Founders across Eastern Europe are raising alarms following digital banking startup Mercury’s decision to stop serving customers in certain countries, including Croatia and Ukraine. The move has sparked significant concern among startups who relied on Mercury for its banking solutions, as they now grapple with finding alternative services amidst an already challenging economic landscape.
Mercury justified its decision to include Ukraine in its list of banned countries by stating that supporting the country has become “too complex” due to current U.S. sanctions programs.
Although Ukraine is not comprehensively sanctioned, several regions within the country are under sanctions. Mercury previously used a region-based model to support as many Ukrainian customers as possible, but maintaining this approach while adhering to their strict compliance standards has become increasingly challenging. The company promised to revisit the policy in the future.
Earlier this year, Mercury made headlines when it became embroiled in federal scrutiny through one of its partners, Choice Bank. The Federal Deposit Insurance Corporation (FDIC) expressed concerns over Choice Bank’s practices, highlighting the risks associated with allowing foreign companies to open accounts. According to reports, the FDIC was particularly alarmed by the bank’s decision to let overseas Mercury customers “open thousands of accounts using questionable methods to prove they had a presence in the U.S.”
In response to this scrutiny and as part of its ongoing commitment to compliance, Mercury announced updates to its eligibility requirements. A spokesperson for the company told TechCrunch on Monday that Mercury had notified certain customers about their inability to continue support due to discrepancies in provided addresses or the locations where frequent account activity was recorded.
Croatia on the FATF “gray list”
Compounding Mercury’s regulatory challenges, the Financial Action Task Force (FATF) recently added Croatia to its “gray list” of countries under special scrutiny. This list includes nations like the United Arab Emirates, Panama, and Mali, signaling concerns over deficiencies in preventing money laundering and terrorism financing.
The FATF’s decision marks Croatia as the only EU member state on the list, citing inadequacies in its financial regulations, particularly in areas like the misuse of legal entities and cash transactions in the real estate sector. T. Raja Kumar, FATF’s chairman, emphasized Croatia’s commitment to an action plan aimed at improving compliance and urged swift implementation.
Frustration and concerns among founders
The announcement by Mercury has drawn strong reactions from the startup community, particularly from founders in Croatia and Ukraine who now face significant hurdles in maintaining their operations.
In a LinkedIn post, Albert Gajsak, CEO of edtech startup CircuitMess, humorously attributed the issue to regional stereotypes while highlighting the serious implications for businesses.
“Founders beware, Mercury just started closing bank accounts for US companies with non-US founders (I’ve had this as our main account for 4 years). They figured out we’re all Slavic mobsters in Croatia and other Eastern European EU member countries (about time!). It’s probably because of our accents and Adidas shirts,” Gajsak wrote.
As to what are the alternatives now, he says the company is moving its money to platforms such as Brex and TransferWise.
The whole situation isn’t helping founders in the long run though. “It surely won’t help the founders who are already in a challenging economic environment this year,” Gajsak told IT Logs.
Another obstacle for Ukrainian entrepreneurs
Arthur Fedorenko, founder and CEO at Wiseboard, lamented Mercury’s decision, particularly its impact on Ukrainian entrepreneurs, describing it as “unexpected and unpleasant news for all Ukrainians who try to keep operating and growing their businesses no matter the existing circumstances”.
“It’s particularly disheartening to see Ukraine unjustly placed alongside the main aggressor russia, and other countries like Iran and Syria. Another thing is that male Ukrainian founders are unable to travel abroad to resolve such issues in person, making Mercury a crucial resource that has now been taken away,” Fedorenko tells IT Logs.
The short notice is also especially critical for companies that need to stop their operations and urgently seek alternatives, Fedorenko points out.
“In the meantime I am very grateful that there are such businesses like Brex stepping up to support us right away. Many founders I know have already scheduled calls with representatives to explore their alternatives. Despite this setback, Ukrainians will remain resilient and continue to demonstrate our worthiness as part of the global ecosystem. We will find ways to thrive and contribute, no matter the obstacles,” he says.
Turbulences left and right
For Vedran Cindric, CEO of observability and analytics platform Treblle, the past few years have been turbulent when it comes to similar developments with financial companies and institutions. Last year’s scandal with the Silicon Valley Bank (SVB) is still fresh for Vedran.
“Last year when the whole SVB situation happened we had all our money in SVB. We managed to get it all out and move it to Mercury within days. They had $5M FDIC insured and the whole process was super fast – from approval to getting money on board. We’ve been a happy customer ever since then. They make payments easier, I like the UI, their physical IO, credit cards are really baller and we’ve never actually had problems. Here and there they would ask a couple of questions but that’s it. The news about this hit yesterday and it’s never easy hearing things like that at 11PM Croatian time,” Cindric explains.
As he points out, the main problem for Treblle is the deadline and how all of this has been handled.
“My main problem here was the deadline. Given that we use a lot of different services that require credit card subscriptions that are vital to our business, changes like this will take some time especially during summer when, as you know, Europe isn’t the fastest. But none of these are Mercury problems. We sat down and already made accounts on Brex, Revolut and we had one on Wise. We are working on a real bank account as well but that will take some time. So to mitigate risk the idea is this time to split the money into 2-3 places in case something like this happens again,” he says.
On the other hand, Mercury’s reasons have also been clearly stated, and the fact that Croatia had been placed on the FATF gray list just last month makes the case for such a decision.
“As to why – I’m not a banking and securities expert but many people pointed out articles saying that Croatia allows large purchases like real-estate to be done in cash which triggers lists like this. This is the reality and not Mercury’s fault. You can come to Croatia and buy a villa on the seaside in cash or other non traceable ways. That’s just a fact, especially if the person selling the villa pays the tax. Then you get the government’s blessing that basically you paid the tax you’re good to go,” Cindric notes.
Additionally, there is also a lesson to be learned here for startups as he says, and it is the notion that the whole premise of startups is to be fast – which makes this just another example of how you need to adapt.
“As far as politics goes, I don’t care who’s in charge, which party, who the PM is, who rules the Croatian National Bank but things like this shouldn’t happen because they make it 10x more complicated to do business from Croatia. Like, without Mercury we would be stuck in 1990’s style banking with Croatian banks – at least having a company in the US allowed access to services like this. Not being able to do this makes things radically more complicated for future rounds and obviously the only possible and 100% safe solution long term is to have an address that isn’t just in Croatia,” Cindric concludes.
