In the last two years, Kuda MicroFinance Bank, a neobank with a Nigerian microfinance bank licence, has seen losses. Kuda’s loss of over N6 billion ($14,214,681) by the end of the 2021 fiscal year, was an increase of 602% from the loss of $2,025,295 it suffered in 2020.
According to its financial report, the company’s sales climbed by 4,315% from 72,649,000 in 2020 to 3,207,177,570 in 2021. However, after deducting every cost, the business reported a net loss for the year, with significant credit losses, impairment charges, and operating costs being the main causes.
The loss of the microfinance bank offers several lessons to growing companies. Here are five lessons that can be drawn from Kuda’s N6 billion loss.
1. Do not start what you can’t sustain
The catchphrase of Kuda is “Bank of the free.” This tagline was drawn from the bank’s offering of free transfers for the first 100 transactions or 25 free transfers each month, along with it’s no card maintenance cost, in line with the bank’s payoff.
The free-transfers strategy was criticised by several industry analysts, despite the fact that this is helpful for customer acquisition.
A financial analyst told TechCabal that disruption doesn’t always have to be free and that banking is never free anywhere. Accessibility, simplicity, and usability are crucial.
Recently, the “Bank of the Free” began imposing fees on transfers and deposits, but Kuda claimed that it was just doing so in accordance with a Central Bank regulation.
2. Stay within a budget
By 2020, Kuda’s personnel costs had nearly doubled, from 215,437,000 to 1,285,381,188, due to the company’s increased use of expensive key management staff, compensation reviews, and promotions of current employees.
The company offered Ryan Laubscher, who had only been an advisor through 2020, a full-time position as its group COO, among other important additions.
The Neobank is still bringing in top talent from all across the world. It only recently announced the appointments of Italian Elena Lavezzi, the former general manager of Revolut’s activities in Italy and Southern Europe, as CSO, and Pavel Khristolubov, the former COO of Moscow-based Tinker Bank.
The company recently told TechCrunch that it has laid off about 23 employees, or less than 5% of its 450-person workforce, despite its recent high-profile hiring.
3. Know when to cut costs
The bank has made significant marketing and branding investments. The company has spent over $1 million on marketing by the first quarter of 2021.
Without specifying the total amount spent on marketing and branding for the entire financial year under review, the marketing spend was cited in the summary of the financial report as one of the main reasons its operating expenses (OPEX) were on the higher side.
4. Know when to employ risk assessments
Another factor that kept the business deeply in debt was the overdraft function in Kuda.
While Kuda’s lending yardstick is solely based on user’s activity on its app, traditional banks, on the other hand, often only give credit to a small number of low-risk enterprises with significant collateral that already mitigates defaults.
Babs Ogundeyi, the CEO of the neobank, once asserted that the strategy has resulted in “little” defaults. In that comment, Ogundeyi stated, “We use all the data we have for a customer and apportion the overdraft proportion based on the user’s activity, striving for it not to be a burden.”
However, Kuda didn’t seem to have fared too well with this business strategy the company adopted.
5. Check how much you spend on customers’ acquisition
The bank claims to have over 2 million registered users despite having extensively invested in customer acquisition. Additionally, it has a little over a million Google Playstore app downloads.
The Kuda’s loss of N6 billion was due to this extraordinary measure to gain clients. Though it’s possible that Kuda and its investors are playing the long-term game by increasing their user base, the long-term revenue from these clients is more valuable than any short-term expenses or losses.