When a Caribbean tech entrepreneur’s e-commerce business collapses, he blames his bank. But is the bank truly at fault, or does this story expose a deeper, more systemic problem? Dive into the painful reality of securing online merchant accounts in the Caribbean and the fine line between regulation and destruction for digital businesses in our latest article.
Starting a business is never easy, and for digital businesses based in the Caribbean region, there is often the challenge of how online payments will be managed. Although Caribbean shoppers can easily purchase goods and services online from platforms based outside the region, securing online merchant facilities is still problematic at best, especially for micro, small and medium enterprises that primarily want to operate online.
The dream of a thriving Caribbean e-commerce ecosystem has been hampered by a seemingly insurmountable obstacle: securing online merchant accounts. The process is often a labyrinth of bureaucracy, high fees, and stringent, sometimes illogical, requirements from banks. Many entrepreneurs have resorted to using personal accounts for business transactions, a move that, while risky, often seems like the only viable option. This is a common and dangerous grey area that highlights the lack of tailored financial solutions for the region’s burgeoning digital economy.
However, with the development of digital money and financial technology in the region, it would be easy to assume that the longstanding online merchant account difficulties were no longer as pronounced. The business community was not complaining as they had in the past, and perhaps to remain relevant and competitive, local banks may have found ways to streamline their processes and make such services more accessible. However, these assumptions came crashing down following a recent story of a Jamaican tech entrepreneur and his devastating business collapse, allegedly at the hands of a major financial institution.
Alleged business collapse at the hands of the bank
The entrepreneur, who was running a successful Shopify store, claimed his business was brought to its knees after the bank, JMMB, froze his accounts and withheld a significant sum of money. Initially, the entrepreneur used a personal bank account to conduct business, which the bank flagged, resulting in a business account being established, only to have funds subsequently withheld.
As expected, the bank has rejected the claims made and has maintained that its actions were consistent with its regulatory responsibilities. The matter is currently before the courts in Jamaica, and the central bank, the Bank of Jamaica, has gotten involved. The claimant is seeking a judgment against the bank, the withheld funds to be released, as well as a substantial award in damages.
Facilitator of commerce or law enforcement?
In the court of public opinion, JMMB is seen to be at fault, and it is hoped the tech entrepreneur wins the case. However, key to JMMB’s defence appears to be its adherence to its responsibilities as a regulated financial institution. To a considerable degree, and for this discourse, the Anti-Money Laundering (AML) and Know Your Customer (KYC) provisions would be the core pillars of financial crime prevention. AML refers to the legal frameworks and procedures designed to combat the movement of illegally obtained funds. KYC is a crucial component of AML, requiring financial institutions to verify the identity of their clients and assess their risk.
For digital businesses, this means banks must perform extensive due diligence, which can be especially difficult for businesses that operate entirely online, as they may lack traditional physical documentation or a clear transaction history. Banks are legally obligated to understand the nature of the business and the source of its funds. If a digital business’s transactions are deemed high-risk or unusual, the bank is compelled to take action, which can include freezing accounts or requesting extensive documentation. Such actions are often the point of friction for entrepreneurs, as the process can be slow and opaque and can ultimately result in a business being shut down, as occurred in the abovementioned case.
Having said this, and although it might not have been intended, Caribbean banks can make or break a digital business. Though they might be legally obligated to understand the nature of the digital business and its source funds, the effort to do so is not prescribed. Hence, if, upon a cursory review, a banking officer does not understand, especially if they are only familiar with traditional business models, a digital business’s transactions could be considered high risk, with the business owner having limited recourse.
We may thus be forced to question a bank’s role. Is it to act as law enforcement or to facilitate commerce? When a bank’s actions lead to the complete collapse of a legitimate business, the loss of a consumer’s trust, and reputational damage to the customer, it could be argued that it has strayed far beyond its mandate of fraud prevention. It is hoped that the court case in Jamaica will provide a clear position on this matter.
This closure of a digital business is a cautionary tale for every aspiring Caribbean entrepreneur. It highlights the urgent need for financial institutions to modernise their approach to digital commerce and for a more transparent and fair system for resolving disputes. Until then, the risk of having a thriving digital business brought down by a single, and seemingly arbitrary action, remains a terrifying reality in the Caribbean region, and is at odds with the digital sophistication to which we aspire.
Image credit: Qubes Pictures (Pixabay)
