Indian Unicorns 2022: CRED Focuses on India’s Nascent Credit Card Market

About 57 million credit cards cater to the premium market in India. The Indian credit card industry is dominated by four banks that account for 70% of the total market. Unicorn CRED is making big moves in this industry.

CRED’s Offerings

Founded in 2018 by Kunal Shah, Bengaluru-based CRED is a members-only credit card management and bill payments platform that rewards users whenever they pay their credit card bills. The idea for CRED came to Kunal when he was scouting for a business opportunity. He found that while there were many places where a user could purchase products directly without interacting with another individual, there was no mechanism that allowed people to pay the correct amount of credit card bills in due time without zero extra charges. He decided to set up an app that would reward loyal credit card users who paid their bills on time. Today, its app rewards customers for paying their credit card bills on time in addition to providing access to a range of additional services like credit and premium catalog of products from high-end brands. Customers are also provided with features that include the ability to better track spending across various credit cards and get reminders.

CRED remains focused on a high-end consumer base. It has opted for an approach of gathering customers first and looking for monetization later. To become a CRED user, the consumer has to have a credit score of at least 750. CRED believes that by keeping a higher entry barrier, it is able to attract people that have prudent financial habits. Last year, CRED reported a user base of over 7.5 million customers in India with a 20% value share of all credit card bill payments in the country. It also has partnerships with over 1,300 brands.

Most consumers in India have debit cards, while credit cards remain an aspirational product. To expand its product offerings within its users, CRED has been offering new products including non-financial services. They launched an e-commerce service last year that allows customers to get access to curated items. Within financial services, it has products like CRED RentPay and CRED Cash. CRED RentPay allows users to pay recurring household expenses and bills, and monthly rent using credit cards. CRED Cash is a low-interest rate credit line.

Recently, CRED also announced several acquisitions. Last October, it announced the acquisition of HipBar, a liquor delivery startup. HipBar was facing several regulatory issues in its liquor delivery business, but it also owned a prepaid payment instrument (PPI) license that allowed it to operate payments systems such as digital wallets, pre-paid transit cards, and vouchers. Only 37 such licenses have been issued by the RBI. The acquisition will grant CRED access to the PPI and allow it to give cash back directly to individual wallets instead of user bank and card accounts. Analysts believe that the wallet license would allow CRED to contain cash backs within its ecosystem, which can be beneficial as transaction volumes scale up. Terms of the acquisition were not disclosed.

Last month, CRED announced the acquisition of expense management player Happay. Founded in 2012 by Varun Rathi and Anshul Rai, Happay’s platform has automated spend management for business expenses, payments, and travel details for more than 6,000 businesses. It helps track an estimated $1 billion in yearly spends and generates three million expense reports annually. CRED believes that Happay’s software stack payment engine will help complement the card management experience that CRED offers to its members.

CRED’s Financials

CRED earns revenues through listing fees that businesses pay to display their products and offers on its app. Besides merchants, it also has a revenue-sharing arrangement with banks and financial institutions for cross-selling financing products. It does not disclose its detailed financials, but it had projected a 208X growth in its operating revenues for fiscal year 2021 to INR108 crore (~$14 million).

The company has raised $722.2 million in 8 rounds of funding led by investors including Steadfast Capital Management, Dragoneer Investment Group, DST Global, Coatue, Insight Partners, Tiger Global Management, Marshall Wace, Alpha Wave Global, Sofina, and RTP Global. Its most recent round was held in October 2021, where it raised $251 million at a valuation of over $4 billion.

Like other Indian startups, CRED too has seen its valuations soar. A funding round held in March last year had valued it at $2 billion. CRED’s user base has been growing at a fast pace as well. In April 2021, it had 5.9 million members that grew to over 7.5 million by October 2021. It plans to continue to build deeper relationships with these customers through the expansion of its product lines. The recent addition of the payment license will also help it capture a big market share.

All this being said, the company does not sport financials that justify its valuation. It is yet another example of a highly bloated valuation landscape that by and large disregards the principles of fundamentals-focused business building. It would be interesting to see how all this plays out, and whether the founders can keep their heads steady at the face of such deluge of capital. Death by Overfunding worries remain.

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This segment is a part in the series : Indian Unicorns 2022