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Nigeria's digital-only bank set to lead market disruption

Nigeria's digital-only bank set to lead market disruption

As digital technology continues to spur financial access to millions globally, a digital-only bank in Nigeria, Kuda, has joined the surge in the country's FinTech space with a business model set to disrupt the banking sector.

Licensed by the Central Bank of Nigeria, Kuda reportedly raised US$1.6 million in pre-seed funding trailing the likes of OPay, Interswitch and PalmPay which have all raised huge sums in the course of 2019.

It provides full banking services through its Android phones and iPhones apps to allow Nigerians with internet access to run a current account, save money automatically and earn up to 15% annual interest without the burden of bank charges.

According to the Financial Inclusion Global Initiative, 55% of account owners in high-income economies and 30% in developing world economies have made at least one direct payment using a mobile money account, a mobile phone, or the internet.

The growth in the digital financial services (DFS) ecosystem is expected to continue regardless of its vulnerability to a variety of security threats, as the DFS Security Assurance Framework has been developed to bridge the knowledge gap and risk management.

Kuda comes shortly after the Central Bank's reported plan in November to license more payment providers in an effort to expand access to financial institutions (FIs) and improve Nigeria's financial inclusion rate to 80% by the end of 2020. Aside seeking to break users' attachment to existing brick-and-mortar bank branches, it also aims at cutting on charges.

"Being digital-only makes us nimble and places us at the forefront of financial innovation," says Kuda's Ore Fakorede. "It also removes the heavy costs that come with running a network of physical branches like traditional banks do. In combination, these give us an edge to outperform traditional banks in the long term.

This saved cost helps power their business model to exclude fees on card maintenance, account maintenance and excessive transfer which saves customers thousands of naira monthly. It also helps provide customers with free debit cards at no cost nationwide thus differentiating their offer from digital wallets.

"We already give our customers who sign up with their Bank Verification Number (BVN) 25 free transfers every month for life, "Fakorede adds. "We make money by investing deposits in risk-free, government-backed securities as well as from transaction fees we charge merchants. In the future, we will make revenue from interest charged on loans."

With more licenses to be issued to FIs leading to competition in coming years, Fakorede maintains Nigeria has enough time to adopt new technology required to make the gradual process of digital automation happen as FinTech has improved rapidly in the country over the last few years.

"Digital technology is key to financial inclusion because of the pervasive reach it offers," he says. "An easy example is the proliferation of mobile money and agent banking services facilitated largely by mobile phones. We may not give ourselves enough credit for this growth, and that may be why we underestimate how much progress has been made. We can only continue to move forward. As more Nigerians embrace the simplest forms of digital technology, financial inclusion will grow in leaps and bounds, and basic financial services will reach even the farthest parts of the country."

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