Podcast transcript: Episode 24- Disrupting Banking in Africa

Transcript

Kenneth: welcome to today's experience pod, where we focus on emerging technologies, trends, and their impact on business landscape in Nigeria and across Africa to deal, we'll be discussing Kuda, disrupting banking in Africa. As we know financial services helps companies, businesses, and individuals to achieve their financial goals.

Unfortunately financial services in Africa, particularly has been plagued by barriers to entry, slow processes and complex lending requirements, which creates a hurdle for customers. However, with the rise of fintechs, regulators and Incubent financial institutions are under increasing pressure. To respectively adjust regulations and make operations more user-friendly fintechs have a very significant role to play, but they are doing more than that.

These startups are thinking digital, the examining various internal and external processes that makes life difficult for customers and are leveraging technology for fintechs, the customers comes first. Kuda is a key player to look out for in the African FinTech space launched in 2019. This exclusively digital Neo bank has been a trailblazer in helping Africans get the best out of their money and live better lives. To add to this insight and conversation, we are joined by the co-founder of Kuda And interestingly, our very own PwC Alumnus, Babs Ogundeyi. Welcome Babs. We're happy to have you here in our studio.

Babs: Good morning. Thank you, Kenneth. I'm happy to be here.

Kenneth: My name is Kenneth Erikume, I'm a tax partner with PWC and I'll be your host for today's session yes. So I really know you, but for the benefit of our listeners, let's start with some background.

For those who might not be familiar with you, Mr. Ogundeyi what is your story and what inspired the creation of Kuda? 

Babs: Thank you. I've always worked within financial services, and I spent a few years working in Pricewaterhouse Coopers, and that really gave me a lot of insight into financial service sector.

A lot of my clients were banks. And I think even at that time, this was a few years ago. It was clear that there was something fundamentally wrong with the way sort of financial services services was offered to the masses. It really felt like it was a preservative of initial audience, even though we have millions of people in Africa.

This product has been served to more sort of HNIs, government, big corporation. And I really felt strongly that there was a different way to offer financial service products to more people. And that's really sort of the fundamentals of Kuda and sort of how we conceptualized it. And kind of just started looking at the best way to make, financial services reach as many people as possible.

And that's the mission we're on. We're still on that journey right now. 

Kenneth: Thank you very much for that Babs. Now speaking about reaching a large, a wider audience, can you talk to us about your business model? We understand that you haven't really deviated from traditional model of banking and, earning revenue from customer deposits, or making investments using customer deposits and points of sale and loan fees and all those charges.

But I understand that, some of these things you're trying to eliminate some of those bank charges. And this is one of the things you're famously labeled. As the bank of the free. So can you tell us a bit more about what this model is about and how it's disrupting the banking landscape?

Babs: Yeah, so I think I'll start for context. Kuda is a full service digital only financial service provider. We believe financial services is it's more than banking. But of course there's a huge element of banking in everything, finance. So the idea is for us, our mission is to provide financial services that is accessible.

Affordable And quite frankly, should be rewarding as well. So the whole premise of what we do is based around those three key pillars. And, we really looked at sort of Africa as a continent or looked at everybody and starting with Nigeria which is for me, I would say I'm Nigerian and I think is probably the most important economy in Africa.

You know, access to financial services. Is not great. but with the emergence of the mobile phone, it's a lot easier to sort of, to serve financial services to people wherever they are. And that's how we primarily tackle, accessibility. And in terms of affordability, you know, Yeah we wanted to eliminate fees and we're still on the journey to do that. So primarily you can, interact with Kuda and use our services without paying anything. There are limits, it's not sort of free into perpetuity, but for the average person using it , it is a free offering.

And the way, and that's how we tackle affordability in terms of rewarding. We worked very hard to make people understand their money better and we do that via things like super smart budgeting, categorization. So when you spend on the Kuda app, it will tell you what you're spending on.

 Maybe it's entertainment, it's utility. So it really gives you better perspective of where your money is going, without having to crunch numbers into Excel and stuff like that. Now It's not for us to sort of be able to communicate all of that to the customer, but more than that, we're not a charity, we are a business.

