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US fintech expands to offer UAE startups bank accounts

New business owners in the UAE are turning to online-only banks as they say it is too hard to open an account with a traditional lender Reuters/Satish Kumar
The bank's profit increase was driven by higher margins and a lower cost of risk on significant recoveries
  • Mercury supports startups in UAE as well as US
  • Collapse of Silicon Valley Bank is opportunity for neobanks
  • Truly Financial saw 20% increase in customers since SVB fall

A US fintech is accepting applications to open bank accounts from venture capitalists and tech startups with entities formed in the UAE, a move local industry experts say will be a “wake-up call” to the Gulf’s banking sector.

Online-only banks – known as neobanks – have been cashing in on the collapse of Silicon Valley Bank (SVB), which has long been the lender of choice for tech startups and venture capitalists around the world.

SVB was popular with investors and founders in the UAE because the Gulf’s conventional banks are averse to doing business with higher risk borrowers with little in the way of collateral or a demonstrable track record.

A 2022 study by identity verification platform IDnow Middle East found that nine out of 10 UAE respondents think it takes too long to open a local bank account.

Some 86 percent of UAE non-bank account holders said they had started an application but gave up as the process was too cumbersome.

Mercury, founded in San Francisco in 2017, helps startups access banking services through its fellow US partner banks, Choice Financial Group and Evolve Bank & Trust.

A Mercury spokesperson told AGBI that it has heard from many venture capitalists over the years who said they needed a bank account that allows their fund to operate in other markets.

“We introduced new entities including the UAE, British Virgin Islands and Cayman Islands because we know these jurisdictions are important to VC investors worldwide,” the spokesperson said.

Before this, Mercury only supported startups and VCs with entities formed in the US.

“If companies start opening accounts outside the country, this will be a wake-up call for banks in the UAE,” said Prashant Gulati, a Dubai-based angel investor.

“I think this will push our banks to start thinking more empathetically. Let this become competition, let our banks fight for this business.”

Lucy Chow, general partner at WBAF Angel Investment Fund in Dubai, said that Mercury’s plan to target emerging funds – those that have less than $100 million – is a smart one. 

“These are the funds that need banking options,” she said. 

“It’s difficult not only for startups but funds to determine who to bank with in the region.

“It’s not uncommon for LPs [limited partners] to be from a myriad of countries and each with their own tax liabilities to consider.

“Working with a neobank is a logical solution. We have done the same with the WBAF Angel Investment Fund, where investors span the globe.”

Chow added that although there are challenger banks already in the UAE, they are primarily focused on individuals. 

“As the VC ecosystem expands and more funds look to establish a base in the region, it would make sense for local banks to think about targeting emerging VCs,” she said. 

Hussain Al Alawi, founder and managing director at Noorwood Group in Bahrain, the Middle East partner of US-based Goanna Capital, said the region’s banks need to take Mercury’s expansion seriously.

“You will notice that not only Mercury but a lot of banks will follow suit,” he said. “They would want to come to the region because this is where the liquidity is.”

Mercury added more than $2 billion in deposits and thousands of customers to the 100,000 accounts it had in just six days after the run on SVB.

Earlier this month AGBI reported that Truly Financial, a US digital-only bank for small businesses and startups backed by UAE-based investors, saw a 20 percent increase in new customer accounts and 40 percent increase in deposits from frantic SVB customers.

Before its failure SVB was the 16th largest US bank with assets of $209 billion at the end of 2022.

Its demise was the second-biggest bank failure in US history – after the collapse of Washington Mutual Bank – and the biggest since the 2008 financial crisis.

Neobanks or challenger banks, typically have little in the way of a branch network but are regulated to the same standards as their conventional peers.