Innovation is Simplicity: The Kuda Case Study

Two very remarkable things happened last week; Kuda announced its Series B raise of US$55 million, and the more important one – I opened a Kuda bank account.

When people ask me what I think innovation is – I tell them innovation is about making things simple. Simplicity is the core of innovation. Innovation is about creating that delicate balance and intersection between user needs, available technology and business/monetary value. In other words; anything termed innovative must find a way to make things simpler for people, exploit already available technology or at the least build out what is required and finally create meaningful value for the business. Any innovative endeavor that goes out of those three parameters is usually inventive or plain experimentation. Space travel is presently a nice to have (going to Mars or orbiting the earth is a great experience, but isn’t as cogent a need as say food or access to healthcare, transportation or even other more pressing needs that humans have, plus witches already fly in the air, so nothing Bezos or Branson is doing is new), however until a clear business case for leaving America and going to space has been established (there are many clear business cases behind leaving Nigeria), I will call space travel inventive and not necessarily innovative.

Anyways, Kuda is a great example of what twenty first century African innovation looks like. To be clear, I do not think Kuda is profitable – neither do I believe they’re a US$500million business, and considering their model of not charging for bank transfers (at least the first 25 monthly), which is an extremely high customer acquisition cost, I find it hard to understand their business model, but considering the fact they have investors like Valar Ventures, Target Global and SBI on their term sheet, I want to believe they have access to some internal data I have very little knowledge about.

Considering that Kuda is now worth more than the combined market capitalization of Sterling, Fidelity and WEMA bank (at least on paper); I believe there are certain things Kuda is getting right.

BRAND EQUITY

Your Brand is your moat. That perception that users have of your business and your products when they interact with them is an extremely powerful competitive advantage when stacked against a competitor and especially when you play in the B2C market. Although technically and regulatory wise, Kuda is a Microfinance Bank, they’ve positioned themselves so well that users do not see them in that light. Kuda is practically the “Bank of the Free” which I personally think is a gangster way to brand and position yourself. Me and a colleague of mine have had arguments over why I think Kuda is distinct when compared to other MFBs on the market (I wonder why he keeps arguing with me over this), while the underlying technology that powers Kuda is possible to acquire, and doesn’t need Obi Cubana money to get, Kuda is beyond the technology, Kuda’s strength is their brand.

A strong brand is such a powerful tool in any business’ arsenal, think about this; people are willing to spend N180,000 on a second hand (probably third hand) Apple device when that amount can get you a midrange (in global standards) Samsung or even Xiaomi device, the people who do that aren’t stupid – the brand strength has a strong enough pull to bring them into their ecosystem.

Kuda has leveraged the strength of a strong brand, and very well too, if you move around Lagos Island frequently, chances are, you’ve seen a plethora of Kuda ads; billboards, posters and the likes. Now that they have raised US$55million, I expect more billboards to appear on the roads in Lagos (enough billboards to make you believe Kuda bank is running for presidency).

Millennials also find it extremely easy to connect with Kuda bank because of what it represents to them. Most people who use Kuda bank become extremely passionate about it and are more than willing to push it and advertise it to their companions/acquaintances (if you think this isn’t a big deal, try and find out how many people are self-evangelizing FirstBank or any other legacy Nigerian Bank for free). Kuda already offers a N200 referral bonus to those who bring users in, but considering N200 isn’t a very large incentive (and you obviously don’t want to have users who can be largely incentivized by N200), I do not think this is a big growth driver for them.

LESS IS BETTER

Great innovators do not ask what can I add, they ask what can I remove. Innovation is usually about reducing to the barest minimum, and building out in a focused and specific manner only what is essential and what is needful for users.

Kuda’s New User Onboarding process is extremely easy and straightforward; in fact, it is presently easier to open a Kuda Bank account right now than it is to open a Gmail or whatever email client you choose to use. The lesser you build, the better it is. Satya Nadella and Steve Jobs have one thing in common – when they took the helm of affairs over their respective businesses, they decided to cut down on products (regardless of the sunk costs surrounding them) they felt didn’t align with their core vision, that’s the tradeoff you have to make to execute an exceptional strategy; you must learn to maximize your strengths and water down your weakness.

I also learnt last week that the majority of the information you share when opening bank accounts is really not necessarily, I opened an account with Access Bank and when the marketing guy was signing me up – he literally ignored most of those sections he KNEW wasn’t necessary (and that I would have wasted my time filling out) and asked only for info on the core ones.

Kuda’s signup process takes good advantage of less is better and gives users such a seamless and easy signup process, that you can literally leave this article and come back in the next 30 minutes with a working Kuda account ready to take funds (you should definitely go ahead and try it).

BUSINESS MODEL

Considering the fact that neither Babs nor Musty pay my bills, I can freely speak about Kuda’s model without fear of retribution. I want to believe that there is stuff (and data points) that Kuda has shown Valer Ventures and Target Global that I am not aware of, and that’s fine, however, from an outside perspective, I really don’t get Kuda’s model or what their path to profitability may look like.

