CRED’s New Gameplan


Will the relatively late entry into BNPL and retail payments turn things around for CRED?  

While many things about CRED and its founder Kunal Shah may appear larger than life, including the company’s massive headquarter in Bengaluru’s Indiranagar, we cannot ignore that CRED is in the same creaking boat as many of India’s highest-valued unicorns.

At a time when CRED is gradually stepping into new verticals to find a way into the black, there are many challenges lurking in the shadows for the fintech unicorn. The launch of BNPL and tap-to-pay for credit cards is a step towards shoring up revenue, but there’s plenty of challenges and stiff competition for CRED in this segment, despite its bullishness.

But before we unravel the CRED story so far, let’s take a look at some of the top reports from our newsroom:

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CRED In The Fintech Profitability Paradox?

Questions around CRED’s path to profitability versus its valuation are nothing new and certainly it’s not the only startup to be facing the heat. As per an Inc42 report 55 (74%) out of 74 surveyed unicorns incurred a cumulative operating loss of $5.9 Bn in FY22, nearly 2X higher than FY21.

Even other fintech giants with larger scale are still looking to solve the profitability puzzle, so the problem is not unique to CRED even in the fintech sector. Its counterparts such as Paytm and PhonePe have also taken too long to show signs of profitability despite boasting more users. Paytm has banked heavily on loans in the past year, while PhonePe dominates the UPI landscape, but neither of this has delivered the results.

Moreover, unlike other sectors, fintech models are governed by stringent regulations, making it difficult for the startups in this segment to bring in differentiation.

For context, the RBI’s notification for prepaid payments instruments (PPI) in 2022 has more or less been a dampener for the credit card challenger model for startups such as Slice, Uni, OneCard and many others.

Further, while the UPI has revolutionised payments, the profitability of UPI apps has been caged by schemes like zero merchant discount rate, which, ironically, has played a crucial role in driving the growth of UPI, surpassing credit cards in the digital payments space.

There is potential for UPI payments to become a real revenue source for fintech apps if the zero MDR regime is eliminated. The recent announcement of a wallet-like UPI Lite feature is likely to be a step in this direction, with higher value UPI transactions likely to attract an MDR in the near future. Of course, this is merely a speculation among those invested in the fintech ecosystem.

With investment tech and insurance businesses primarily driven by low-margin commissions, digital lending is the biggest revenue channel for fintech startups. As a result, the segment is cluttered with many companies drooling to clinch even the minutest chunk of the lending opportunity.

CRED’s Product Tangle 

Lending is exactly what CRED is going after with its newest announcements — a buy-now-pay-later (BNPL) service called CRED Flash and a tap-to-pay for retail payments using credit cards, in addition to the UPI.

However, this could complicate things for CRED, which already has several verticals in fintech and ecommerce. The company is banking on the new products would boost monetisation because credit card payments carry MDR, while BNPL is a dressed-up lending product that brings in revenue from interest payments.

The other question is whether CRED’s network of 500 merchant partners, its native bill payments and ecommerce marketplace are large enough to outdo its competition who have much wider penetration.

CRED claims to be targeting the cream of the Indian, and this is a thin slice of the overall fintech total addressable market (TAM). Most other startups are going after a bigger chunk but profits have eluded them. Will CRED’s approach of capturing high quality users pay off?

CRED On The Lending Bandwagon

The BNPL service joins CRED’s personal loan offering CRED Cash and peer-to-peer lending platform CRED Mint as the third lending service available on the app. These services are only available to CRED users with an Experian HighMark credit score of 750 or above. The company claims to have 11.2 Mn such active users who are eligible for BNPL and loans.

In August 2021, Shah claimed that CRED Cash had a loan book of INR 2,415 Cr, making the company the leading fintech lender in India. It’s not clear how much this has grown in the past 18 months, but for perspective, Paytm reported loan disbursals of INR 9,958 Cr at the end of the December quarter, and with a user base of 8.1 Mn borrowers.

