CRED is a Bangalore-based fintech startup launched in 2018 that rewards you for paying your credit card bills on time through the CRED app which appears to be a major part of the CRED Business Model. It is a place where all the credible people in India are rewarded for their creditworthiness.
The Founder of CRED is Kunal Shah, an MBA dropout from NMIMS Mumbai who has successfully fueled startups to multi-million dollar valuations in the past. One of them is Freecharge which he founded in 2010 with Sandeep Tandon.
Freecharge was valued at $400 million in 2015 and was acquired by Snapdeal, the company continued to operate as a separate entity under Kunal Shah until 2016.
Kunal Shah left the helm of Freecharge in 2016 to work on other startups he had invested in and later went on to launch another Fintech startup in 2018 that scaled to a valuation of $2.2 billion in less than 2 years.
So, what is CRED doing that made CRED one of the innovative startups in India?
Well just like any other great startup, the idea was to solve a problem. A problem that existed but was not recognized.
Kunal Shah always had an inherent interest in finance and startups which helped him identify a problem that no one in the industry was batting an eye for.
He realized that nobody was ever rewarded for paying the money back on time and he wanted to change that through CRED, an incentive-based credit card bill payment platform for a selected group of people that have a credit score of more than 750.
CRED offers its users CREDcoins for every successful bill payment on the platform and also manages the credit cards of users by reminding them of the deadlines for payments as well as making them aware of any hidden charges.
Come on then!
Hop in the backseat as we take you around on a journey to explore one of the best startup ideas in the country CRED.
Table of Contents:
- The business model of CRED
- The revenue model of CRED
- Future outlook
CRED Business Model: Details
Wait, hold on a minute. We know this is interesting but before we get into the CRED Business Model, let us first understand what a Business Model is.
Okay so there are two ways to go about this, the first one is the Definition of a Business Model from the Penguin Dictionary of Economics, and trust me it’s not something we would call interesting.
So the second way is what we are considering to get you acquainted with the term.
We will use a general meaning and an analogy to explain the term Business model so let’s get into it….
A Business Model is essentially a detailed outline of the business that contains all the information regarding the products and services the company is going to offer, the type of consumers it is going to target, the distribution mechanism, the costs and expenses, and pricing of the products, etc.
Just like before building a house, you need a map to get an exact idea of how the house will look once it’s done, you need a Business Model to plan and implement the business on the ground.
Although the Revenue Model of a company is a part of the Business Model itself, the Revenue Model of CRED is amazing and interesting, hence it is discussed separately in this article.
Now let’s get down to the CRED Business Model
The CRED Business Model has 5 main components and we will address them as the 5 pillars of CRED. All the five components of the CRED Business Model are discussed in detail below-
The CRED app is the central pillar of the entire CRED Business Model structure because every other service or product that the brand offers is either provided through the app or is a by-product of the app.
The app has an amazing user interface and users can log into the app by simply entering and verifying their phone number, the app automatically detects and adds all the credit cards linked to the number.
If the user has a credit score of more than 750 points then they can use the app and if it is lower than 750 points, the users are put on a waiting list until their score hits the mark.
To utilize the functionalities provided by the app, the user needs to give their Email access to the app so that it can keep track of all the credit transactions the user makes and remind them of their due dates.
The app provides the users with various benefits including exclusive prizes and offers from the partner brands that they can avail of, using CREDcoins that are awarded to the users for making their bill payments on the app.
Partner Brands and Platforms
CRED has also partnered with brands like Cure. fit, ixigo, Fresh Menu, Air BnB Bookmyshow, Ajio, CR7, Wrogn, Lakme, and some 400 odd brands to provide its users exclusive benefits and offers.
These brands are an integral part of the CRED Business Model and contribute to the revenues of the company.
This arrangement is mutually beneficial for both CRED and the partner brands as it allows CRED to offer exclusive benefits to its users and the partner brands to enjoy exposure to a customer base that possesses a significant amount of disposable income as well as an incentive to buy products from these brands.
The Users themselves are a huge asset to the company not only as consumers but also as a service that the brand can offer to other brands or platforms.
This strategy is effective for CRED only because CRED does not target the masses but a smaller group of individuals that are creditworthy and also have a high disposable income and as a result, are a much more valuable set of individuals for brands as they are more likely to buy a product from them.
