Kuda Bank’s $10m funding could send competition in digital banking to overdrive

Despite a looming threat by big Nigerian banks in the space, Nigeria’s self-styled ‘Bank of the free’, Kuda Bank may be a serious contender to the digital banking throne in the country.

Kuda Bank has secured $10 million seed round led by Target Global, Berlin-based venture capital, and participation from Entrée Capital and SBI Investment. Other investors include angel investors like Oliver and Lish Jung who invested in Nubank, Revolut, and Chime—other mobile challenger banks in Brazil, the UK, and the US.

The digital bank platform had landed $1.6 million in a pre-seed round from investors in 2019, which means the latest closure takes its cash haul to $11.6 million. It is a sizeable war chest to get Kuda Bank on a path banks like GTBank has recently declared it wants to cut a slice off.

A digital bank is simply a bank without a physical structure. In other words, it carries out every aspect of banking activity just that customers would not need to access the service by visiting a physical branch. It is far more convenient for both banks and customers as the latter would save valuable time and resources by not having to go to a physical location. Importantly, transactions are far more secure because digital banks do not require the client to travel with funds in hand.

In recent times the idea of a fully digital bank has latched on to many Nigerian fintech investors including banks. Over time, quite a number of companies like ALAT by Wema; Eyowo, Rubies, vBank, Sparkle, and Kuda Bank to mention a few have emerged.

From the onset, Kuda Bank has attempted to distinguish itself from the rest by focusing on eliminating charges on transactions. By declaring itself “Bank of the free” the company says it does not want customers to be tied with charges. The platform also wants to bank everybody of African descent, no matter where they live in the world.

But to prove it is ready for the continental market, Kuda Bank must first capture its home market in Nigeria. In 2019, the company – co-founded by Babs Ogundeyi and Musty Omotosho – secured a Microfinance Bank licence from the Central Bank of Nigeria (CBN) and followed up with a rebrand from Kudimoney to Kuda. Since launching in September 2019, the company now offers its banking services to about 300,000 customers with an average of $500 million transactions processed every month.

Kuda Bank would likely be splashing much of its new capital on its lending business and the plan is to go all out for that segment of the market, according to TechCrunch.

“We have built the core banking services in-house so we own the full stack. It means we don’t have to piggyback on another financial institution. We may choose to partner on certain products but we don’t have to. The reason for the full license is monetization. As a bank, you need to be able to lend, and in Nigeria if you don’t have a full licence it’s hard to lend and make money,” Ogundeyi said.

Kuda Bank may be a “bank for the free” but it has to make money to justify the investments it has received. Hence, it generates revenue from services like airtime recharge. When people top up their phones directly from the Kuda mobile application which is mostly prepaid, Kuda gets a percentage for acting as a broker in the transaction.

However, its adventure into lending would likely unlock more revenue as well as put it in the crosshairs of more established competitors. There are already so many existing digital lending platforms like Carbon, Mint, Credit Direct, FairMoney, to mention a few.

Perhaps the biggest competition that Kuda Bank needs to look out for is QuickCredit by GTBank which offers one of the lowest interest rates in the country.

But Ricardo Schäfer, a partner at Target Global who will be joining the board of Kuda Bank seems not worried about the big competition waiting for the company. He says Kuda has an advantage in providing consumers with a better banking experience than traditional banks. It is the reason Target Global is supporting the company with fresh capital.

“We are excited to be working with Babs, Musty, and the entire Kuda team to further build on the fantastic momentum they have had since inception and support them in taking the company to the next level,” he said.

As a VC firm, Target Global currently manages over €1 billion assets. Kuda Bank would be counting on its big purse in the coming months especially as GTBank and Sterling Bank finalize plans to kick off their Holding Company status which would allow them to launch a full assault on every fintech vertical.