 So we need to find ways of monetizing these customers in a way that doesn't impact them, financially in a significant way. So for example, we started issuing credit recently for an overdraft product. So we earn interest income on that. We earn money as a platform. As at today, we have over 3 million customers.

Those 3 million customers do different things on the Kuda app. So effectively we have the ability to become some kind of broker for other merchants where we're able to sell their products. The easiest one to describe is, we basically sell airtime on behalf sort of telcos or whatnot, and we earned fees on that.

So it's like a broker fee. So, eventually you can, now we see a world where, we have embedded, lifestyle into the Kuda product where people need to spend money, they're going to spend on something. They might as well spend it directly from the Kuda app. We just recently launched gift cards, which enables you to shop anywhere in the world, again.

It's not our product, but we're sending it on behalf of other merchants and we earn fees on that. So they're huge possibilities to monetize. And then also this is not a single country play. It's not a Nigerian play. We are looking to expand into other jurisdictions and again, that offers different opportunities from sort of a remittance perspective.

So the fact is if you have. Traffic and you have people interacting with money in some capacity. There are lots of avenues to monetize those things and that's the journey that we're on at the moment. 

Kenneth: Yeah. Thank you very much Babs for that insight on how the model works.

So your product manager actually mentioned that. The average Kuda user is between 18 and 25 years old. Was acquiring this group an intentional move by you? Did it just happen? Because when I look at that demographic, it seems to be like the often neglected bit from a financial services perspective. So, can you give us some perspectives 

Babs: About that? Yeah. I strongly believe, what we're doing is a marathon rather than a sprint. So, we've intentionally targeted the emerging generation the future of a society.

 And that's sort of the young people and. It's an opportunity to win trust early. A lot of people say banking is like a marriage. Like it's hard to just get out of it. But Which kind of makes sense to target younger people, so it's like, before they get married we are the ones there, but, yeah, and if you look at the population, across Africa, I think 70% of, of the African population is under the age of 30.

So that's the heartbeat of the whole entire continent. And those are the people that we can help shape and build a future with. This is a new concept. a lot of older folks are. Probably, I would say sort of more setting their ways and it's a lot harder to convert and convince.

But the younger generation, typically more adventures than digital natives. They're already used to operating digital financial products. Infact they are used to living their lives, digitally in everything that they do. So it makes a lot of sense to target that segment and grow with them and because that is the future.

So at the moment, I think if we build the best digital bank in society I think in the few years that will become the best bank period. Not just the best digital bank, because that's where the world is moving towards. so it's those that can prepare for it now.

That will take advantage of the next few years 

Kenneth: Thanks. Thanks Babs. Just for our listeners, to give them some interesting bit of discovery I got, I went on Snapchat recently and I saw a Kuda filter, which was quite cool with the sunshades and everything. Well, not for people as old as me, but it's appeals to younger people.

I'm sure. , anyway, so let's talk about, first of all, maybe I should say congratulations on closing off your $55 million series B funding round. I think that's, massive by any stretch of the imagination. , we understand that you're planning to use this to fund and build new services for Nigeria as well as prepare for a continental expansion. What does this expansion look like for a digital financial services business like Kuda, and what new products and services can we expect? 

Babs: Yeah. So the way I look at it is, the heartbeat or the engine room is the technology. So I think a lot of what is happening today a few years ago was probably not possible but because of technology, I think companies are able to move a lot faster and move a lot further as well. So with Kuda, we have our own core banking, that we built in house. And what that means is once we have some kind of regulatory approval in any jurisdiction, we can easily plug into that same engine, and leverage on the data that we have and pretty much use a sort of very similar marketing strategy It is the same brand and we'll be able to turn the engines on, relatively quickly. So that's kind of, the approach for expansion, in terms of services or products, we're coming up with sort of more.

Alternative financial products. It's really all about how do we democratize financial services? How do we. , I think in Africa you have to sanitize things and I think the FMCG is, has done that very well. But it's been a little bit harder to do within financial services, but, I think the success of an accompanies like Kuda, is that ability to really serve financial service products in small bites.

