By Elvis Eromosele
Universal access to financial services is today widely regarded as a fundamental human right. Firms helping to drive access to financial services are highly regarded as enablers of financial inclusion.
“Financial inclusion,” according to the World Bank, “means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered responsibly and sustainably.” It is viewed as a key enabler in reducing poverty and boosting prosperity.
Across developing countries, fintechs are at the forefront of bridging the financial inclusion gap.
Over the past half-decade, Kuda Bank, in Nigeria, has emerged as a key player in this space. Experts insist that it is helping customers access financial services with its mobile-first, personalised and often cheaper set of banking services built on newer, API-based infrastructure.
During this period, the firm has experienced impressive growth both in the number of users and volume of transactions. There are talks that it’s seeking to expand its operations to other cities across the African continent to drive financial inclusion. To fuel its expansion, it has grown its personnel base and raised several rounds of funding.
In the last couple of years, investors have been all over Kuda, like a rash. The fintech startup has had several successful fundraising campaigns. The digital-only bank raised $1.6 million in pre-seed funding in 2019.
It followed it with $10 million in a seed round, the largest-ever seed round raised by a startup out of Africa, at that time, in December 2020. In March 2021, Kuda raised $25 million in a Series A round to continue, according to company sources, to provide a modern banking service for Africans and the African diaspora.
And then in August of the same year, the startup closed, via its London entity, a Series B of $55 million. Again, it indicated that the fund would go into the introduction of new services for Nigeria and equally push its launch into more countries across the continent in furtherance of its goals to reach “every African on the planet.” The funding was made at a valuation of $500 million.
Flushed with cash, the assumption in many quarters, until recently, was that the firm was doing well. The 2021 financial report has successfully dispelled that notion, as it showed that the bank has incurred a loss of more than N6 billion.
According to the financial report of the bank, it incurred a loss of N868 million in 2020. This indicates that between FY 2020 and 2021, Kuda Bank’s losses increased by a staggering, wait for it, over 600 per cent.
A closer look indicates that Non-Performing Loans (NPL), which stood at 69 per cent as of the end of the 2021 financial year, contributed significantly to the loss.
The bank’s new overdraft product, which was launched last year, has been fingered, and rightly so for the poor result. The sheer number of defaults literally ate into its balance sheet, eliminating funds and affecting the bank’s profitability. On the contrary, the traditional banking industry, who generates a big part of its revenue from lending, saw a drop to 4.8 per cent within the same period.
It is interesting to note that revenue increased by 4,315 per cent from N72.6 million in 2020 to N3.2 billion in 2021. Impressive figures but the firm now needs to urgently curtail its expenses, starting with better management of loans to curb defaults.
Kuda has been described severally as a neobank. Neobanks refer to a new generation disruptive of banking services based on more modern interfaces and infrastructure and around the concept of API-driven embedded finance. Africa, with its immense underserved and financially excluded population, is perceived as one of the few remaining growth areas.
Kuda is unique among the neobanks in that it is building its services with its banking license in its back pocket. So, naturally, it can be more flexible, more agile and more in-tuned with regulatory demands.
With over two million registered users, the fintech company is doing something right.
Undoubtedly, it is not enough to be disruptive. Kuda apparently didn’t get the memo. In keeping with its payoff, “The Bank of the Free” Kuda offered customers, starting from when it launched, free bank transfers on its app, and zero card maintenance fees among other freebies. Of course, it is impossible to operate a sustainable business while offering almost everything for free.
The Etisalat Nigeria experience is there for all to see. We should talk about this on another day when we find the time.
The bank has recently started charging fees on transfers and deposits, a move that it claims to be ‘in line with directives from the CBN’. It makes sense that a financial services provider should make some money from its operations.
The truth is that to make money, Kuda may need to rethink its business models. It is clear that while it is taking in loads of funds, it’s currently operating at a huge loss. How long can this continue? Would the investors get to pull the plug at some point? What can Kuda do to reinvent itself? For starters, it needs to break even and then begin to make some money.
Kuda entered the market with a unique value proposition, providing a service that meets a genuine need and contributing to closing the financial inclusion gaps across the African continent. It had implemented and continues to implement a clear plan to acquire and retain customers.
Kuda now needs to explore how to monetize its services. There is a strong case for getting the customers to pay for the solution the firm is providing. Isn’t this the whole idea of business?
Experts argue that the best revenues are repeatable and healthy revenues. Kuda must find its niche here. If the current revenue model is flawed, then it needs to be changed. There are no two ways about it.
In addition, as the bank pushes its solutions across the African continent, it needs to scale effectively to reduce the cost of serving users. Reducing operating costs is a good way to make money.
So, there is hope yet. But Kuda has to do things differently, going forward, if it wants to remain in business. It is time Kuda learns how to actually make money!
Elvis Eromosele, a Corporate Communication professional and public affairs analyst lives in Lagos.