Challenger banks continue to make significant strides in attracting customers from the big established companies by providing more modern, easier-to-use tools to manage their money. Today is one of the pioneers in this area, Kuda Technologies, announces funding to further expand its specific goal: to provide a modern banking service for Africans and the African diaspora, or as Babs Ogundeyi, co-founder and CEO, describes: “Every African on the planet, wherever you are in the world . ”
Currently providing mobile-first banking services in Nigeria, the company has raised $ 25 million in a Series A run by Valar Ventures, the company co-founded and supported by Peter Thiel, in which Target Global and others unnamed investors participate. This is the first time Valar – has that invested in a number of fintech startups including N26, TransferWise, Stash, and just last week BlockFi and BitPanda – has supported an African startup.
Kuda currently provides services for consumers to save and spend money and has recently introduced overdrafts (essentially revolving loans for individuals). Ogundeyi said in an interview that it plans to use these new funds to further expand its loan offering, expand business services, add more integrations and penetrate more markets.
The funding follows very strong growth for Kuda, which is headquartered in London and Lagos.
The last time we wrote about the startup four months ago, it had just completed a $ 10 million startup round led by Target Global. That was at the time – and I still think – the largest seeding round ever held by a startup from Africa, and thus a milestone for the tech industry there as well as for Kuda himself.
At the time of the initial round, Kuda had registered 300,000 customers: now that number has more than doubled to 650,000, and significantly, this base spends more money on the Kuda app.
“In November, we processed approximately $ 500 million a month in transactions,” said Ogundeyi for services such as bill payments, card transactions and phone top-ups. “We closed February with $ 2.2 billion.”
But Kuda is also different from many others, especially because it uses some financial practices that are unique to its market.
As Ogundeyi puts it, most people who work for companies have “salary accounts” with banks, where companies regularly pay someone’s wages. These are usually located with established banks, but do not offer their customers the same services. No mobile apps, no way to buy mobile top-ups or other types of bill payments, no AI-based calculators to figure out your monthly expenses and make suggestions on how to manage your budget, and so on.
This has opened a niche in the market for others who wish to provide these services in their place. Kuda’s deposits, Ogundeyi said, usually begin as basic transfers that people make from those “payroll accounts” elsewhere. These start off small, maybe 20% of a person’s wages, but as these users use Kuda’s payment and other tools more often, they increase the number of transfers in each payment period.
“Of course, the more you trust you feel more comfortable having money on kuda,” he said. The next level of that will be people who deposit money directly with Kuda. A small minority are already doing this, he added, although the startup “has a little more work to do” to bring more companies into its platform. (This is one of the areas that this final round of funding will open up.)
Having more money in Kuda accounts will likely trigger another wave of services to be activated at launch such as: B. Loans with more competitive interest rates as these depend not only on how much money people have but also on their spending histories on the platform. “We can offer loans to employees immediately as long as their salaries are with Kuda,” he said.
Much of it is activated because Kuda is built that way. Many challenger banks have taken advantage of a world of finance and banking APIs developed by another wave of fintech startups and are working with other banks to provide backend deposits and other services. Your added value is building efficient customer service and tools that help people manage and borrow money in smarter ways.
Kuda, on the other hand, has its own microfinance banking license from the Central Bank of Nigeria. This means that in addition to building the same money management services, Kuda can also spend Manage debit cards (in collaboration with Visa and Mastercard) payments and transfers, and build all the services in the stack yourself, including payroll services and loans. (Kuda has partnerships with established banks, particularly Zenith Bank, the Guaranteed Trust and Access Bank, so people can make physical deposits and withdrawals when needed.)
While the ministry is still only in Nigeria, the vision is to serve all Africans in and outside Africa, Ogundeyi said.
The first step towards this will likely be Nigerians outside of Nigeria – most likely in the UK, where Kuda is already headquartered and where there is a market: in London alone there are an estimated more than 1 million Nigerian immigrants of Nigerian descent (the number actually born in Nigeria UK residents is significantly lower, more similar 200,000: that’s the diaspora at work).
He added that the startup is also working to prepare the continent’s next few countries to expand its service, another area where the funds will flow: “This will allow us to speed up teams and response teams on the ground,” he said.
The big picture is that the financial services market for Africans has seen a significant boom and as a result we will see a lot more activity from the region, not just from local startups but increasingly from other tech companies doing more business in this part of the world.
Examples: In addition to Stripe’s acquisition of Nigerian payment company Paystack last year, earlier this week, PayPal announced a deal with Flutterwave to offer PayPal services to more merchants in the region – specifically, to allow PayPal customers to pay for merchants in the region can use PayPal rails. Square CEO Jack Dorsey has since never made his intended move to the continent – Covid-19 is known to have derailed many plans – but it shows that the company is trying not to miss opportunities there, too.
PayPal was of course active in Nigeria since 2014 Partnering with a major player in the region is an important step though: Flutterwave itself raised $ 170 million earlier this month and became Africa’s youngest unicorn, which is still a fairly small list.
The fact that there is so much more to do with payments and more financial services leaves the door wide open for Kuda to move in different directions if he so wishes. For example, having customers in two countries, particularly one foot in developed countries and another in an emerging market, gives the company an interesting window into the world of money transfers.
The money transfer was one of the largest and most important financial services for African diasporas, along with African ones from many other emerging countries.
Even in cases where people are “without a bank account” and have no other financial footprints, they have turned to remittance services to send money home to their families from abroad. Kuda, with its integrations with people’s salaries, could easily become an efficient one-stop-shop channel for this activity as well. (This is probably one reason the remittance startup Remitly also started offering accounts to its users in the countries of origin.)
All this to say that Valar is making a new type of bet here, but one that is full of opportunities and a differentiated approach compared to the rest of the investment activity.
“Nigeria is at a turning point in the adoption of digital banking,” said Andrew McCormack, General Partner and Co-Founder of Valar, who led his investment here. “With the rapidly growing youthful population open to new financial alternatives, Kuda is well positioned to benefit and will transform the landscape of African banking. We look forward to running their Serie A and continuing the journey along Kuda. “