In case you didn’t know, banking is not a B2C business – it’s a B2B business, and as such banks make the majority of their income from corporates and not necessarily individual users. This is why banks can mess with you and not take you seriously, your N20,000 and N50,000 deposits mean nothing to them, their corporate clients who make deposits in 9 and 10 figures are usually treated way more differently than you are, in fact, the only two reasons banks take retail customers seriously is because of access to cheap deposits (that they can give as loans to their corporate clients) and because of the juicy revenues they make from internet and mobile banking transfers that occur on their platforms. FUGAZ (the top 5 banks in Nigeria), and the Nigerian albeit $7 trillion lesser version of FAANG (Facebook, Amazon, Apple, Netflix and Google) made a whopping N187 billion from mobile transactions in 2020 alone.

Except for that, banks will usually have little or no incentive to give you the best of customer experiences. Kuda reportedly has about 1.3million users (I don’t know how many are active), these are primarily retail users – but Kuda’s model of 25 free transfers a month (which I am actually enjoying, and which their brand image is hinged on), probably defeats the purpose of making any real money from bank transfers.

Kuda probably has an opportunity to make money from the overdraft facility on their app (a facility I have never used and probably never will, Lol I hope they don’t offer that for free too)

SOCIAL BANKING

I saw a Linkedin post on Kuda where someone shared a comment about how he hasn’t seen anyone who uses Kuda, and that Kuda is overvalued. I agree that Kuda is overvalued, however, building a startup is not a joke, and until you have built one that works and that pays people a salary, you don’t have the right to criticize what any other person is building.

A great opportunity I see within Kuda is an opportunity for social banking. If you sign up on Kuda, you get the option to check who amongst your contacts already has an account with Kuda.

Social banking is really about creating a community of users around a banking platform and providing a service or product exclusively accessible to them. This could be an ecommerce solution or whatnot. I know that a solution like this will likely draw in users who will want to take advantage of the value added service that such a community provides, whether it is to help sell a product, or to buy one.

Although present day CBN regulation may restrict certain MFB operations, there are very few things a lawyer who can speak ‘Big English’ with an SAN prefix attached to his name cannot do.

THE OFFLINE/ONLINE BALANCE

Kuda doesn’t solve the financial inclusion problem. They don’t. Kuda’s license doesn’t allow them to grant BVNs to their users, that means if you’re a Kuda user, you likely already have a bank account with another bank elsewhere.

As much as I love that Kuda is primarily online, the fact that I can literally open a bank account with them without having to physically be anywhere is a big turn on for me, however, when things are that easy, people usually tend to take them for granted, and there’s a possibility that Kuda has a good number of inactive or dormant accounts on its system.

Regardless of how we look at it, the merits of a physical banking hall still stand. Who are we going to rant on and shout at when something doesn’t go as planned with our accounts? Kuda’s lack of a good number of on sites may not necessarily play to their advantage. I was recently in a conversation with someone I was supposed to pay some money to, I paid him with my Kuda account, and he even talked about how reliable Kuda was, so I asked him why he didn’t use that account more frequently, he said he had requested for a debit card and didn’t get one, so he chose to leave the account dull until he is able to get a card.

Customer service is a very key part of the success of any bank, although Kuda has raised more than US$55million, I doubt that opening up centers round Nigeria may be a key focus for them, an alternative for them could be to partner with a workplace provider to allow them use their facilities to make remittances, deposits and for customer care(both onsite and offsite) related issues.

EXPANSION STRATEGY

Every Fintech startup in Nigeria is building for Africa. That’s the classic one-liner every startup has to tell its investors to catch their attention and get some good interest in what their building and the financial benefits of their solutions.

However, the reality is that most startups aren’t building for Africa, they aren’t even building for Nigeria – in reality most startups are building for Lagos. Lagos is the commercial capital, has a population of almost 20 million people, and as a stand-alone country is the fifth largest economy in Africa. Getting people to adopt your digital solution in Lagos is way easier than say Zamfara or even Ekiti state. In fact, according to a NIBSS report, more than 30% of all digital financial transactions going on in Nigeria are from Lagos.

No Doubt, Lagos is a big opportunity, however there are huge opportunities in other states that I think more startups need to try and position themselves to take advantage of.

One Fintech firm that I think gets this right is FairMoney. The Credit tech firm raised US$42million in July 2021 and instead of announcing its lofty take over Africa initiatives (which isn’t wrong in any sense), they decided to focus more on deepening their tentacles in Nigeria – for a startup founded by two Non-Nigerians, that’s a lot of strategic thinking. Fairmoney is playing the long game; most companies who play the long game usually come out on top.

It is no doubt easier to scale in Lagos than in most states and customer acquisition costs (depending on the kind of business) may be high in other non-Lagos states, but running a successful business is really about doing hard things not easy stuff.

Did I mention that Fairmoney is profitable? This post is about Kuda, but Fairmoney sure looks like a very attractive business to invest in.

Back to Kuda; one of the imperatives behind Kuda’s Series B Fundraise is its African Expansion. Say what you want, those guys have cashed out – it’s just that the founders didn’t reach out to me when they were raising their seed rounds (I have forgiven them), if I had gotten on the term sheet back then, I would probably be at Weststar Associates (Authorized Mercedes Benz Dealership in Nigeria) in Ikate, Lekki choosing whether to buy a C series Mercedes Benz or something in the GLA lineup, but I digress.

CONCLUSION

Kuda is a great business, and although I haven’t properly understood their model, and what their path to profitability looks like, I still believe they are a perfect example of how at the heart of user and product innovation, making things simple should be your core priority.

Inspired By The Holy Spirit