So that more people can take advantage of it. So you have things like I think, when we started, the main thing was transfers. It was a lot harder to sort of transfer small amounts of money just because of the cost of it. It just doesn't make sense. but if you're transferring for free, then you know, it increases, the ability of, more people to actually participate in that particular functions and it is the same ideology we would use for any other products, be it like, investments, you can imagine a world where, we're able to serve sort of like fractional share purchases, for example, , typically. It's a world where, more African people would participate in it because of the fees, and whatnot.

So, but if you sanitize it, you just open it up to more people. So , we're going to be doing a lot of products like that. So any kind of financial service products you can think of, it will be bite-sized and sort of made available to as many people as possible. And then, as I mentioned earlier on, you know, the more people interact with money, the more we understand what they're doing with their money, the more we can sort of start adding, more lifestyle things and just kind of do more embedded finance and embedded lifestyle, and make it easy for people to just, you know, purchase things, , without necessarily having to look for it all over the shop. And yeah and those are the sort of, that's the main thing we're doing. It all sounds very simplistic, but that's the idea is to make it as simple as possible, but there's a lot happening sort of under the bonnet.

Kenneth: Yea Trust me. I understand the complexity required to make things come across a simple, it's a significant, talent I think, slow onboarding is one of the pains I've got, even as, I mean, this is me discussing as a customer of financial services, um, the process of filling those forms, the verifications, and then someone tells you, oh, you didn't put in this information.

So it's a Pain what traditional banks have done, or financial services institutions if they get an account manager who helps you with the bits and pieces of filling those forms. But I think with, emerging technology, things can be done in that space. And one of the things you're known for is the seamless and fast onboarding, onto your platform.

Can you walk us through how you've managed to significantly reduce the KYC process while still retaining security. and mitigating risks. 

Babs: Yeah. I mean the generally three things I think you look at, when you want onboard a customer, you know, because you're in a regulated environment, you have to understand sort of the, statutory requirements, you have to go through, from a KYC perspective.

And then you. Sort of also have to look at areas not necessarily covered by regulation, but just sort of, that could be risky. Cause obviously you don't want, the wrong people coming into your system. It's more trouble than, you want. And then the third is, the convenience for the customer.

You know, you always have to look at everything from the customer's perspective. And really if you do that and just treat the customer as king, or queen, you sort of will be able to build around of the complexities and make it easy for the customer. And it's not like, you know, Kuda's just sort of is the genius has found this magic, but it's the way the world has moved, you know?

Now, there are companies that offer sort of KYC, functionalities, and as we're an API cloud driven, organization. So the idea is what's the fastest way to get that information that you need to, um, sort of tick the KYC box, and to be able to assess risk. But at the same time, Be able to offer the customer, the most seamless of experiences.

You can't necessarily do everything by yourself. You have to be able to, rely on others. And that's where the API's come in. we're able to sort of tap into at least in Nigeria, we're able to tap into, government issued identity activities like driver's license, international passport, the national identity management, card system.

So, a lot of work has already been done by somebody else. You just need to tap into that and get that information. And then we corroborated to, whatever the customer has supplied to us. And it's just about, breaking down the whole process to make it comfortable for the customer, not too much text because again, a lot of times.

We don't really read these things. You have like thick folders and you have to feel so many things, it's discouraging. So it's really about, really thinking about the customer, being creative around that. And at the end of the day, we're all trying to get the same information, it's just like, what's the shortest way I can get that piece of information.

And that's why I think it's also contributes to sort of, the fast growth as well, it is relatively easy to open an account and sort of from wherever you are, you don't have to, you know, you make it so clear and understandable for consumers they will interact with and they'll use it. And yeah, that's pretty much that. But again, it is one of the biggest. Sort of areas where we spend a lot of hours, just fine tuning continuously. It never stops. But it's a very important part of the whole process. 

Kenneth: Thanks. and with the way the world is going, I think, that obviously makes sense.

Especially with the digital trend. And we see, that, unlike traditional financial services, um, we're not seeing that brick and mortar structure everywhere and we also expect that people are doing things online, it's a no brainer that would also save us on trees. Cutting down trees and the paper and things like that.

