Earlier this month, Kunda co-founder and CEO Babs Ogundeyi; he said users that the Nigerian online challenger bank had reached almost N₦56 trillion (~$60 billion) in transaction value since its launch in 2019.
Ogundeyi also said that Kuda had achieved a remarkable milestone, with 7 million retail and business customers as of today. However, the figure is far below the fintech forecast when it saw new investment last year.
In February 2023, Kuda presented its investors with an offer for a new cash injection. At the time, it supported 5 million users and predicted that figure would double by the end of 2023, according to an investor pitch deck seen by TechCrunch. Kuda eventually raised about $20 million in mid-2023, according to people with knowledge of its fundraising efforts — but the bridge round closed at the same $500 million valuation it achieved in 2021 when it raised a $55 million Series B round.
Amid the venture capital boom of 2021, Kuda had actually secured one of Africa’s largest Series B rounds, with growth that had seen the company provide banking services to 1.4 million users in Nigeria — with plans to be released in more countries across the continent and beyond.
Fivefold growth
More than two years later, Kuda has yet to gain a foothold in any other African countries – it is still awaiting license approvals to operate in Ghana, Uganda and Tanzania. However, it has managed to quintuple its user base since 2021, serving Nigerians both at home and abroad, having expanded to the UK in late 2022.
This level of growth comes with its own challenges, as lower fees and easier access to accounts are the main draw for customers. For years, UK start-ups such as Monzo, Revolut and Starling have operated on sticky platforms that run on all the big losses associated with serving growing customer bases. And now that it is reaching profitability — largely because of their lending products — they succeeded only after raising billions of dollars in capital. Monzo, for example, reached profitability for the first time in the first two months of 2023, but recorded increasing net losses from £20m in 2017 to £116m last year.
Kuda’s reported losses, per TechCabal report, increased from $2 million in 2020 to $14 million in 2021, aligning with the pattern seen in the global neobank sector. Most of Kuda’s spending in 2021 was allocated to operating expenses, covering brand awareness, marketing and talent acquisition. But unlike the global neobanks, Kuda was also hemorrhaging money through an ill-conceived loan product whose non-performing loan (NPL) ratio of 69% significantly exceeded the industry average of under 5% for the same year, the report said. exhibition.
In response, Kuda had to make strategic adjustments. First, the fintech cut marketing spending in June 2022, according to its investor communication, and added 1.5 million users over the next nine months. Kuda has also restructured its overdraft product and, as Ogundeyi said in his recent message, “lined up new credit features, including salaried loans and an enhanced version of Kuda Overdraft.”
Likewise, to boost its transaction volumes and revenue, Kuda recently introduced a POS terminal to business customers, positioning it in the highly competitive and capital-intensive agency banking market.
Currently, Kuda’s primary revenue is generated through fees and commissions charged when its customers make airtime purchases, bill payments and investment income from fixed deposits. The company finished 2022 with nearly $20 million in annual revenue, recording $100 million in monthly deposits.
Perspectives on Kuda and African growth businesses
At a valuation of $500 million, Kuda’s 2022 revenue multiple was 25 times. The fintech has forecast revenue of $40 million for 2023, showing a multiple of 12.5 times. TechCrunch reached out to Kuda to confirm whether its revenue target and other projections were met, but the fintech declined to disclose, stating that “as a regulated entity, we are not allowed to share these numbers until they are reviewed and approved by the regulator ».
The emphasis on startups, especially those in growth stages, growing in valuations has become more pronounced, particularly amid the current slowdown in venture capital. Achieving revenue targets becomes crucial for these startups as they seek additional capital in subsequent funding rounds. Failure to do so may affect their ability to secure valuations on their terms, leading to stable and bearish rounds.
For Kuda, it would take about $100 million in annual revenue to make a 5x multiple (current investment terms for public growth-stage fintech these days) work at its current valuation. Not only would it take Kuda a few more years to achieve this, but like many African startups, whose fundraising during the venture capital boom pushed valuations to exorbitant levels compared to current pricing, it will face big obstacles to achieve it. This is partly due to external factors and out-of-control economic headwinds such as currency devaluations and inflation.
After all, even though African VC-backed startups earn revenue in local currencies, they report revenue in dollars because of their fundraising from international venture capitalists. Over the past 18 months, currencies such as the Nigerian Naira, which makes up the bulk of Kuda’s revenue, have depreciated by more than 40% against the dollar. This currency devaluation can affect financial reporting and African companies may have to double their local currency revenue to report the same amount in dollars.
Currency depreciation also affects consumer spending and purchasing power, making it harder for these companies to grow revenue in local markets. In 2022, Kuda’s average revenue per user (ARPU) started at $1.92 and ended at $1.67 (in comparison, Monzo, with the same number of users, all in the UK, recorded £112 in the month of February 2023, a 70% year-over-year increase.)
On the other hand, there is the large cost of acquiring these users. In Q1 2021, Kuda’s implicit customer acquisition cost (CAC) ranged from $4 to $5 based on marketing spend and user count within that period, which was 2-3 times its ARPU. It’s unclear how much the fintech has spent on marketing over the past two years, but reaching an ARPU target of $3 by the end of 2023, the company has told investors, would require significant spending per customer. This was always going to present a difficult scenario for Kuda’s unit finances.
Becoming profitable is one of Kuda’s main goals for the next five years, but the prospect itself seems a tall order given that global digital banks serving affluent customers have taken 8-10 years to reach profitability. The challenge is compounded by the fintech’s simultaneous goal of targeting global expansion, aiming to serve 50 million users across four continents and reach over $1 billion in revenue.
That said, realizing those goals may depend on a number of factors, including finding a wedge, possibly through its revamped overdraft/microlending product, to improve stability and revenue growth — and its ability to secure additional venture capital in scale.
In the immediate future, however, Kuda faces the challenge of proving to investors that the unit’s financials are in line with its growth goals. As the self-proclaimed “money app for Africans”, Kuda needs to demonstrate that a VC-backed neobank can thrive on the continent as Brazil’s Nubank did in Latin America before looking further away.
