One unifying problem experienced by commercial bank users in Nigeria is indiscriminate and unexplained bank charges. Attempts to get clarification from their banks for these deductions are usually met with unsatisfactory responses. Little wonder you see aggrieved bank customers calling out names of erring banks on social media and debating which of the banks should be crowned the “most useless bank” bank in the country.
Here comes Kuda, the “bank of the free”
Kuda, one of Nigeria’s leading fintech banks redefined the banking space and built its services on customers’ dissatisfaction with traditional banks. The micro-finance bank penetrated the Nigerian market with its zero transaction fee offer for its customers. According to the bank, “We came from frustration with excessive bank charges (for inconsistent services), and now we are here,”
However, Kuda’s over two million customers have raised eyebrows at a recent development perceived antithetical to its “zero charges” mantra. In a mail to its customers, Kuda says there would be a N50 charge for all deposits of N10,000 or more made into customers’ Kuda accounts from July 15. The development is in line with the Federal Government’s stamp duty act.
According to the bank, the development would apply to deposits on electronic transfers, money added to accounts with a debit card and cash deposits made into account at any of its partner banks. However, the bank emphasized that it gains nothing from the N50 charges as everything would be remitted to the government. This seems unbelievable to customers who have often wondered how Kuda makes a profit from zero charges?
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How does Kuda make its money?
From different indications, profit is the top priority for banks, and the possibility of a zero transaction fee from a bank in the Nigerian clime seems utopian. So how does Kuda make its money if not from fees?
According to Kuda, it makes money from using collective deposits to make investments and issue credit. They also make money from commission on airtime purchases and from service fees sellers pay when people like you shop with their Kuda Card.
Additionally, because Kuda runs its entire operations digitally, it does not have a brick-and-mortar bank. And because they do not have branches, Kuda saves a lot of money. So the bank can afford to pay customers more interest than most banks and afford not to charge ridiculous fees for transactions.
What is this N50 stamp duty for, if not gains?
Well, it is for gains but not for Kuda. Stamp duties are government-imposed taxes used to raise funding for government activities and projects. In 2016, the Federal Government, through the Central Bank of Nigeria, imposed stamp duty of N50 on bank customers for money received into their accounts. According to the Central Bank of Nigeria (CBN), it is part of the federal government’s efforts to boost Nigeria’s revenue base by exploring opportunities in the non-oil sectors, especially taxes and rates.
The circular released in this regard read, “all DMBs and other financial institutions shall commence the charging of N50 per eligible transaction under the provisions of the Stamp Duties Act (SDA) and Federal Government Financial Regulations 2009, that is, all receipts given by any bank or other financial institution in acknowledgement of services rendered in respect of electronic transfer and teller deposits from N1, 000 and above.”
However, on January 14, 2020, the Finance Act 2019 introduced amendments to the SDA to make it apply to electronic receipts. The amendments set the threshold for the stamp duty on electronic receipts and transfer of funds at N10,000 for all types of accounts. Presently, the Central Bank of Nigeria (CBN) collects the stamp duties as a result of the unending tussle between the Federal Inland Revenue Service (FIRS) and the Nigeria Postal Service (NIPOST) on who the rightful collector of stamp duties is.
What about customer retention?
Obviously, customers are disgruntled, but they are less likely to stop using Kuda’s services. Why? The deduction of stamp duty is not new to many other banks. In fact, it is appropriate to say Kuda is presently the last in a line of banks under the policy. Therefore, discarding Kuda is not a better alternative.
Notably, the N50 stamp duty is strictly for deposits above N10,000 into a Kuda account. So Kuda customers still get 25 free transfers monthly with extra transfers to other banks at N10 cost each, amongst other perks.
Interestingly, some banks have been accused of charging stamp duties for deposit transactions under N10,000 against the CBN’s policy. We believe Kuda will stick to its “bank of the free” motto and not follow the shrouded path.
