Chronic system failures, network issues worsen Kuda Bank's fortune 
Odundeyi, Kuda Bank CEO

By AYOOLA OLAOLUWA 

The perennial network and system shutdowns being experienced by one of Nigeria’s challenger-banks, Kuda Bank, is posing a threat to the financial institution’s continued existence.

This is just as the bank continues to reel under the yoke of unrecovered loans,  huge operational expenses and financial losses as a result of its adoption of unconventional business models that have not translated to the much expected dividends by its now weary investors.

Kuda Bank had last week experienced a major technical glitch, which resulted in total shutdown of operations for several days.

As a result of the glitch, frustrated customers of the neo-bank could not make financial transactions as their accounts balance displayed zero throughout the period of the crisis.

While some customers saw zero when they checked their balance, majority of them could not log into their accounts.

Some of the bank’s customers, who spoke with Business Hallmark on the development, lamented that the network shutdowns are becoming too many.

According to them, they were stranded throughout the period the technical glitch lasted.

BH reliably gathered that non of the bank’s  5 million customers were able to transact any business, as all transactions, such as electronic transfers, airtime and data purchases, debit and credit card payments  and bill payments failed.

The customers informed BH that they were alarmed to see zero balance in their accounts for several days, a development that created panic and fear that the bank could have gone under.

Faced by a deluge of complaints from worried customers, the bank  apologized to those affected by the system collapse, assuring them that its engineers are working to fix the issue as soon as possible.

“We currently have a general service downtime affecting transfers, card payments, airtime and data purchases, and bill payments.

“While we work to fix this downtime quickly, you won’t be able to make transactions on the app or use your Kuda Visa card if you own one.

“We’re sorry for the inconvenience this  downtimes must have caused you. We’re doing our best to find a permanent solution soon”, the bank had assured in the message to one of its customers obtained by BH.

However, checks revealed at the weekend that while the bank had largely resolved the technical glitch, some customers are still not able to access their funds.

Last week’s system breakdown is the second one within the spate of one month. In February 2022, the bank suffered a major glitch, which rendered all  transactions on its app impossible for days.

Fearing the mass exodus of many customers negatively affected by the February glitch which ran into several days, the bank kept assuring them of the safety of their funds.

“We’re sorry that you still haven’t been able to use your Kuda app. We’re working with our cloud services provider to sort out the downtime, and we’ll let you know when it’s been fixed. Your money remains safe and you’ll be able to access it as soon as services are restored.

“We know that the ₦0.00 balance error reported by several people is worrying but we assure you that it’s just what the app is displaying because of the downtime, not the amount of money you actually have. We’ll keep sharing updates as we make progress,” the company had stated in a message in February to a customer who could not access his funds for several days.

While financial institutions, particularly Deposit Money Banks (DMBs) operating in the country have been having network issues, the case of Kuda Bank is said to be more worrying due to its perennial nature.

Some customers of the bank, who spoke to our correspondent on their experiences in the last one week, vowed to close their accounts in the bank and move their funds to more secure traditional banks as they are no longer sure of the health status of Kuda.

“I have been running accounts with four traditional banks now for more than 35 years and have never experienced the wiping of the funds in my accounts to zero.

“Apart from the usual downing of their networks for few hours and my inability to access funds, they (banks)  never informed me of having zero balances when in fact I had money in them.

“I don’t want a situation where what is currently happening (zero balance) will turn to reality. As soon as I gain access to my funds, I am going to move it to a more safer bank with physical presence everywhere”, declared Mrs. Bolaji Abidoye, a trader in Lagos.

Like all challenger-banks, Kuda Bank had been struggling in recent times, revealing deepening losses and getting hit with a multitude of complaints from customers about services.

What initially seemed like perfect actions and policy decisions by the bank’s management have now turned out to be their nemesis.

Kuda gained wide acceptance due to most of its offerings and incentives to customers, especially the zero charges on transactions, instant/unsecured loans.

However, in September 2022, Kuda, to the surprise of many, declared another loss of N6.1.billion ($14,214,681) in its 2021 financial statements.