It makes CRED an ideal space to advertise products and services. It is really interesting how CRED uses its elite set of customers not only as customers but also as a service to other brands generating opportunities at multiple fronts and driving revenues into the pool.
This innovative approach and out-of-the-box ideas make CRED a cut above the rest.
CRED pay is a relatively new service launched by CRED in partnership with Razorpay and Visa that offers its users access to a convenient payment gateway that allows them to buy products from partner brands and pay using the CRED app itself.
It allows you to pay for your purchase using the credit cards saved in the CRED app and the users can also use the CRED coins to unlock offers on products that effectively provide CREDpay an edge over other payment methods.
Did you notice how CRED uses one aspect of its business to penetrate through other segments and make space for itself, it also uses interesting techniques to incentivize the use of its products over the existing players in the market.
Although CRED pay is not perfect as a payment gateway as it only allows users to pay through the credit cards available in the app and does not provide any other alternatives.
But CRED pay is new and will surely improve with time.
CRED mint and CRED cash
CRED mint is the latest venture by CRED that allows the consumers that are sitting on surplus funds to lend it at the rate of up to 9% per annum and earn interest on their money. CRED partnered with Liquiloans, an RBI-approved peer-to-peer lending Non-Banking Financial Institution (NBFC).
CRED mint is secure as the lenders can withdraw their money at any moment without any penalties with the interest they have accumulated over the period and the recipients of the loan are creditworthy individuals just like them.
CRED cash is another service available to CRED users where they can avail of credit-line loans of up to Rs 5,00,000 once they are approved by CRED.
Credit-line loans are flexible loans that allow the borrower to avail a fixed amount of money whenever required that can be repaid immediately or over some time. The interest is charged from the moment the fund is borrowed.
The approved users can access the pre-defined amount at any time of the day and the amount is directly credited to their bank accounts.
CRED cash has a default rate of less than 1% and the total amount disbursed through CRED cash is above Rs. 2000 crore.
Fun fact: Kunal Shah is an avid investor in startups and his startup portfolio includes more than 160 startups. Razorpay and Unacademy are a few examples that turned out to be Lucrative bets.
Kunal Shah as an investor has funded job-creating startups and in the process, has accumulated resources that allow him to explore the different sectors and come up with strategies and ideas that provide some value to the consumers.
As an entrepreneur, he has perfected the art of networking and resource management, which reflects in the extraordinary success of his startups and their incredible valuations.
CRED Revenue Model: Details
The Revenue Model of CRED is one of the most interesting aspects of the startup because CRED is a loss-making company, and is accumulating losses with every passing year.
In 2019, the total loss stood at Rs.60.87 crore which inflated to Rs. 360.3 crores in 2020.
So does that mean the Revenue Model of CRED is not good?
No, that’s not true at all. The Revenue Model of CRED is immaculate and is generating revenues for the startup consistently.
The company is incurring losses because the expenses are way too high. For every Rupee earned in 2019, CRED spent Rs.720. And a pretty big chunk of these expenses goes into advertising and marketing.
CRED’s Business Model is descriptive and to make its way to the top of the credit card payment business and establish a monopoly in the market, CRED used a majority of its funds to capture the customers and position itself at the center of the conversation whenever credit card bills pop up.
And the strategy has worked well for CRED as it captured almost 25% of the business with 5.9 million active users.
You see every startup in its initial days has expenses greater than the revenues and it turns into a business the day revenues surpass the expenses, CRED is no different.
And the fact that investors are still investing in the idea from around the world and are fighting to get a piece of the business shows how good of a startup CRED is. It’s just a matter of time until the fundamentals of the company start complimenting the billion-dollar valuations.
So now let’s take a look at the Revenue Model of CRED and find out how the company makes money-
So CRED essentially makes money in 3 ways-
Charging Brands to list offers on CRED
CRED charges a listing fee from brands to feature on the app and provides exclusive offers to its users. And the brands are willing to pay the fee because CRED does not target the masses but an elite group of individuals with access to money and a need to consume.
Which makes them a perfect consumers. Some of the brands listed on CRED are Dineout, Ixigo, Gap, Levi’s, The Man Company, The Moja Club, The Mom’s Company, and others.
