THUR 05 AUG, 2021-theGBJournal- Kuda Bank, a Nigerian digital bank with the tagline ‘Bank of the free’, has raised $55mn in a Series B round at a $500mn valuation. Co-led by Valar Ventures and Target Global, this brings Kuda’s cumulative funds raised to $91.6mn. Currently Nigeria focused, Kuda is building a pan-African digital-only bank for Africans in Africa and the diaspora.
Kuda is co-founded by Babs Ogundeyi (CEO) and Musty Mustapha (CTO).
Babs Ogundeyi commenting on the transaction said ‘’we have been doing a lot of resource deployment in Nigeria, but now we are doubling down on expansion and the idea is to build a strong team for the expansion plans for Kuda.’’
He said the Bank still sees Nigeria as an important market and don’t want to be distracted.
‘’It is a strong market and competitive. It is one that we feel we need to have a strong hold on. So this funding is to invest in expansion and have more experience in the company in relation to expansion.’’
Business model
Some of the frustrations with operating a bank account in Nigeria include multiple fees, unattractive savings rates, lengthy account opening procedures, the need to visit a bank branch, ATMs out of service, difficulty in accessing a loan etc. Armed with a microfinance banking licence, Kuda aims to tackle these problems and more in Nigeria, while scaling across the continent in a digital-first manner. How: To date, it has focused on customer acquisition by zero-rating many banking fees while driving convenience in the account opening and maintenance process. Similar to the UK’s Monzo, it leverages a digital app and a debit card, offering freemium and subscription plans. Marketing is core to its route-to-market, and we experienced this first-hand across social media and billboards on our recent trip to Lagos (Figure 8). Who: Initially focusing on retail customers, the company is now also signing up some SMEs. As a digital bank, its customers are typically already banked (i.e. part of the 49mn Nigerians with bank verification numbers (BVN)), but Kuda also leverages agency banking and branches of Access Bank, GTBank and Zenith Bank.
Revenue model
According to Kuda, it has 1.4mn registered users (of which we think c. 30-40% is monthly active), up from 650k in March 2021 when it closed its Series A. For context, this compares with 19mn, 14mn and 7mn digital customers at Access Bank, FBN Holdings and Guaranty Trust Holding Co respectively as at 2019.
Kuda’s revenue streams are split into interest income (loans, liquid securities) and non-interest income (airtime commission, transfer fees, interchange fees, agency banking commissions, remittance, FX spreads etc.). Each revenue stream is at different levels of monetisation: for example, its overdraft product (0.3%/day i.e. 9%/month vs GTCO’s 1.5%/month) launched properly in 2Q21 – according to TechCrunch, Kuda pre-qualified over 200k users and granted $20mn worth of credit over 30-day repayment cycles, with minimal defaults so far.
The Series B raise will fuel Kuda’s goal to build a pan-African digital bank for Africans in Africa and the diaspora, while doubling down on its Nigeria business. Its international expansion will initially focus on the expansive Nigerian diaspora in the UK (HQ), but also the setup of on-the-ground operational teams in other African countries. It will also continue solving the monetisation puzzle, largely via lending and additional services. We think not too many African fintechs will have the luxury of playing freemium for too long and will need to quickly solve the monetisation puzzle given risks to future funding rounds if/when risk sentiment changes and because most are generating local currency earnings on dollar capital.
According to Andrew McCormack, Founding Partner Valar Ventures, ‘’Kuda is our first investment in Africa and our initial confidence in the team has been upheld by its rapid growth in the past four months.’’
He added, ‘’with a youthful population earger to adopt digital financial services in the region, we believe Kuda’s transformative effect on banking will scale across Africa and we are proud to continue supporting them.
Ricardo Schafer, Partner at Global Target commented on Babs and Musty’s ambition which he says is on ‘’another level.’’
‘’It was always about building a pan-African bank, not just a Nigerian leader. The prospect of banking over 1 billion from day one really stood out for me at the beginning,’’ he said.
Analysis by Adesoji Solanke Financials / Tech & Fintech analyst at Renaissance Capital (RenCap).
Twitter-@theGBJournal|Facebook-The Government and Business Journal|email: govandbusinessj@gmail.com
