There has been an attack on "life-saving" virtual dollar cards in Nigeria, as a prominent supplier has pulled the plug. What are the options for customers and fintech if they pull the plug? When Barter's virtual dollar card service went dark on July 15, 2022, it shocked the trading community.
In the wake of Barter by Flutterwave's virtual card service being withdrawn, numerous Nigerian fintech has followed suit. "Effective Sunday, July 17 2022, all our Virtual Dollar cards will be inaccessible for any transactions or purchases," Barter said in an email to customers. The card service will be unavailable for an extended time due to "an update from our card partner," according to the statement.
First thing I wondered when I saw the Barter announcement was, "Who is this card partner?". A firm like Flutterwave, which operates in Africa, would be expected to interact with Mastercard on a direct basis instead of through a card-issuing corporation.
Until recently, Flutterwave was a Visa-issuing company. Barter's virtual Visa dollar cards were not trustworthy enough, according to startups that had previously used them. Because of this, Union54 was chosen. Even Flutterwave has teamed up with Union54 to "partner" (as in usage) (for Barter).
Union54: who are they, and what do they stand for? Union54 is revolutionizing the distribution of virtual dollar cards across the continent as a Zambian business.
Union54 is named after the 54 countries that make up the African continent
Perseus Mlambo and Alessandra Martini, a husband and wife team in the business, established Union54 in 2021. Since the beginning of Zazu Africa in 2015, Perseus and his wife have been developing digital banking services. Customers of Zazu's debit cards can spend their money wherever they like since Zazu is a neobank. Perseus informed TechCrunch's Tage that sponsor bank delays in distributing the cards meant the system could not function.
They went straight to Mastercard as a workaround. As Mastercard Principle members, they may issue and acquire card transactions. They achieved their goal. What started Union54 was Zazu's decision to open its issuance platform to other African fintech.
Perseus and Alessandra's work is vital for the African continent as a whole, but especially for Nigeria, where foreign trade is restricted. However, they face similar challenges in their native Zambia, where only 10% of the adult population possesses a debit card. As a result, they are cut off from taking part in the global economy on an equal footing.
Union54 secured a $15.1 million Seed round in less than a year from investors worldwide, including Tiger Global and the founder of Kuda Bank, Babs Ogundeyi. In addition, they are the first Zambian startup to get accepted into Y Combinator, the world's most prestigious startup incubator.
Fintechs don't have to worry about the card industry's intricacies when using Union54's APIs to create debit cards. A bank sponsorship is necessary to function with a specific card system, and Union54 handles it for you (Mastercard, in this case). They also help with the processing and settlement of transactions.
According to Union54, the number of organizations using their API sandbox environment has reached more than 50 since October 20, 2021. Flutterwave, PayDay, Plumter, and Bitmama were all operational. Existing businesses and new ones "formed based on Union54's availability" are among Union54's many satisfied clients, as Perseus brags emphatically. He's on the right track, and I'm not. Union54-based startups, as described by Perseus, are those that offer a single debit card for use across several bank accounts.
Union54's clientele is expected to have more than doubled in the previous six months, according to our estimates. Since the product's novelty and timeliness make it an excellent fit for prevailing consumer demand, we feel that organic marketing (earned media) and word-of-mouth referrals are to blame for this rise.
Only one firm in Africa would provide you (fintech) the interchange on income, according to Union54. In this situation, Union54 would be charged an interchange fee because it is an issuer and processor. According to TechCrunch's reporting, customers of Union54 (the fintech that on-issue cards through them) are said to receive 1 per cent of each card transaction.
Union54 has also invested in several African infrastructures and cross-border payment firms. Tens of Nigerian fintech have claimed that their virtual dollar cards are currently unavailable because of Union54's shutdown.
Communication to its Partners from Union54 regarding the outage of its virtual cards
Despite our best efforts, credit cards will no longer be accepted on July 18. We have a lot of improvements and work streams that may take us up to six weeks to implement before we can return to serving our customers. '
Remember that you may defund cards and process float money via the Union54 website: https://docs.union54.technology/docs/float-refunds.html
. Please defund all cards by July 17, 2022, so we can transfer any remaining float monies to your bank account on July 20.
To our disappointment, it was impossible to avoid this break. Accept our apologies for any inconvenience this has caused your company, and know that a better product is on its way.
To be clear, new cards will no longer be issued or transactions processed after July 18. For the duration of this suspension, all issued cards will not be usable.
How long will Union54 be offline, and why?
Even the founders of the firms that use Union54 don't know the specific source of the outage. The creators of some of the firms who have publicly announced their virtual dollar card outages have spoken directly to me in three founder-focused sessions.
Union54's card-issuing service is expected to be unavailable for six to 10 weeks. "We'll be back up in six weeks," one of the impacted founders assured me via private message. At least seven weeks, according to another co-founder. Due to the possibility of unexpected events, I've extended the deadline by three weeks.
Union54's founders have told me that the company is trying to solve Mastercard's problem. However, the founders are ignorant of the specifics of these problems.
What do you think the problem is? Could this be a recurrence of the Visa troubles that Flutterwave ran into a few years ago?
The high rate of chargebacks and fraud many acquiring parties in the Card value chain have to deal with is a serious concern. When consumers feel cheated out of anything, they file a chargeback claim with their credit card company. Someone not authorized to use a Card to authenticate a transaction is committing fraud. When clients try to get returns even when they received value, they engage in chargeback fraud. As a result, they contact the credit card company or bank to begin the chargeback procedure.
There are rigorous deadlines for resolving chargebacks. Otherwise, the consumer will receive their money back, "System accept." Card schemes do not tolerate high quantities of chargebacks through an acquirer. Because of this, several acquirers are ready to suspend merchants on their platform until their processes are streamlined.
A frequent red signal for Union54's card scheme, Mastercard, is that end users of the company's supplied cards may also be utilizing them to commit fraud through other payment gateways. To improve chargeback, reconciliation, and settlement procedures, Union54 may be taking a break.
It's possible that Mastercard may not be satisfied with Union54's commercialization of its card-issuing product. Here are two things to remember: Digital-first players had previously been denied Mastercard's direct licensing because they could not afford Mastercard's quarterly fees (which are in dollars). To make card issuance and transaction settlement easier, banks serve as both sponsors of BINs and settlement partners. With their offering, Union54 becomes a non-bank issuer backed by a bank.
It's challenging to operate in the card industry, and more and more people are looking for methods to spend their money worldwide. Customers can do three things while they wait:
- Local banks should be contacted about opening international domiciliary accounts.
- Keep an eye out for consumer-facing fintech that provides virtual dollar cards as an alternative. Some virtual currency card options are available, including Sudo Africa, Bitmama, Mono, and Changera.
- Seek options that let you spend more than the $20 overseas spending limit on naira credit cards. To my surprise, my money naira card spending limit was increased to $100. So, perhaps give them a go.
If you've just announced that companies like Barter and GetEquity are shutting down your virtual dollar card service, you'll have to search elsewhere for an alternative. There doesn't appear to be any on the market at the moment. In the end, we may all be checking back in two months.
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