Kuda Bank
Odundeyi, Kuda Bank CEO

OBINNA EZUGWU

At 40, Mr. Adol Omeke is not strictly a youth, but he might argue his case in a country where 50-year-olds have been elected as youth leaders. A crypto savvy middle aged man whose trade entails making several financial transactions in a day, Adol became curious when he discovered that most of his business ‘partners’ used Kuda Bank for their transactions.

He decided to give the bank a trial, he said; today, he is an evangelist for the digital only financial institution which is becoming increasingly popular with the youth population.

“With Kuda,” he noted, “I found out that I could do up-to 20 transactions in a day without being charged, unlike the conventional banks that charge for every transaction. That is it for me, and their service is seamless.”

Kuda Bank is a more recent entrant into Nigeria’s bustling financial technology space, and is fast carving a niche for itself, as the platform of choice for the country’s tech savvy millennial and Generation Z. Norwegian (Chinese majority stake) firm, Opay set the pace with its entrant in 2018, making huge inroad into the banking space.

Today, it has about 5 million users, including over 300,000 agents across the country, and grossed $2 billion in transactions last year. Kuda which obtained its own operating licence as a Micro-finance Bank in late 2019 is hot on the heels of becoming the largest fintech, even as it chose to restrict its operations to only digital.

Nigeria’s tech space has continued to witness tremendous growth, particularly in the fintech category. In March, payments platform, Flutterwave, announced a new collaboration with global payment leader PayPal, to enable PayPal customers globally to pay African merchants in the continent through Flutterwave’s platform.

Earlier in February, it had disclosed in a statement that it secured $170 million in capital injections from investors, valuing the company over $1 billion. Around the same time the Flutterwave dream was hatched in 2016, two young Nigerians, Shola Akinlade and Ezra Olubi started out on a project that would grab global headlines four years later.

Both founded Paystack, a fintech that makes it easy for organisations of all sizes to collect payments from around the world. Last year, a U.S based financial services and software service company, Stripe reached an agreement to buy it over in a deal worth over $200 million.
At the time, Paystack had around 60,000 customers, including small businesses, larger corporates, fintech; educational institutions and online betting companies, some of which include telecoms giant, MTN; Domino’s Pizza; insurer, Axa Mansard, betting platform, Bet9ja among others.

The Paystack deal helped to announce Nigeria’s status as one of Africa’s biggest fintech destinations for Venture Capital money. Of all VC funding raised by African tech start-ups in 2019 totaling $2bn, Nigeria attracted a record high of $747m in tech investment, some 37% of all funding, according to U.S-based Partech, a global investment platform for tech and digital companies.

The Paystack deal had come a year after Visa paid $200 million for a 20% stake in Interswitch, another Nigerian digital payment platform founded in 2002 by Mitchell Elegbe. Interswitch confirmed, after the deal, that it had reached unicorn status – a valuation of $1bn or higher – after the Visa acquisition.

Like Adol, many young Nigerians, weary of conventional bank charges, and not willing to spend a whole day queuing up in banks amid Covid-19 restrictions, are finding leeway in banking services fintechs such as Kuda, which without the burden of huge overheads are able to render banking services at little or no charges, and as a consequence, their fortunes are growing fast.

Opening an account in a typical brick and mortar bank, entails visiting a branch to fill in long forms and supply necessary papers, but with Kuda, as well as other similar digital banking platforms, it is as simple as going to Apple Store or Google Play Store to download an application and sign up with Bank Verification Number and any other information as may be required.

In March, Kuda raised $25 million in Series A round led by Valar Ventures, the firm co-founded and backed by PayPal co-founder Peter Thiel. The Series A had followed its $10million raise in November 2020, a feat cheered for being the largest seed round by an African startup.

Earlier in 2019, it got $1.6million pre-seed funding, with which it kick-started operations. It’s growth within three-year period, has been exponential, and for its co-founder and CEO, Babs Ogundeyi, the ambition is spread wings across the continent, perhaps even beyond.

