InCredible CRED

The past decade has witnessed the emergence of a number of FinTech startups all around the world. India too has seen a surge of FinTech startups including 5 of them entering the prestigious ‘unicorn’ club as of 2020.

While talking about the emerging FinTech startups of India, one cannot ignore CRED which was founded in 2018 by Kunal Shah (who had also founded Freecharge back in 2010).

What is CRED?

CRED aims to simplify credit card management and reward its users for good financial behaviour. It targets upper-income youngsters and white-collar professionals in India facilitating them to make timely payments of their credit card bills in return for CRED coins that can be redeemed with its partners.

The CRED Club

All the benefits of CRED are exclusively available only to the members of CRED club. When most startups are striving to target the ‘next billion internet users’, CRED has gone with a completely different approach. It has created a gated community of trusted individuals and aims to provide them with the best benefits.

CRED is only for individuals with a credit score of 750 and above. Thereby it has successfully managed to apply a very strict filter to only allow individuals who are financially disciplined and represent the premium credit card users in India. This is based on the belief that a small number of high lifetime value users are more powerful than a large number of low lifetime value users. The basic idea of CRED is to onboard the premium credit card users in the country and reward them for exhibiting financial discipline.

Unique proposition of CRED

At present CRED members can avail the following services at no cost:

  • Management of multiple credit cards on a single portal along with timely credit card bill payment reminders and payment options.
  • Rewarding coins against credit card payments made through the app which can be used to redeem rewards from CRED’s brand partners.
  • Identification of hidden charges and duplicate transactions in credit card statements.
  • Analysis of credit card spend patterns.
  • Instant access to personal credit lines at one-third the interest rates offered being in market.
  • Payment of monthly house rentals through credit cards.

CRED has successfully gamified something as mundane as credit payments. Members are getting rewarded with all these services at no additional cost for what they did naturally anyway, which is paying credit card bills on time.

CRED’s market and its business model

As at April 2020, India had around 57 million credit cards in operation with only 32 million unique credit card users. So, if you have a credit card, you are in the rare 2.3% of India’s population. On top of that CRED only allows individuals with a credit score of 750 and above. Effectively we are talking about a fraction of the total credit card users in India.

Although this is might be a small market to target, let’s understand why CRED might be right in taking this approach:

  • Between 2015 to 2018, the number of credit cards in India grew at 26% YoY with the total credit card spend growing at 36%. In 2019, Indians spent almost $100 billion through credit cards which represents 5% of our GDP. So not only more people are using credit cards they are also spending larger amounts per card.
  • By targeting individuals with credit score of 750 and above CRED is creating a clientele of high value consumers who have a significantly higher spending capacity than average Indians while having very low credit risk. These are the niche consumers which all brands are looking to target for selling their products and services.
  • “Acquire now, monetize later” seems to be the mantra behind CRED’s “community-building approach”. CRED’s only source of revenue currently is fees collected from its 150+ partner merchants for giving them access to their lucrative customer base. However, CRED has the option to monetize this data going forward and develop multiple revenue streams.

CRED has created a community of high trust individuals and is collecting data to potentially offer a myriad of financial products in future. Information is gold for offering financial instruments, and CRED is mining it for high-income consumers.

Although CRED’s strategy to not run after scale and focus only on a niche category of Indian consumers might look faulty at first glance, it does make sense if we take a detailed look at what CRED is trying to achieve.

It may not be as rosy as it seems

Although CRED has come a long way since its inception and proved that it is a viable product which has a market in India, it is not as rosy as it may seem. It does face certain inherent challenges and it will be interesting to see how things unfold in the coming days.

Two of the biggest challenges which CRED has to overcome are:

  • Privacy concerns – Credit card statements are very personal and users will not like it to be used to the extent CRED may want to use them in future. CRED privacy policy states they won’t sell data to 3rd parties, but they can use data to enhance and personalize user experience. However, the privacy policy can be easily modified as per the product-market fit. If users feel uncomfortable, they may look for other options. CRED needs to maintain the trust to ensure users feel confident while sharing their credit card statements with it.
  • Lack of proprietary data – There is always a possibility that eventually banks will figure out the business model of CRED and would want to reward their credit card users in a similar fashion if they make payments through their own platforms. In such a scenario brands may also switch over to other platforms if they can get access to the same user data for a lower fee. CRED does not have any proprietary data as such which banks cannot access. The credit scores can be easily obtained from the credit bureau by anyone.

Having said that, CRED has had an incredible journey since its inception. As per the founder Kunal Shah, as at January 2021, CRED has reached a customer base of 5.9 million with a median credit score of 830. He also claimed that its users have 2x the spending capacity of the average credit card user in India.

In the latest series C funding, CRED managed to raise $81 million at a valuation of $806 million. If this trend continues CRED is surely on its way to become the 6th Indian FinTech startup to enter the ‘unicorn’ club.