Exclusive: ‘The year of the Cloud’ – Ciaran Chu, ACI Worldwide and Babs Ogundeyi, Kuda Bank in “The Paytech Magazine”
Legacy or neo, the advantages of Cloud hosting became urgently obvious during 2020, as transaction volumes surged and banks were forced to rethink operating models. Ciaran Chu of ACI Worldwide and Babs Ogundeyi of Nigeria’s Kuda Bank discuss
In a year defined by disruption, Cloud tech has proved its mettle as a vital tool for building resilient, responsive and scalable banking solutions.
That’s certainly been the experience of Nigerian challenger Kuda Bank – one of 2020’s fintech success stories. It recently raised $10million in a seed funding round led by Target Global – said to be the largest of its kind in Africa – to build out its Cloud-native, branchless ‘bank of the free’. In a sign of the times, the deal was concluded via Zoom, the Cloud meetings app.
Kuda launched in 2019 as Nigeria’s first full-stack, licensed, mobile-only bank, and has been hailed for ‘revolutionising’ financial services in a country where 40 per cent of the population is unbanked. Founder and CEO Babs Ogundeyi says its Cloud-based tech stack is key to meeting the needs of its customers – both now and in the future.
“It gives us an opportunity to build a different kind of stack,” he says.
“To build for what we know the future will be. We can really tailor how we put together our technology to make it suit what we’re trying to achieve. At Kuda, we have our own core banking system, that we’ve built in-house, so we own our own banking rails, and we’ve built different businesses around that. In the future, we’ll have an insurance platform, for instance, and other types of services. Using Cloud means all of these things can work independently of each other, so you don’t have to wait until everything is ready; you can just continue adding things and, if something doesn’t quite work out, you can remove it. Typically, that hasn’t really been the way things work.”
“That’s really the power of the Cloud,” agrees Ciaran Chu, head of Cloud at payment solutions provider ACI Worldwide. “It allows you to focus on better serving your customers and transforming your business model.”
Powering $14trillion of payments for more than 6,000 organisations worldwide every day makes ACI Worldwide extremely well-placed to understand the challenges posed by legacy infrastructure and how Cloud can solve them. But, while ACI Worldwide provides payments services to global clients and Kuda builds its own Cloud bank for a much smaller target market, both Chu and Ogundeyi agree on the main advantages of the technology.
Being able to innovate and deploy more products, faster, thanks to the Cloud, is something that can benefit all financial service providers.
“Whether you’re a startup or an incumbent, I think the ultimate challenge comes back to the cost-to-income ratio,” says Chu, whose company serves 18 out of 20 of the world’s largest banks. “Historically, banks have relied very heavily on interest rates being very low, as well as transaction frees, to generate revenue and then, obviously, the cost base has been very linear,” he explains. “I think what Cloud has really enabled – and we’re seeing this with our customer base – is a reduction in that cost-to-income ratio.
“Not only are you able to outsource a lot of activity that is very time consuming – so a big drag on that cost base – but the Cloud also allows a lot faster provision and deployment. This means that you can innovate a lot more effectively and really start to transform your revenue base, so that you can move from transaction-based services to more value-based ones.”
Kuda Bank processes $500million in transactions every month through the Kuda card, for which there is a lot of fandom among its users, and bank transfers. It’s a drop in the ocean compared to the volume ACI handles, but both experienced a sharp rise in throughput during the pandemic, which is likely to be sustained. Kuda needed the built-in flexibility to handle bigger flows, notwithstanding COVID-19, because the reality is that Nigeria is still a heavily cash-using nation, with a central government intent on turning it cashless.
Digital payments, including for very small transaction amounts, were rising anyway but soared during the pandemic – something which would previously have put a lot of strain on older systems, let alone in such a large and traditionally cash-orientated society.
“That’s the whole point of Cloud-based and new-age technology. We need to be in a position where, as we scale, we’re also understanding the speed of growth,” says Ogundeyi. “Typically, with the old structures, you kind of just had to pre-prepare and anticipate that scale, which doesn’t work; you can’t anticipate that scale. But with an application programming interface (API)-driven, Cloud-based bank, you can just move with the growth,” says Ogundeyi. “It’s literally a switch, it’s automatic. As you grow, your service base just expands with you, and you really don’t have to do anything. It allows you to scale very quickly, without having to keep coming up with additional infrastructure.”
It also means providers can focus more on their product and proposition offering, rather than on regulatory provisions. In Kuda’s case, this could prove key in helping seize the massive Nigerian market opportunity, where the epayments penetration is just 0.4 cards per inhabitant out of a population of nearly 200 million, but where smartphones are the main access point for 56 per cent of people. As such, it is vital that any new financial service provider – particularly one targeting people who have never had a bank account – addresses local customer demand for mobile-based services and new payment technology.
“So many people’s financial needs are underserved,” says Chu. “So, things like simple instalment loans or microfinancing, will be big opportunities moving forward. The question becomes how you do it in a really customer-centric way.
“Emerging markets and developed markets are very different,” adds Ogundeyi. “We can use the same technology, but the business dynamics, and the way you approach the customers, are very different. Kuda could serve the greatest need which, in an environment with less affluence than more developed locations, is financing and credit. Good customer experience is needed too, but, in places where interest rates are relatively high, we’re in a unique position where we’re able to do social good by meeting demand for credit, in a profitable way. It’s about the right balance.”
Chu believes one of the biggest problems facing legacy payments infrastructure, is volume.
“That’s why, in an emerging market like Nigeria, where there are going to be so many people doing so many small transactions, it really makes sense to build a business – not just in financial services but in any segment – that’s driven by the Cloud,” he says.
Ogundeyi’s observations echo ACI Worldwide’s experience in India during the adoption of the Universal Payments Interface. As the country’s leading immediate payments provider, the company adopted a Cloud-first standard to both scale up infrastructure and address payment intelligence and fraud. But, while users wanted to know they were protected from potential loss, they also didn’t want a transaction to be flagged incorrectly as fraudulent.
“I think that’s really how the Cloud provides benefit. It allows you to think differently about how you package and bring that technology capability to market – to ensure you’re serving your customers’ needs and spending more time generating revenue for them, as opposed to just dealing with all the compliance and regulatory overheads,” says Chu.
He predicts that customer experience and security will be big drivers of banking transformation in the next couple of years, and being on the Cloud will help to facilitate this. “The art of banking is not particularly complex. It’s about providing funds to those who need them, in an increasingly transparent manner,” he says.
Not complex, but powerful: Chu cites an International Monetary Fund (IMF) report from 2018, which concluded that expanding access to financial services can help people climb out of poverty, reduce inequality and lead to higher economic growth. In this light, neobanks such as Kuda can be seen as more than just challengers in a global industry. They can play a vital societal role by tackling financial exclusion, with Cloud-based technology enabling a simple, seamless and secure banking experience for people who might not otherwise ever had an account.
While both Chu and Ogundeyi agree the future of banking and payments lies in the Cloud rather than on server-bound legacy infrastructure, neither expects change to happen overnight. There will need to be integrations with traditional banks and shared services, such as ATM transactions.
“In 10 or 15 years’ time, we’ll see a shift towards the way challenger banks build products – incumbents too,” says Chu. “But because they’re so big – and they’ve had so much success, over many years – it’s going to take time to get to that point. But it’s happening. We’re seeing it already.”