By Jeph Ajobaju, Chief Copy Editor
Even with the risks involved, digital banking is expanding worldwide, seen as the future of savings and payments. Kuda processed $2.2 billion transactions in February in Nigeria alone.
The fintech startup, based in Africa’s largest economy, has just raised additional $25 million in a Series A round led by Valar Ventures, the firm co-founded and backed by PayPal co-founder Peter Thiel.
Target Global, the European venture capital firm that led Kuda’s last funding, participated in the round, as reported by TechCabal.
Kuda has now raised a total $36.6 million in two years to build a digital bank in Africa, to cater to a burgeoning 1.2 billion population.
Bizao has also joined the race to digitise payment on the continent. It announced in February that its cross-border payments network operates in at least 10 countries in francophone Africa.
Bizao has processed close to 300 million transactions in the region, according to Aurélien Duval-Delort, who founded the startup in 2019.
Dangers of digital banking
However, identity theft occurs everywhere along with bank fraud, all now made easy with digital platforms. Africa, an emerging market, is not immune. Nor is a developed economy, like the United Kingdom.
The BBC reported on Wednesday how a con artist rang a Briton, Emmeline Hartley, claiming to be from Barclays and told her to transfer money to a new bank account as her current one was at risk.
She said she was “scammed out of every penny I had” and shared her story on Twitter to try to stop others falling victim to bank fraudsters.
Harley, 28, a drama student at the University of Birmingham, moved £1,000 out of her account after a man claiming to be from Barclays called.
The number appeared to be genuine, but it was a spoof. The bank has now agreed to fully reimburse her.
Her story has been retweeted thousands of times and others have shared their experiences in response to her post.
“I am usually very good at not falling for scams but this one caught me off-guard at a pretty vulnerable time in my life,” Hartley said.
“I thought I had done my due diligence but it was not enough.”
Last Friday, Hartley said she had been taken in by a text message scam which claimed she owed payment to Royal Mail for a package to be delivered.
As her birthday was coming up and she was in a hurry, she said she had thought nothing of it and entered her bank details.
The following day, a man called her and told her someone had tried to set up direct debits in her account to other firms.
The con-artist told her she needed a new bank account as entering her details to the text had put her online banking at risk.
He persuaded her to transfer the £1,000 – all her savings – to the new account and Hartley said she had only fully realised she was being scammed when he had asked her to transfer her overdraft.
When it did not work, she said she had broken down in tears and he had hung up.
“It was down to circumstances, I was panicked and angry at falling for the Royal Mail scam and I have always trusted Barclays,” she said.
“This guy was plausible, professional and understanding and I just fell for it.”
Hartley said Barclays had started an investigation into what had happened but she felt the bank’s online app could have more warnings to try to stop such a scam.
She said her bank had called her on Tuesday and told her they would be reimbursing her in full.
A spokesperson for Barclays said: “No genuine bank would message you to transfer money to a ‘safe account’ – we advise any customers to ignore anyone who asks to do this, whether it’s by phone, email or any other method.”
Since sharing her story on Twitter on Sunday, hundreds of people have commented, with many sharing their own stories of similar bank scams, the BBC adds.
Kuda piles up seed fund
Kuda’s latest Series A follows $10 million raise in November 2020, a feat cheered for being the largest seed round by an African startup.
TechCabal reports that at the time, the company said it had 300,000 customers (which was a mix of individuals and sole-proprietor businesses) and was processing an average of $500 million worth of transactions per month.
Five months later, Kuda says it now has 650,000 customers.
Ryan Laubscher, who recently joined Kuda as Chief Operating Officer, told TechCabal that Kuda processed $2.2 billion in transactions in February 2021 alone – a staggering increase from $5.2 million processed in February 2020.
All of this has been achieved just in Nigeria where the company launched as a no-fees, digital-only bank in the second half of 2019 with $1.6 million pre-seed funding.
Raising funds to fit plans
Given these impressive numbers, the large seed round (for an African startup), and their ambition to bank every African in every part of the world, it may have been expected that Kuda would raise a Series A larger than $25 million.
Laubscher said the round stirred interest from multiple investors. However, the startup chose to raise only what was adequate to fund their plans.
“It is very important to us that our metrics are justifying the valuation that investors are buying into with their capital,” Laubscher said on a call with TechCabal.
“Our growth is at the point where we need to beef up our technology and people. But in terms of our plans for the next 18 months, we’ve got sufficient capital to fund those plans.
“If we need more capital, it’s going to mean that something is going very right. And if that’s the case, we can raise again.”
Kuda has two co-founders: Babs Ogundeyi, the CEO, and Musty Mustapha, the Chief Technology Officer.
The company has a microfinance banking licence from the Central Bank of Nigeria (CBN). At the moment, Kuda’s flagship product is a digital-only savings account.
Customers can download the app, enter Know Your Customer (KYC) information and have an account within a day.
The new customer can receive deposits into this account, though the maximum balance and deposit amount depends on the level of KYC information provided. Customers request a debit card on the Kuda app and have it delivered to their homes.
Laubscher says Kuda’s Series A round was oversubscribed and a “decent amount of capital” was left on the table.
Their plan is to further accelerate the company’s growth in ways that those investors who couldn’t get in at this round would still be interested in being part of the Kuda story when they raise again.
Africa as destination for venture capital
Last year, Kuda’s seed round was announced after Paystack’s landmark exit to Stripe. This time, the Series A follows a week of enthusiasm after Flutterwave became a unicorn and landed a crucial integration that enables merchants in Africa to receive PayPal payments.
The three startups rank highly on Africa’s fintech funding list, but the money is perhaps to be best understood as a sure signal that Africa is the destination for venture capital seeking tech-based value creation.
In addition to its mobile-first savings account, Kuda is testing a credit product at the moment, but what will differentiate them from traditional banks is the capacity to facilitate easy banking.
“What really excites me is blowing people away with the quality of customer service where they really feel that they are loved by their bank,” Laubscher says.
This customer service focus will be complemented by products that feel tailor-made for each individual. Laubscher says Kuda is building a large data and decision science center in Cape Town.
This data center will improve its capacity to make data-driven decisions around credit origination and running the company’s internal operations.
For now, Kuda hopes to be more mainstream and grow its customer base in Nigeria by permeating popular culture, per TechCabal.
Earlier this year, it unveiled Erica Nlewedim, a very popular housemate from reality TV show Big Brother Naija, as its brand ambassador.