Earlier this month, Coda Co-Founder and CEO Babs Ogunde Tell Users reported that the Nigerian online challenger bank has reached nearly ₦56 trillion (about $60 billion) in transaction value since its launch in 2019.
Ogunde also said that Kuda has achieved a remarkable milestone, with the number of its individual and corporate customers reaching 7 million to date. However, this number is much lower than the fintech expected when it saw new investments last year.
In February 2023, Kuda made an offer to its investors to inject new funds. At the time, it claimed to have 5 million users and expected that number to double by the end of 2023, according to an investor presentation seen by TechCrunch. Kuda eventually raised an estimated $20 million in mid-2023, according to people familiar with the fundraising effort — however, the bridge round closed at the same $500 million valuation it achieved in 2021 when it raised a $55 million Series B round dollar.
Amid the venture capital boom of 2021, Kuda has already secured one of the largest Series B rounds in Africa, on the back of growth that has seen the company offer banking services to 1.4 million users in Nigeria – with plans to launch in more countries across the continent and beyond.
Five-fold growth
More than two years later, Koda has yet to gain a foothold in any other African country, as it is still awaiting license approvals to operate in Ghana, Uganda and Tanzania. However, it has managed to grow its user base five-fold since 2021 by serving Nigerians at home and abroad, and expanded to the UK in late 2022.
This level of growth has come with its own challenges, since low fees and easy account access are the main attraction for customers. For years, UK neobanks, such as Monzo, Revolut and Starling, have operated on fixed platforms that bear all the significant losses associated with serving growing client bases. And now that they are Reach profitability – Mainly because of their lending products – and they were able to do this only after raising billions of dollars in capital. For example, Monzo was profitable for the first time during the first two months of 2023, but it recorded… Increased net losses From £20 million in 2017 to £116 million last year.
Kuda losses have been reported, according to TechCabal a report, increased from $2 million in 2020 to $14 million in 2021, in line with the pattern seen in the global neobanking sector. Most of Kuda’s spending in 2021 was allocated to operational expenses, covering brand awareness, marketing and talent acquisition. But unlike global neobanks, Kuda also bled money through an ill-advised lending product, with its non-performing loan (NPL) ratio of 69% significantly exceeding the industry average of less than 5% for the same year, the report said.
In response, Koda was forced to make strategic adjustments. First, the fintech reduced its marketing spending in June 2022, according to its communications with investors, and added 1.5 million users in the following nine months. Kuda has also restructured its overdraft product and, as Ogundeyi noted in his recent letter, “crafted new credit features including loans to salary earners and an enhanced version of Kuda overdraft.”
Likewise, to boost its transaction volumes and revenues, Kuda recently introduced a point-of-sale terminal for corporate clients, 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 purchase airtime, pay bills, and investment income from fixed deposits. The company concluded 2022 with annual revenues of approximately $20 million, recording monthly deposits of $100 million.
CODA forecasts and projects in the African growth stage
At a valuation of $500 million, Kuda’s 2022 revenue multiple is 25x. The fintech company forecast revenue of $40 million for 2023, representing a multiple of 12.5 times. TechCrunch reached out to Kuda to confirm whether targeted revenues and other expectations were achieved, but the fintech declined to divulge this, stating that “being a regulated entity, we are not allowed to share these numbers until the audit is conducted and approval is given by the regulator.”
The focus on startups, especially those in growth stages, which are growing in their valuations, has become more pronounced, especially amid the current slump in venture capital. Achieving revenue targets becomes vital for these startups as they seek additional capital in subsequent funding rounds. Failure to do so could impact their ability to secure valuations on their terms, leading to flat and down rounds.
For Kuda, it would need about $100 million in annual revenue to make a 5x multiple (current investment terms for fintechs in a general growth phase these days) work at its current valuation. Not only will it take Kuda a few more years to achieve this, but like many African growth-stage startups whose fundraising during the venture capital boom has pushed valuations to excessive levels compared to current pricing, it will face significant hurdles in achieving this. This is partly due to external factors and economic headwinds beyond its control, such as currency depreciation and inflation.
After all, although African venture capital-backed startups generate revenues in local currencies, they report their revenues in dollars due to raising money from international venture capitalists. Over the past 18 months, currencies such as the Nigerian naira, which makes up the majority of Coda’s revenue, have seen their value decline by more than 40% against the dollar. Currency depreciation can affect financial reporting, and African companies may need to double their revenue in local currency to report the same amount in dollars.
Currency depreciation also affects consumer spending and purchasing power, making it difficult for these companies to increase their revenues in local markets. In 2022, Kuda’s average revenue per user (ARPU) started at $1.92 and ended at $1.67 (by comparison, Monzo, with the same number of users, all in the UK, recorded £112 in February 2023, a 70 percent %). Annual increase.)
On the other hand, there is the high cost of acquiring these users. In Q1 2021, Kuda’s implicit customer acquisition cost (CAC) ranged between $4-$5 based on marketing spend and number of users during that period, which was 2-3 times average revenue per user (ARPU). It’s unclear how much the fintech has spent on marketing over the past two years, however achieving the $3 ARPU target by the end of 2023 as the company has told investors will require significant spending per customer. This was always going to be a difficult scenario for unit economics at CODA.
Achieving profit is one of Kuda’s main goals for the next five years, but predicting that in itself seems difficult, considering that global digital banks serving wealthy clients need 8 to 10 years to reach profitability. The challenge is compounded by the fintech’s concurrent goal of targeting global expansion, aiming to serve 50 million users across four continents and generate revenues in excess of $1 billion.
However, achieving these goals may depend on two factors, including finding a wedge, perhaps through a revolving overdraft/microlending product, to improve stickiness and revenue growth – and its ability to secure additional investment capital at scale.
But in the near term, Kuda faces the challenge of proving to investors that its unit economics are consistent with its growth goals. As the self-proclaimed “money app for Africans”, Kuda must demonstrate that a new venture capital-backed bank can thrive on the continent As did the Brazilian Nubank in Latin America Before we look any further.