kuda Raises $25M to Expand Neobank Services in Africa

Challenger Banks and the Rise of Kuda Technologies

Challenger banks are increasingly successful in attracting customers from traditional financial institutions. They achieve this by offering more contemporary and user-friendly tools for managing finances. Kuda Technologies, a leading innovator in this space, has recently announced new funding to further its core mission.

Expanding Banking Services for Africans Globally

Kuda Technologies aims to deliver a modern banking experience to Africans and the African diaspora. As co-founder and CEO Babs Ogundeyi states, the company’s ambition is to serve “every African on the planet, wherever you are in the world.”

Series A Funding and Key Investors

Currently operating mobile-first banking services in Nigeria, Kuda has secured $25 million in a Series A funding round. Valar Ventures, co-founded and backed by Peter Thiel, led the investment. Target Global and other undisclosed investors also participated.

This marks Valar’s first investment in an African startup, having previously backed fintech companies like N26, TransferWise, Stash, BlockFi, and BitPanda.

Future Plans: Credit, Business Services, and Market Expansion

Kuda intends to utilize the new funds to expand its credit offerings. The company also plans to develop services tailored for businesses, integrate additional features, and extend its reach into new markets.

Significant Growth and Momentum

This funding follows a period of substantial growth for Kuda, which maintains co-headquarters in London and Lagos.

Just four months prior, Kuda closed a seed round of $10 million, led by Target Global. This was, and remains, the largest seed round ever raised by an African startup – a significant milestone for the region’s tech industry.

Customer Base and Transaction Volume

At the time of the seed round, Kuda had registered 300,000 customers. This number has now more than doubled to 650,000. Importantly, Kuda’s user base is demonstrating increased spending activity within the app.

In November, monthly transaction volume was approximately $500 million. By February, this figure surged to $2.2 billion, encompassing services like bill payments, card transactions, and mobile phone top-ups.

Kuda’s Unique Approach to Neobanking

Kuda follows the model of other “neobanks,” offering a banking suite with an accessible user interface and a modern approach. Users interact with the bank via a mobile app, benefiting from tools designed to enhance money management.

Tapping into Unique Financial Practices

However, Kuda differentiates itself by leveraging financial practices specific to its target market.

Many employed individuals in the region have “salary accounts” at traditional banks where their wages are deposited. These accounts often lack the advanced features found in modern banking apps, such as mobile top-ups, bill payments, or AI-powered budgeting tools.

Leveraging Salary Transfers and Building Trust

This gap in the market allows Kuda to attract customers who initially transfer a portion of their salary from these traditional accounts. These initial transfers may be small, around 20% of wages, but increase as users become more comfortable with Kuda’s services.

“As the trust increases you’re naturally more comfortable having money with Kuda,” Ogundeyi explained. The company anticipates that users will eventually deposit their entire salaries directly with Kuda.

Expanding Service Offerings with Increased Deposits

Increased deposits will enable Kuda to offer additional services, such as loans with more competitive interest rates. These loan offerings will be based not only on deposit amounts but also on users’ spending histories within the platform.

“We can offer loans to salaried customers instantly as long as their salary is with Kuda,” Ogundeyi stated.

A Self-Built Banking Infrastructure

Unlike many challenger banks that rely on APIs from other fintech companies, Kuda possesses its own microfinance banking license from the Central Bank of Nigeria. This allows Kuda to issue debit cards (in partnership with Visa and Mastercard), manage payments and transfers, and develop its entire service stack independently.

Kuda maintains partnerships with established banks like Zenith Bank, Guaranteed Trust, and Access Bank to facilitate physical deposits and withdrawals when needed.

Pan-African Vision and Expansion Plans

While currently available only in Nigeria, Kuda’s vision extends to serving all Africans, both within the continent and abroad.

The initial expansion target is Nigerians residing outside of Nigeria, particularly in the U.K., where a substantial Nigerian diaspora exists. London alone is estimated to be home to over 1 million Nigerian immigrants and people of Nigerian descent.

The funding will also accelerate the development of teams and operational infrastructure for expansion into other African countries.

The Growing African Fintech Market

The market for financial services targeting Africans is experiencing significant growth, attracting increased activity from both homegrown startups and established tech companies.

Recent examples include Stripe’s acquisition of Nigerian payments company Paystack and PayPal’s partnership with Flutterwave to expand PayPal services in the region.

Flutterwave itself recently raised $170 million and achieved unicorn status, joining a still relatively small group of African unicorns.

Remittances and the Potential for One-Stop Financial Solutions

Kuda’s unique position, with access to customers’ salaries, presents an opportunity to become a streamlined conduit for remittances – a crucial financial service for African diasporas.

Even individuals without traditional banking footprints often utilize remittance services to send money home. Kuda’s integrated platform could provide a convenient, all-in-one solution for this activity, mirroring the approach of remittance startups like Remitly.

Valar Ventures’ Strategic Investment

Valar Ventures’ investment reflects a belief in Kuda’s potential and differentiated approach.

Andrew McCormack, a general partner and co-founder at Valar, noted, “Nigeria is at a tipping point in the adoption of digital banking. With the rapidly growing, youthful population who are open to new financial alternatives, Kuda is well-positioned to benefit and will transform the landscape of African banking. We are excited to lead their Series A and continue on the journey alongside Kuda.”