The upstart bank, Kuda, with operations in Nigeria and the United Kingdom, with a microfinance bank license, has been losing money for the past two years. Kuda’s losses first caused their first employee layoff.
The company has made some high-profile recruits recently, but it acknowledged a few days ago that it had laid off roughly 23 employees, or less than 5% of its 450-person staff.
Kuda is getting ready for pan-African and international growth at a time when venture capital is uncertain. In light of this, the company views the recent reduction in its employment as part of strategic moves for sustainable growth. The company, which has only been in business for four years, stated that the layoffs were necessary because “Kuda is currently making some strategic changes to serve its customers better and continue to make financial services more accessible, affordable, and rewarding to every African.”
In an email, Kuda stated that business turnover had led to dramatic worker reductions throughout the organisation in various divisions. According to the sources, this encompasses the product, marketing, and growth departments.
Kuda’s turnovers and loss
According to the company’s financial report, its loss in 2021 was 6,092,554,866 ($14,214,681), an increase of 602% over the 868,062,000 ($2,025,295) loss it made in 2020.
The company’s sales grew by 4,315% from 72,649,000 in 2020 to 3,207,177,570 in 2021, as shown in the financial report. Although the company did not lose money while running, it did end the year with a net loss due to a substantial credit loss/impairment charge and operational expenses.
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Kuda’s loaning system did significant damage
According to the study, “the nonperforming loan (NPL) recorded by the firm is too high for the comfort calculated at 69%,” which naturally resulted in a high impairment rate for the neobank, estimated at 2,258,698,669. For this purpose, a loan is said to be “impaired” if, as of right now, it seems unlikely that the lender will be able to get back the total amount of interest and principal owed on the loan according to the terms of the loan agreement.
The report’s analysis section states that 96% of the interest income made from the loan offer was lost due to the impairment. This means that Kuda’s balance sheet was weakened by the high volume of bad credit it granted via its overdraft program.
Kuda raised funds for its “overdraft” loaning operations last year.
Kuda began testing its overdraft solution with more than 2,500 customers who “have been using their Kuda accounts actively” a few days later. Apparently, by June, the product had 50,000 weekly users After the second quarter of 2021, the company said that more than 200,000 qualified users had received $20 million in credit, which they had 30 days to pay back.
The neobank has seen “minimal” defaults, according to the company’s co-founder and current CEO, Babs Ogundeyi. Using the information, “we allocate the overdraft proportion based on the customer’s activities, aiming for it not to be a burden,” as Ogundeyi put it.
There were concerns over the way Kuda ran its loan system
Reactions to the overdraft function were largely adverse. A risk analyst who didn’t want to be named said that Kuda should either improve its overdraft service by doing a more thorough risk analysis or stop using the idea altogether. He continued, “But, scrapping the offering would be unwise, as lending, if done right, has the potential to push the company’s bottom line to a high net positive.”
It’s important to note that loans account for a significant portion of a traditional bank’s revenue stream. Kuda’s nonperforming loan to depositor ratio was 69% at year’s end, while the percentage for traditional banks fell to 4.8%. Traditional banks usually only lend to a few low-risk businesses that have already provided enough collateral to reduce the risk of default. On the other hand, Kuda only works with user activity on its app. But the disparity in the proportions is still a cause for concern.
Kuda’s increase in customers boosted its cost of operations
In the same way, the financial report analysis says that “the firm’s risk appetite, criteria, and strategy for retail and business loans calls for immediate restructuring.” This means that these things need to be changed right away.
Because of an increase in the population, costs will also rise. Between 2020 and 2021, Kuda’s personnel costs went up by almost 500%, from $215,437,000 to $1,285,381,188. The company decided to hire highly skilled managers and executives to raise salaries and promote some of its current workers. The company promoted Ryan Laubscher, an advisor until 2020, to group chief operating officer. For the time being, Laubscher is in charge of the company’s growth as its chief expansion officer.
Because of this growth in personnel, the company’s depreciation and amortisation (compensation for things like computers, desks, and other office fixtures) increased dramatically, from £18.590,000 to £64,326,473. All of Kuda’s operating costs (OPEX) rose by 652% from 2020 to 2021, going from $935,560,000 to $7,033,275,412. According to the statement,
“The firm’s income does not justify this expenditure in the short term.”
Despite this, the neobank is actively recruiting A-listers from around the globe. Pavel Khristolubov, who was the COO of Tinker Bank in Moscow, has been hired as the COO. Elena Lavezzi, who used to be the general manager of Revolut’s operations in Italy and Southern Europe, has been hired as the chief security officer.
Kuda’s slogan is “The Bank of the Free,” so at first, card maintenance and the first 100 or 25 monthly bank transactions made through its app were free. Customers are attracted, but several Experts in the field have criticised the free-transfers approach. According to a financial expert, when asked about the cost of disruption, “Banking isn’t free anywhere, and it doesn’t necessarily have to be free.” What matters is availability, simplicity, and usability. It was found that the neobank’s value-added services, such as the sale of airtime, brought in more money than the bank’s traditional banking activities. Kuda has started charging fees for both deposits and withdrawals. The company says it is just following a Central Bank order.
Kuda’s second round of funding increased its services and value.
Kuda is more valuable than certain Nigerian banks after raising $55 million in Series B funding in August 2021. What can the bank do to turn a profit when it is clear that it isn’t producing money in the same way conventional banks do, and its valuation relies on guesses about the future?
When the neobank talked about its Series B funding round, it said it has 1.5 million customers.
