Nigeria-born digital banking platform, Kuda, is on its way to power digital banking services in Pakistan, as the fintech is set to acquire a digital banking licence from the State Bank of Pakistan (SBP). This licence will be issued to “KT Bank”, a joint venture between Kuda and two leading Pakistani companies, positioning the fintech as one of the five companies to receive the highly coveted digital banking licence in the country. Kuda and four other banks edged out 15 other applicants for this licence, including all the Pakistani commercial banks that applied.
As the digital revolution sweeps across financial markets globally, more central banks are creating frameworks and licences that ensure market optimisation and enable proper regulatory control of the digital banks within their country’s borders. In December 2020, Nigeria’s apex bank released a new categorisation of licences for the payments system, setting a six-month observation period between the issuance of an approval-in-principle and the licence to operate as a payment solutions service provider.
In January 2022, Pakistan’s central bank followed suit, launching its new licensing and regulatory framework for digital banks. According to the SBP, the new licences will spur financial inclusion and pilot with only five licences. This limited number of licences seemed to make them a collector’s item of some sort, with mega digital banking players like the Sequoia-backed Dbank, South Africa’s Tyme Bank, and homegrown fintechs such as Finja losing out on the race.
Kuda Bank, however, moved strategically in its bid. The UK-headquartered fintech partnered with two leading Pakistani institutions in June last year—Fatima Group and The City School Group—to apply for the SBP’s licence. The City School Group is one of the largest private school networks in the region, while Fatima Group is a conglomerate of companies with subsidiaries that offer a range of high-scale solutions ranging from energy to agricultural manufacturing and trading.
“The company’s [Kuda’s] partnership with Fatima Group and The City School Group leverages each partner’s unique reach and capabilities to create a powerful proposition with enormous potential to increase financial access and affordability in Pakistan, and most notably, with a focus on the agriculture and education sectors.” Kuda’s Chief Expansion Officer, Mr. Ryan Laubscher said about the partnership, maintaining that Kuda’s priority is to provide affordable banking that will scale its partners’ inclusion-focused initiatives in Pakistan.
According to local Pakistani sources, all applicants were assessed on various parameters that included fitness and propriety, experience and financial strength; business plan; implementation plan; funding and capital plan; IT and cybersecurity strategy, and outsourcing arrangements. Now, each of the selected five will incorporate a public limited company with the Securities and Exchange Commission of Pakistan, after which they will get an approval-in-principle to pilot their solutions.
The SBP expects that these digital banks will provide digital financial services, including credit services and low-cost movement of money to all Pakistanis, thereby promoting financial inclusion and serving the unbanked or underserved—exactly what Kuda has been able to do in its home market, Nigeria.
Kuda was founded in 2019 by Babs Ogundeyi and Musty Mustapha, and has, in its three-year run, raised more than $90 million while expanding its customer base to over five million users. The neobank boasts of easy and free to low-cost transactions, instant lending, debit card services, and more recently, international remittances from the UK. Tagged “the bank of the free”, Kuda demonstrates a new era of banking to Nigerians: free, easy, and completely digital. And the neobank is poised to replay the script in its latest South Asian market.
In 2021, when Kuda closed its $55 million Series B round, CEO Ogundeyi hinted that Kuda would use the funding to prepare for continental expansion as it seeks to provide banking services for “every African on the planet”. While those continental expansion plans are yet to materialise, we did see Kuda expand its offerings to the African diaspora in the UK, the second largest sender of remittances to Nigeria behind the US. Now, Africa might have to wait as Kuda focuses on penetrating the Pakistani market, its newest foray where it must compete with existing players—such as Easypaisa DB—to achieve market share.
From a business perspective, it’s easy to draw a connection between the Pakistani market and the Nigerian one. The two countries are densely populated with the potential for huge volumes of transactions when Kuda is adopted at scale. If Nigeria, Africa’s most populous country could deliver Kuda its $500 million valuation, there’s no reason why the fifth most populous country in the world can’t decorate Kuda with a horn. For context, Kuda was spotlighted by TechCrunch as one of the African startups in the soon-to-be-unicorn pipeline.
In a recent piece, TechCabal asked a critical question: Can African fintech startups build global solutions? With news like this, Kuda is joining startups like Paga and Moniepoint to say: “yes, we can.”