Babs Ogundeyi’s ‘crazy’ idea to start Nigeria’s first fully- licensed, mobile-only, fee-free bank is making perfect sense in a country where access and price are key barriers to inclusion. Less than a year in, Kuda Bank is providing not just a financial service, but a social one.
Pictures quickly emerged online of endless queues and busy banking halls as people who had no other means of withdrawing and depositing funds rushed to make transactions.
Kuda Bank, Nigeria’s first mobile-only challenger, which is headquartered in the city, used the opportunity to remind its Twitter followers: ‘your phone is the safest bank right now’.
Observing the dangerously besieged branches, Kuda co-founder and CEO Babs Ogundeyi, must have been reminded of why he’d been driven to provide customers with an alternative bank in the first place: to give people the freedom to choose how and where they managed their finances . ‘We don’t have branches’, its marketing reads, ‘because you don’t need branches’. His second thought must have been just how big a hurdle this new ‘bankofthefree’ faced in persuading Nigerians to change their habits.
“I just felt there was a better way to serve people – and the majority of people,” says Ogundeyi, recalling his journey from financial analyst with PriceWaterhouseCoopers, to manager of the State Microfinance Institute, to fintech entrepreneur.
By the ‘majority’, he means the 60 per cent of adults who don’t have a bank account but can sign up in minutes to Kuda’s basic product, which is capped at a maximum deposit of 300,000 naira (or roughly 10 months’ salary at minimum wage). The 40 per cent of people who do already operate an account can switch in seconds and get the full monty with no restrictions. But, in either case, there are no fees. None. And that’s a key selling point.
“We’re tackling the two things, access and price,” says Ogundeyi. “And we’re seeing a lot of progress – even within our institution, a lot of people who didn’t operate within financial services are opening bank accounts – as well as people who have accounts switching to easy-to-use, no-fee banking.
“People gravitate towards us because we’re a very price-conscious continent. But Kuda goes beyond price. It’s really about the freedom that it gives you as a customer; the freedom to completely understand what your money is doing; the freedom to be able to save money effortlessly. And, with a credit product coming out shortly, the freedom to have access to a little extra money,” adds Ogundeyi. “Our goal is to provide a service that is free to the consumer, and then to keep figuring out the best ways to utilise the deposits they keep with us, to monetise those. The best way to do that is by extending credit to people who need it immediately. That’s, effectively, what a bank is. You take money from somebody that doesn’t need it immediately, and extend it to somebody that does, and make interest on it.”
For many challengers in the West that have struggled to maintain a fee-free structure, the model is enviably simple. But that doesn’t mean Kuda isn’t furiously peddling at the back end.
“On paper it’s relatively easy, but to put it all together and execute on it, make sure that the technology doesn’t break down and the regulators are on side…if you can do all of that, there is a huge market,” he adds.
Such models depend on scale, and Kuda has big ambitions. At current rates of onboarding it’s on target to hit 500,000 and possibly one million customers by the end of 2020. Its intention, though, is to financially liberate not just Nigerians but the whole of Africa.
Ogundeyi points to the levels of financial inclusion seen in China and across Asia since the introduction of mobile banking.
“We’re really at the tipping point and we believe we are the bank to push this revolution forward,” he says.
The bank’s ethos is one of honesty and open communication – criticism as well as suggestions are met head-on. And, much as it has defined itself as being different from traditional banks, it’s kept on good terms with them, leveraging their network to provide, for example, cash deposits at some and free withdrawals for customers via Access Bank’s and Access Diamond Bank’s 3,000 countrywide ATMs.
“It’s not about challenger banks, or Kuda Bank, taking on traditional banks,” says Ogundeyi. “It’s about how we make banking better, easier, cheaper and that increases our whole market. We have around 200 million people in Nigeria, but only around 80 million are using bank accounts. What can we do so that 80 million use their bank accounts and bank services even more, and the other 120 million also start using bank accounts, so it increases the pot for everybody? That’s the way we look at it.”
It begs the question, why did it take until late 2019 for Nigeria’s first fully licensed, full-stack, mobile-only bank to emerge, given that, while only four in 10 people has a bank account, everyone has a mobile phone? Indeed, last year, the government allowed the first telecoms provider to start facilitating money transfer services. MGN Nigeria was licensed to provide cash transfers through mobile money wallets using its retailer network, mirroring the phenomenally successful M-Pesa, also operated by telecoms, in Kenya. MGN also plans to launch a payment service bank, for which it is still waiting approval.
As to why legacy institutions are not launching their own mobile-only banks, Ogundeyi says: “There are so many factors.
“You have, obviously, the mindset that there’s an old way of doing something and it has been successful, from a commercial perspective, so why change it? As a traditional bank, you literally have to disrupt yourself to see this opportunity and there are a lot of risks involved in dismantling what has worked so well for centuries.”
So, if not a bank already in Nigeria, what about a new entrant from overseas stealing Kuda’s digital thunder? Nigeria is Africa’s premier destination for foreign direct investment in fintech, and specifically Lagos. In one week in November 2019, $360million was invested in payment ventures, more than half of that coming from Chinese backers.
Far from being fazed by it, Ogundeyi welcomes the increasing international attention and is confident of the position Kuda Bank holds in the market after less than a year.
“Banking is about relationships, it’s about understanding people. We believe very strongly in our ability to understand the market we’re in. It’s going to be a huge learning curve for anybody that doesn’t understand that market and the psyche of the people in it.
“If you look at it from another angle, though, the more people play in the sector, the more believable it becomes. If you’re the only one, it’s a lot more challenging to convince people that this is the right way,” he adds. “So, if we have a couple of strong Nigerian players, and you throw a foreign company into the mix, it goes a long way towards convincing them that this is the way forward. And our desire is for this to be mainstream.
“We’re not afraid of competition, we embrace it, because we’re trying to do something different, to revolutionise the way people see a bank. If other people come in and help with that, that’s a good thing.
“A lot of people have told me, and I have told myself, that one has to be crazy to do this, to venture into this kind of thing,” says Ogundeyi. “But I’m crazy enough to have put a team together that also buys into the belief that this is definitely the new way to provide financial services.”