As you would recall, we reported a couple of days ago some African Fintech startups including Flutterwave, Busha suspended virtual card services due to suspension of services by a card partner.
As reported also, we also stated that our preliminary investigation stated that the card partner was Union54 and we were awaiting official confirmation.
Well Union54 CEO, Perseus Mlambo has finally admitted from his Twitter page that they were indeed the card partner the fintechs were referring to. He however stated that its services were suspended based on Mastercard’s request.
He said that the pause on the service was part of necessary compliance audit and that it would resume operations after the audit was completed in about 2 weeks. He stated that the reason for the audit was that the company had moved from zero users to be the largest Mastercard issuer in Africa.
Union54, who recently raised $3 million in seed funding claimed last year that it had over 50 companies in its sandbox environment and was expecting 30 more companies to join before the end of last year. Some of the fintechs like Flutterwave, PayDay, Bitmama were live on its platform.
Founded in 2020 by Perseus Mlambo and Alessandra Martini, Union54 provides an API for any company to issue virtual and physical cards without a bank partner or processor or credit card processor. It provides BIN sponsorship, transaction processing, and settlement.
When the Zambian company launched last year, it was principally the go-to provider for Virtual card services. Most fintechs flocked to the provider as they were able to issue debit cards without worrying about all the complexities of the card business.
Unfortunately it would seem that the increase in the number of transactions came with an increase in chargebacks. A chargeback is a transaction reversal made to dispute a card transaction and secure a refund for the purchase.
So Union54 had been battling with the increase in chargeback fraud as many of these chargeback claims were false.
A memo allegedly sent by Union54 from Techcrunch said “Ever since we launched, there’s been a consistent increase in fraud cases emanating from our Bank Issuing Number (BIN),” the memo read. “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.”
Techcrunch reports that “Upon further investigation, 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, said Union54. Another plausible scenario, which Union54 didn’t state, could be the use of the cards by fraudsters to perform transactions without the knowledge of the original cardholders.”
“Merchants—who bear the brunt of chargeback fees that potentially affect their bottom line—can contest cardholders’ claims and ask the issuing bank to reverse the chargeback. And that’s what international merchants such as Facebook, Google and AliExpress did; in addition, they reported Union54’s BIN to Mastercard, which resulted in its number’s suspension.”
It would seem that the chargeback was way higher than Mastercard’s limit of 1.5% of transactions.
It would seem that Union54 could not keep to this limit and Mastercard had to suspend it services to Union54.