This is one of the primary sources of revenue for CRED and therefore an integral part of its Revenue Model.
Leveraging User data
To take the benefits that the app offers, the user has to give access to his/her financial details to CRED so that the app can keep track of all the purchases made through credit cards and generate reminders for the bills.
So CRED has access to a lot of financial data of the most creditworthy group of people in the country and Financial Institutions are willing to pay a good amount of money to either have direct access to the data for profiling the individuals or to show ads to them.
Interest earned through Investments
Do you remember CRED cash?
The service where users can get access to Credit-line loans
Where do you think all the interest that is accumulated on the loans goes?
Yup, you got it!
That is another source of revenue for CRED, interest accumulated through investments.
Well, these are the ways CRED makes money and we hope you realize that the real asset of CRED is not the actual business of credit card bill payment but the users and their financial data.
CRED does not earn a single penny when a credit card bill is cleared through their portal but instead draws value from the data they have access to and monetize it to earn money.
As you are already aware that CRED burns a lot of cash in advertising and marketing hence, it needs a lot of money to continue its operations until it can generate enough revenues to make the startup self-sustainable.
Fortunately, CRED has enjoyed a healthy inflow of funds from various avenues of investors which is one of the reasons why it achieved such high valuations in just 2 years of its inception.
So let’s look at how CRED was funded as a startup idea-
- CRED has raised over $470 million from 7 rounds of funding, of which the first 2 were seed rounds.
- The First-ever funding that the company received was back in 2018 from Sequoia Capital India. The company invested $30 million in CRED.
- The Biggest round of funding for CRED was its latest series D round of funding on April 6, 2021, when the company raised a total of $220 million from a group of nine investors at a valuation of $2.2 billion. The major participants were Coatue and Falcon Edge Capital.
- The second biggest round of funding was the series B round of funding including 10 investors, where the company raised a total of $120 million, the major participants were Ribbit capital, Gemini Investments, and Sequoia Capital India.
If you want to know more about the funding of CRED then follow the link below to see a table of all 7 funding rounds-
There were speculations around a new round of overseas funding at a valuation of $4 billion which was denied by Kunal Shah himself in an interview where he said that CRED is not looking for fresh funds at the moment.
This section of the article will introduce you to some mind-numbing facts and statistics that will make it easier for you to cope with the fact that the future of CRED as a startup is very positive.
Apart from the fact that the business model of CRED is one of the best in the startup space and it enjoys a monopoly in its segment, the numbers reveal the immeasurable potential CRED has as a startup to scale to unimaginable heights due to its innovation in the Fintech industry.
Let’s have a look at the numbers-
The total number of credit card users in India as of April 2021 is 57.4 million and the number of debit cards in use is 829 million.
What these numbers tell you is that only 0.0069% of the total potential customers use credit cards in India.
What if this number goes to 1%?
What will happen is that CRED will become 40% bigger than it currently is and that is when the company itself does not increase its market share and keeps operating at its current capacity, which is very unlikely as CRED does not have any major competitors in the market.
Just for reference, the USA has almost 70% of its population using credit cards.
If that happens in India someday, the valuations of CRED will shoot through the sky into space.
We are pretty sure you would have realized the infinite potential of CRED as a startup in India. But there are some variables to keep in mind before we jump to any conclusions-
- The majority of the population does not recognize the benefits of credit cards in India and they prefer to pay for goods out of their own pockets rather than using a credit line.
- The Financial institutions in India are not willing to take the risk when it comes to issuing new credit cards and hence there is also the problem of supply.
But this will change in the coming decade as more financially aware and young people join the workforce in India and break into credit payments, as they realize the underlying benefits.
Credit card usage in India is already growing in double digits every year and is only going to increase in the coming years. So the only thing that is going against CRED is its expenses and once they manage to minimize its expenses and increase its revenue, the Company is all set to rule.
What do you think about the future of CRED?
Do let us know in the comments below!
We hope that you enjoyed this detailed analysis of the CRED Business Model. This article is an in-depth review of all the aspects of business, revenue, funding, and growth potential of the company in the future.
We as a startup recognize the genius behind CRED and are inspired by the achievements and work ethics of the company.
What did you love most about CRED?
Do let us know in the comments below!