So being purely digital, might have more sustainable operations than traditional banks. Is ESG a current focus point for you? Are there any green initiatives we can expect to see? 

Babs: So I think you already kind of touched on it. when Kuda is inherently a green compliant organization. The fact that we literally do things purely online, digitally, we're already cutting out a lot of those things that would sort of contribute to non grid initiatives. As you mentioned, , like we try not to use paper. We don't have a lot of, in terms of distribution. We don't have. Sort of the brick and mortar, the generators, the diesel, we don't have, we minimize those things.

And even sort of just generally, the way we work, we've started doing quite a lot of remote work in Not just in Nigeria. We have , we have teams spread around all over the world. So you can expand workforce, without sort of contributing to more pollution and whatnot.

So it's not something that is currently at the forefront of our thinking, but just because the way we are set up, We are inherently, compliant to a large extent. But of course, over time it's an area that we need to look at more deeply, and be more intentional about and see how we can really contribute to making the world, a cleaner or responsible and sustainable place for all of us to live in

Kenneth: Thanks. Thanks for that. There's, one question that has been on my mind when you spoke about, your overdrafts, , and how you're now, granting that product to your customers. but I also [00:21:00] understand that the default rate is also very minimal right. I often wonder how people are able to achieve that. , considering when you're looking at that demographic of people, you're trying to bring in, from a financial inclusion perspective, sometimes the data with that group is not, so readily available and that's why the traditional financial institutions. Sometimes avoid playing in that space.

So what are you, how do you achieve this? And, what's the place of data and analytics in terms of. Credit rating and analysis for those you grant overdrafts. 

Babs: Yeah. I think first, bit of a caveat. I think, , minimal default rate is relative. It's relative to obviously like interest you charge , and whatnot but yeah, I think it's a process, right? , so we build a relationship with you first. So before Kuda could give you any form of credit, you have to be equal to customer Kuda has to understand you understand your behavior, your spending patterns. And over time, we've been able to build, a scorecard, which is still, , in development.

Again, this is one of the things that continues to change and evolve, but generally it's, finances, it's a relationship thing, I'm probably more likely to as an individual, I'm probably more likely to give a friend a loan, but I will give what I think that friend can repay not necessarily what that friend asks me for.

So its the same sort of mindset that, we applied to our customers, based on our understanding of that customer and which, the primary information we have is their interaction with a Kuda app. If they have a savings products, for example, if they're doing a savings activity to how disciplined .How they will be without a savings activity, if a discipline with that, then  there's a high probability that there'll be discipline with repaying, a credit facility.

So we do plot a lot of data points I think over time, we will be able to get even sort of more external data. We do have access to some, but I think what will make the scorecard sort of. Even better is having access to even more information and that it is out there. It's just how you sort of pull them in and articulate them in a way that it's easy to understand.

And then be able to use that, to grant some form of credit , to customers. So. Yeah, it's not an easy thing to do, but, it is possible. But again, this is why not everybody does it. But I strongly believe that, it's an area that can be key for a company like ours, so in the future, and so far so good, we're still early in that, but I think it's started off reasonably well. 

Kenneth: Yeah. Let me just latch on to that comment around, connections, and access to the information it's out there. So in tech, connectivity or interconnectedness. Is the word of the day, essentially, internet or themes, exchanging data, different devices.

Those are foundational elements of b uilding sustainable, technology structures. And this is also important for open banking, which enables third party access to financial data. in order to give customers more tailored products, how has integration and data exchange played out in Kuda so far and what emerging tech are you leveraging to harness and maximize the use of data? 

Babs: Yeah, so we have a whole data science team and primarily their job is to gather as much data as possible and mine it in a way that, it's easy for us to use, the interpreted for the whole organization, not just from a credit perspective.

Just from a decision in perspective in terms of what products we can offer. But honestly, I think there's still some way to go in terms of, working with others and working with sort of third parties, in having a more robust sort of, data decisioning and I think we'll get there is push for open banking.

