Challenger banks are making significant strides to attract customers from large incumbents by offering new, user-friendly tools for managing their money. Today, one of the pioneers in this space, Kuda Technologies, announces the availability of funds to further develop its particular goal: to offer a modern bank service to Africans as well as the African diaspora, or, according to co-founder and chief executive Babs Ogundeyi, “every African on the planet, wherever you are in the world.”
Its business is to provide mobile-first banking services in Nigeria It has also snagged $22.5 million from a series A directed by Valar Ventures, the firm founded by and backed by Peter Thiel, with Target Global and other investors who are not named but are also part of the series. This is the first time Valar has invested in the development of an African startup, following previous investments in N26, TransferWise, Stash, and, most recently, BlockFi and BitPanda.
Kuda currently offers services for customers to save and spend money. It has recently launched overdrafts (essentially individual credit with a revolving basis). Ogundeyi stated at a recent interview that their idea is to make use of these funds to expand the credit options available, to expand its services for companies, and to incorporate more integrations and expand into other markets.
The money comes following impressive growth for Kuda, which has its headquarters in London and Lagos.
When we last reviewed Kuda, it was just four months ago, and it recently closed the seed round that was worth $10 million that was led by Target Global. This was at the time and, I believe, is still the largest seed round by a startup based out of Africa, making it, consequently, an important landmark for the tech industry in Africa, like it did for Kuda itself.
When the seed rounds began, Kuda had registered 300,000 users The number has nearly doubled to 650,000. And the customers are spending more via Kuda. Kuda app.
“In November, we were doing about $500 million in transactions per month,” Ogundeyi explained, in relation to services such as payment of bills, card transactions, and top-ups for phones. “We closed February at $2.2 billion.”
Kuda was, as we explained in our review of the company in our coverage of its seed funding round, following in the footsteps of a variety of other “neobanks,” building a collection of banking products that feature an easier user interface and a more contemporary approach to banking: you communicate with the bank via the mobile application as well as, aside from basic banking, it also offers tools to help customers manage their money more efficiently.
However, Kuda is different from other similar markets in that it is able to tap into certain specific financial practises that are exclusive to the market it operates in.
As Ogundeyi states, the majority of individuals employed by businesses are likely to possess “salary accounts” at banks, which pay the wages of employees regularly. They are typically at banks that are incumbent; however, they don’t offer the same services to their customers. Mobile apps are not available; there aren’t options to purchase mobile top-ups or to make other types of payments to a bill There are no calculators that use AI to calculate your monthly spending and offer recommendations on how to budget your money and so on.
This has created a need in the market that allows other firms to offer these services instead. Kuda’s deposit, Ogundeyi said, typically starts out as basic transfers made from “salary accounts” elsewhere. They start modestly, maybe just 20% of an individual’s salary, but as customers begin to use Kuda’s payment system and other tools more frequently, they are increasing the amount they transfer every payment period.
“As the trust increases, you’re naturally more comfortable having money with Kuda,” the official stated. The next step is the ability to deposit funds directly through Kuda. There is a small number of users already doing this, he said, but the company “has a bit more work to do” to have more businesses on its platform. (This is among the areas to be further developed by this new round of capital.)
Furthermore, the fact that there is an increase in the amount of money that is in Kuda accounts could create a new series of services to be activated by the start-up, like loans with higher-than-average interest rates because they will not depend on the amount of cash people have but also on their spending history within the platform. “We are able to provide loans to salaried customers in a matter of minutes so long as their pay is paid to Kuda,” the founder stated.
A lot of this is supported by the way Kuda is constructed. Many challenger banks have access to an array of banking APIs and finance tools developed by another group of fintech companies and have formed partnerships with banks in order to offer additional services and back-end deposit processing. Their value is creating efficient customer services and tools that help customers manage their money and loan it more efficiently.
Kuda on its own, is able to obtain its own microfinance bank licence through the central bank of Nigeria. This means that in addition to providing the identical services to manage money, Kuda can also issue debit cards (in collaboration with Visa MasterCard and Visa Mastercard) and manage transfers and payments, and also build the full range of products within the stack, which include loan and salary account services. (Kuda has agreements with banks that are incumbent in particular Zenith Bank, Guaranteed Trust and Access Bank, for people to visit for physical deposits and withdrawals as they need to.)
While the service is currently only available in Nigeria, there is a “vision to serve all Africans in Africa as well as outside of it,” Ogundeyi declared.
The first step will be for Nigerians living outside of Nigeria, most likely in the United Kingdom, where Kuda has its headquarters and a large market.London alone is estimated to have over one million Nigerian immigrants and those of Nigerian descent (the number of U.K. residents who were born in Nigeria is significantly lower, closer to 200 000, demonstrating the diaspora in action).
He also said that the company is currently getting ready for the next continent to increase its services and another place where the money will be used: “It will let our fast-track teams and on-the ground operating teams” The founder of the company said.
The larger image is the fact that financial services markets targeted at Africans are growing significantly, and we’ll see a lot more activity from the region, not only from local startups but also from more tech-related companies conducting business in this part of the globe.
Examples include: Alongside Stripe’s purchase of Nigerian payments firm Paystack in 2015, in the middle of the week, PayPal made an agreement in partnership with Flutterwave to provide PayPal solutions to more retailers in Africa specifically, so that PayPal customers could pay the merchants in the region by using PayPal rails. Square’s CEO, Jack Dorsey, meanwhile, was unable to make his plans to move to Europe COVID-19 has caused many of his plans to fail, as we’ve all heard, but it does show how the business is working not to miss opportunities in the region.
PayPal, for its part, as it should be obvious, has been present throughout Nigeria since the year 2014, and joining with a major player in the region is an important step. Flutterwave itself earlier this month raised $170 million and was crowned Africa’s most recent unicorn, out of what remains a rather tiny number of companies.
The fact that there’s plenty more that can be accomplished with payment and financial services leaves the possibility open for Kuda to go in several directions, if it decides to. Being able to serve customers from two countries, particularly with one in an advanced market and the other on the edge of a new market, for instance, provides Kuda with a fascinating insight into the world of remittances.