The loss is about 602% rise from the N868 million ($2,025,295) declared in the 2020 financial year report.

According to the bank’s 2022 financial report obtained by BH, its revenue increased by 4,315% from N72 million in 2020 to N3 billion in 2021.

Despite revenue increasing by 4,315%, the bank closed the year at a net loss of N6.93 billion after all expenses had been deducted.

BH analysis of the report showed that several factors, including high credit loss (bad loans), as well as rising operating expenses were majorly responsible for the poor performance.

The bank’s almost zero fees on financial transactions, especially on transfers and debit cards, had proved to be a bad decision.

When the bank opened its doors for business in Nigeria in 2019, transfers on its app were free and it gives out its debit cards to customers without charging the normal quarterly maintenance fees.

As expected, the incentive propelled a massive rush for the bank’s free services. From a customer base of about 50,000 at inception, Kuda currently has over 5 million customers using its app.

According to data mined from the bank’s website, over 500 million transactions worth more than N50 billion had been made on the app.

The surge in the population of customers necessitated the need to employ more staff to cater to their needs.

However, this comes at a huge cost. According to the 2021 financial statement released by the bank, it’s personnel expenses increased by 500% from N215 million in 2020 to N1.3 billion in 2021 as a result of its ever increasing staff strength.

Apart from having a massive staff count on its payroll, the bank also faced depreciation and amortisation on equipments, such as offices, furniture, laptops and others.

Amortisation and depreciation expenses come to N64,326,473, a massive 246% jump from the N18,590,000 the bank expended in 2019.

In 2021, Kuda’s operating expenses (OPEX) catapulted from N936 million (652%) to N7 billion in 2022.

“The income of the firm does not justify this spending in the short time”, the bank stated in the report.

BH reliably gathered that the digital bank has a staff strength of 450 workforce, with more than 95 percent of them high net professionals earning above a million naira monthly.

“The bank’s workforce is heavy from bottom to the top. They have the best hands in the industry. These are top IT and management staff that earn above $5,000 a month.

“The least paid worker, I am not talking of drivers and office cleaners, but young IT whiz kids, earn above N1 million a month.

“Though the wage bill is killing them, the workers have to be well remunerated and made happy or they will be head-hunted by their competitors”, disclosed a source in the industry.

Just like high operating expenses is pushing Kuda into financial ruins, the bank is also battling with high Non Performing loans (NPLs) from the overdrafts it gave to ‘valued’ and ‘trusted” customers.

Kuda had launched its much sought after overdraft product in 2021, which it made available to over 2,500 of its most active users.

Subscriptions to the product (overdraft) had hit 50,000 weekly by the first week of June 2021.

By the end of June 2021, the bank had disbursed $20 million worth of un-collaterised loans to over 200,000 qualified users, with a repayment period of 30 days.

Kuda’s co-founder and Chief Executive Officer (CEO), Babs Ogundeyi, while speaking on the performance of the loans in June 2021, claimed the neo bank had seen minimal default because of its diligent approach in vetting applicants.

“We use all the data we have for a customer and allocate the overdraft proportion based on the customer’s activities, aiming for it not to be a burden,” Ogundeyi had proudly declared back in 2021.

However, fast-forwarded to January 2022, the loans, unfortunately, have largely failed to perform.

According to the bank, its NPLs as at December 31st 2021, stands at N2.3 billion, about 69% of its loan disbursements

The impairment, the bank further explained to equity holders in the financial statement, eroded 96% of the interest income made from the loans to customers.

The bank, unlike in its core banking services, seems to be faring better in non-banking services like airtime purchases and payments of utilities like energy, waste bills and cable TV subscriptions.

In an effort to shore up its earning in core banking businesses, the management of Kuda Bank in July 2022 implemented a N50 charge on transfers and deposits of N10,000 and above.

It attributed the resort to collecting fees to the directive from the Central Bank of Nigeria (CBN) which mandated it to do so.

Financial experts, however, see the sudden resort to charging fees as a face saving measure, as well as pressures from investors to start declaring profit.

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