“We are very ambitious,” he said. “We are planning to get into different regions as well. The world is becoming increasingly smaller in terms of the way we interact. And the beauty of having digital offering is that we are able to just move into different regions and have operations in different countries a lot easier than it would be for the traditional brick and mortar.

“It’s a lot of expansion; it’s a lot of improving on existing products to become a big financial institution.”

In two years, the bank has raised $36.6 million in total. And between November 2020 and March 2021, it has grown its customer base from 300,000 to 650,000. In March, Ryan Laubscher, Kuda’s Chief Operating Officer, told TechCabal that the bank processed $2.2 billion in transactions in February 2021 alone, a massive rise from $5.2 million processed in February 2020.

The bank’s success is attracting interest. There are emerging rumours of some entities attempting a hostile takeover. Kuda, was, however yet to respond to BusinessHallmark inquiry in this regard at the of writing.
The successes of fintechs in the banking space had prompted debates about the amount of threats they pose to conventional banks.

Analysts are, regardless, adamant that they cannot replace ‘banks,’ given that there are still limits to the amount of funds they can manage, being essentially microfinance banks, and indeed ultimately they still leverage on conventional banks’ facilities to serve their customers, even as the brick and mortar are investing hugely in the technology industry.
“The entry of telcos and fintechs into the payment system adds a further dimension to financial retail market distribution capacity but this does not pose an immediate challenge to the banks, said Femi Awoyemi, Chairman and Group CEO, Proshare Consulting.

“Payment agents increase payment penetration by leveraging the depository roles of deposit-taking institutions. DMBs will not be threatened in this financial segment.”

Fintechs like Kuda appear to thrive more in selling convenience, and serving the underserved population. Their major strength has been their ability offer services in more convenient ways. Kuda’s flagship product, for instance, is a digital-only savings account, Spend+Save. Customers can download the app, enter Know Your Customer (KYC) information and have an account within a day.

The new customer can immediately receive deposits into his account, which would have been sent via his email address. Though the maximum balance and deposit amount depends on the level of KYC information provided. Customers request a debit card on the Kuda app and have it delivered to their homes.

Analysts generally agree that the brick and mortar is here to stay, and banking will not change. But many agree that the future belongs to technology, and institutions that are able to offer services in more user friendly, more affordable and more convenient ways, will have the edge. And this, for many, is where the Fintechs will pose real threat to banks.

“We have decided to disrupt ourselves and not live in denial. At one time, when we did competitor analysis, we only used to look at other banks. Today, we look at fintech businesses, telecommunications firms, and even betting companies – essentially, anyone who offers any form of payment service,” Guaranty Trust Bank, GMD/CEO Segun Agbaje, told World Finance.

“And one thing that we have learned is that although people will always need banking services, they may not always need banks.”
The more people acquire smart phones, and giving the increasing adoption of technology in everyday life, digital platforms like Kuda may only have skies as their limits.

“Technology is moving. Fundamentally banking doesn’t really change,” Ogundeyi told Arise TV. “You look after people’s money. You allow them access to the money when they need it. That’s essentially what banking is, it will never change.

“But it’s how you do it, the channels you use, the experience you provide and the price point at which you provide them. It is how easy it is for customers to open accounts and how affordable your products are, and that’s what Kuda is all about. We are about creating seamless processes and ensuring that people can afford to interact with their banks. You don’t have to go to a branch before you can have an issue resolved.”

Kuda has, by running a business model that excludes card maintenance fees, account maintenance fees, and allowing free transfers up to a number of transactions in a day, Kuda is luring many individuals and sole proprietors into its platform.

The bank also provides its customers with free debit cards which are delivered at no cost nationwide, differentiating it from digital wallets.

“The world is evolving rapidly. Technology is changing the game and setting up new rules. With the crazy disruptions that automation, Artificial Intelligence and other fourth generation technologies are bringing in, businesses are crossing borders,” said a banker, Sunday Kargbo.

“Uber has started the ferry business. Facebook is creating a global currency. The rules have changed. Any business that wants to stay afloat much be very innovative. Our banks will need to move with the trend if they want to continue to exist.”