While BNPL is a big focus for CRED right now, there is no guarantee that CRED will swing to profitability on the back of this push alone. In terms of differentiation, it can be argued that CRED has higher quality users and therefore will have a more profitable BNPL play, but this is assuming that the company is able to push most of its users towards this part of its revenue funnel.

The Cult Of CRED

A recent social media post capturing Shah’s thoughts on startups and profitability went viral. “Tech companies invest capital for several years in building large distribution and engagement before they monetise,” he said responding to questions about profits.

Backed by the likes of Sequoia, Tiger Global, DST Global, GIC, Alpha Wave Capital and a host of other investors, CRED has raised more than $800 Mn to date in its search for this “distribution and engagement”.

Last valued at $6.4 Bn in June 2022, the company’s loss grew 2.4X YoY to INR 1,279 Cr in FY22; however, revenue from ops grew 4.4X to INR 393.5 Cr, thanks to the push in the lending business. Despite this, CRED’s valuation is still a whopping 130X compared to its FY22 revenue.

The fact is that CRED faces stiff competition across every vertical, especially in the UPI segment in which it may struggle to compete with players like PhonePe and Google Pay.

Not only this, its credit card-based services face stiff competition from Paytm, and when it comes to BNPL, there are dozens of players. Further, CRED’s plans to harness the D2C revolution could see competition from existing marketplaces and newer players like Swiggy Mini and Blinkit.

Meanwhile, the gap between its revenue and valuation represents the bet that investors are taking with CRED. The perceived upside in Kunal Shah’s vision is powerful enough to sway any concerns at this point. But is this a justified belief?

“There is a thesis that the creamy layer of the Indian market will grow multifold in the next few years when stories such as CRED would make perfect sense. The questions right now are around the timing and the slow growth trajectory so far, not around the vision of catering to the premium, high value users,” a managing partner at a Bengaluru-based impact investor told Inc42.

At the same time, there’s an admission that certain founders do get a longer rope when it comes to proving the product-market fit or timing the market. It’s a matter of how much faith investors have in a founder.

Kunal Shah’s salary of INR 15,000 per month has also earned some spotlight in recent days. While many have lauded this, some have been critical, citing that this ignores the non-salary compensation that founders typically get.

However, we cannot ignore Shah’s aura when it comes to alluring VCs.

“If someone like Sachin Bansal says this is my idea, VCs will line up with money. The case is similar for Kunal [Shah], who has a massive reputation in the fraternity,” a Mumbai-based early stage investor confides.

But businesses are run on practical fundamentals, and capital demands returns. But for now, the impact of investors’ belief in Kunal Shah’s CRED story remains to be seen.

Sunday Roundup: Startup Funding, Tech Stocks & More

Funding Activity in 2023

? Weekly Funding Plummets: If there were any lingering doubts about the funding winter, this week’s funding tally should put them to rest. With just $32.35 Mn raised across 16 deals, the weekly tally is the lowest since Inc42 started logging weekly data in 2021

?️ Blinkit Takes On UC: Zomato-owned quick commerce platform Blinkit is eyeing a piece of the home repairs market with a UC-like service connecting consumers with handymen and repair professionals

? Paytm On Secondary Sale: After speculation about SoftBank and Ant Group offloading their shares in Paytm, the fintech major claimed that no such negotiations were ongoing for block deals

How Indian Tech Stocks Fared This Week

? OneCard Fraud: Fintech unicorn OneCard has reported a cyber fraud case worth INR 21.32 Lakh as fraudsters evaded the company’s checks with fake credentials of Bollywood actors and cricketers

?️ Murthy Slams VCs: In a scathing take on the VC investment model, Infosys cofounder N R Narayana Murthy likened venture capitalists to Ponzi schemes and blamed them for encouraging the growth-at-all-cost culture among Indian startups

Correction Note | March 05; 14:30 PM
  • A previous version of this article contained grammatical errors which have now been rectified, and additionally some of the analysis has been reworded for clarity. 
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