Union54, many cardholders also attempted to make purchases using empty cards.
Union54 is hoping for a swift resolution. The CEO, Perseus Mlambo, tweeted yesterday to inform clients that a compliance audit is under place and it shouldn’t take more than two weeks.
The fintech, however, stated in the memo that it would be working with its associates, retailers, and Mastercard to get its cards service back up within the coming 6 to 8 weeks.
According to several industry analysts, this incident necessitates more thorough Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance checks in the card-issuing sector because insufficient due diligence for cardholder chargeback claims may lead to more fraud.