It hasn't been embraced fully. But over time, I have some optimism that, that will change. But, and once that's done, I think it, it becomes easier for everybody. Because as I said, the data is available is just, the ease to access. That is the challenge. So there, there are some players that, guess to, to put in really simple terms, willing to share information and to share data, obviously with the customers, content, those partners, it's made it, I guess easier to add to whatever information that we have internally.

But. You talked about integration, I think technology generally and especially FinTech, a lot of it boils down to integrations and , speed of integration in choosing the right partners to integrate with, because effectively you are relying on others, for certain things.

And the more we collaborate, as a sector, I'm talking about finance sector, generally, I think the better products we're able to serve, to the customer and actually increase, market share generally for everybody. This is not like a one company or one category set of companies that would fix, finance and make finance more inclusive or whatnot.

 It's really a collective effort of everybody, including regulators who, I think my general regulators have done quite well in. Making the environment  conducive. And is a challenge even for them, because obviously the primary focus is to protect consumers. So balancing that is, is very difficult.

But I think if everybody, is more open to working together and being, collaborative I think we'll be able to build much better products for the end user and I'm optimistic that will happen more and more over the years. 

Kenneth: Thanks a lot Babs for, that insightful. , prospective you've provided to us on Kuda as well as, fintechs generally. So I must say that from PWC perspective, we're proud of you, from time to time in conversations, I drop your name and say oh, I know Babs. So this is really interesting to have you in our studio, but before we let you go, I have a few questions. The first one is speaking of predictions. What was the last prediction you got wrong?

Babs: And 

Kenneth: Don't tell me arsenal or something 

Babs: I tried not to do that. yeah, I try not to predict this. Obviously things are not always within my control but, yeah, I mean, I'm not sure I currently think it's not, I don't make a habit of predicting things to be. honest. So yeah, I'll probably just pass on that question.

That's fine. That's okay. 

Kenneth: Next question I have is what's one view. You seem to find very few people agree on that could be anything . 

Babs: I would probably just have to see something like, I'm a big Liverpool supporter and I think, like definitely the best team sort of . But yeah, no one seems to agree with me, but the stats are there, , Probably the best team in the world at the moment, I think and definitely the most successful English club, but yeah.

Kenneth: I agree with you. Otherwise, my Chelsea fans would come knocking on my door after this program. So there's something, the last person that we interviewed on the podcast asked us to ask the next person we are Interviewing. And that's intra African trade how do you see this succeeding with present regional blocks? Like ECOWAS, SADAC in Africa, maybe the Africa continental free trade Agreement 

Babs: I think, There's some things that , It's difficult to block. You can make it difficult, but you can't eliminate it. And I think Africa trade is one of those. People will trade no matter what obstacles that you put in the way.

So I think for that singular reason, I see eventually, there will be success, I think more people will come to the table. Because again, It's going to happen. It is happening already. it will keep happening. So the more and the quicker, we plug into that, and sort of the powers that be, , see that, and then plug into that.

 I think the better, it will be for all parties because there is a lot to gain. So I think, if you look at sort of financial services, specifically There are moves to make that more possible. Sort of, I think there's currently a switch being built, to connect sort of the whole of Africa ultimately, so I think there are moves to facilitate like easier trade but, Yeah, it's going to take a bit of time for us to get there. But I believe ultimately there will be success. It's just when and I'm not going to predict that. 

Kenneth: All right, nice. you could have predicted whenever liverpool would win the champions league maybe the final question for you. So disruption is interrelated obviously. So we expect that you would ask the next person to be on this podcast a question. So what's one perspective you'd like to get from our interviewee 

Babs: So I think we should ask the next person if they use a digital financial product.

And if the answer is no, actually want to know sort of the reason for that. Because I think for me, that's quite important just because. Yeah, in terms of valley, it seems like a no brainer. so, you know, like go back to Kuda, we have 3 million customers unlike, why can't we have million customers already cause it's free. It's easy, so, you know, clearly there is still some reservations there somewhere. So yeah, so my question would be do they have a digital financial service product that they use, So as a primary sort of product and if it's no, why? If it's yes, I hope it's Kuda 

Kenneth: thank you very much. Babs. Interesting one and definitely would like to have you again.

Babs: Thanks for having me.