Oft misunderstood and frequently maligned, CRED has been the talk of the town ever since they launched. From questions on how they’ll make money, to vitriol on their UX, everyone loves to pick on them. And yet people use the product, somewhere around 2.5 million of them. CRED processes $1 billion in monthly credit card bill payments. That is 12.5% of the $8 billion monthly credit card bill payments due in India. For a product that has been around for just a year and a half, it’s mind-boggling. But how will CRED make money?
Having established that CRED drives significant volumes, I’ll dive into certain aspects of the product and explore ways in which they could make money.
If you’ve never heard of them, head over to the CRED website. The article does explain, albeit briefly, what the product does.
CRED and the Philosopher’s Stone
While it may have started out with the feature of paying credit card bills in a seamless manner, it is not a utility app for paying credit card bills. The core feature of paying credit card bills is only a temporary core feature; together with rewards, it’s merely an acquistion and retention strategy for what is going to be a much larger play. The end-goal is likely very different and stems from their philosophy.
The CRED philosophy is simple. At its core, its is an exclusive platform for the top 1% of India. CRED is not built for everyone, it’s intended for people who are credit-worthy. They intend to build a community and a sense of belonging (not to any cause, rather to the feeling of being part of an exclusivity club). According to them, they don’t have customers or users, they have members.
Kunal Shah, CRED’s founder, is a philosophy graduate. He advocates for a first-principles approach to everything. Wielding dual weaponry – an incredible team and the dark arts of user psychology – they’re crafting a product that is unlike anything else being built in the country. By this statement, I don’t mean to say that there aren’t companies more disruptive than CRED; just that none are sitting in a room and really diving into human behaviour quite like they’re doing, gaming companies being the exception.
- Over 50 million credit cards issued and around 20-25 million credit cardholders
- Credit cards issued has grown at a CAGR of 20% over the last 5 years and is expected to grow by up to 25% in subsequent years
- 25 million credit card holders drove 40-45% of all consumption in the country (Source: The Passage)
- CRED has 2.5 million active users (from Similarweb data mentioned later in the article). That’s between 10-12% of the Total Addressable Market (TAM)
- Processes $1 billion in monthly credit card bill payments according to Kunal Shah in his podcast interview with Cyrus Broacha
- Raised $175 million in total and is valued at around $450 million according to Economic Times
Image Source: Economic Times article Credit card usage rides on digital push, grows 27%
What is CRED’s business model?
If you were to ask folks at CRED, they’re most likely to say ‘Whatever we want to’. They don’t really care if you think they’re going to make money or if you don’t like their UX. Data says you’ll use their product irrespective.
CRED enables people to pay their credit card bills online and rewards them for doing so – in the form of CRED Coins. Users can redeem these coins for various rewards on the platform. They abhor the word ‘Deals’ and have no time for deal seekers. If you’ve ever wondered why there’s no search bar on the Rewards section, it’s because they want you to explore the various rewards on offer and not seek deals. For merchants, this translates to increased visibility for their brand.
They recently launch Rentpay and Stash. Rentpay for paying rent through your credit card, and Stash for getting instant loads from partner banks.
So what’s the deal with games & raffles?
Retention & Engagement Features
The latest engagement feature – WIN – takes the process of rewarding a step further. Now, for CRED members to get rewards from brands, they need to participate in activities that involve a certain level of engagement. It could be a game, a raffle, or one of the myriad ways to burn your coins; sometimes, even time.
The way I see it, CRED intends to drive brand recall and increase product consideration. A user who performs a set of activities in order to claim a reward is more likely to remember the brand and make use of the reward. While I’m not aware of whether it happens, I believe CRED tracks the ratio of claimed rewards to redemptions. WIN was launched to improve this ratio. While the volume of claimed rewards might decrease, it is very possible that they’d be redeemed at a higher rate to DISCOVER which allows users to explore & claim multiple rewards in just a couple of clicks.
I spotted a fair number of user tweets baffled by WIN. Why would CRED add games to the product?
The natural frequency of using CRED for the core action – paying credit card bills – is once a month. Users may fire up the app a few more times during the month while redeeming rewards, say at a restaurant or an online store. Any product whose core action has a natural frequency of over a month runs the risk of being forgotten. Even a product that is used just once a month needs to stay top of mind especially when very important actions such as claiming and redeeming rewards are part of the core experience. WIN is a product that introduces elements of addiction and surprise.
- Raffles that offer great prizes; the results aren’t instantaneous so users may visit the app at a later date to check if they’ve won
- Games in which playing multiple times is encouraged by rewarding top scorers (accumulated points); coupled with leaderboards, it can be quite addictive
Ultimately, this engagement translates into stickiness on one of the core experiences – rewards.
Disclosure: I have access to the deck CRED shares with brands exploring promotion through the WIN product. I received this as we were exploring the possibility of getting smallcases on CRED. None of the contents of the deck were referred to for the segment about WIN. It’s quite easy to dissect a product, growth, marketing strategy; that’s what I did.
I pulled out some data from Similarweb to get an idea of CRED’s traction. Do note that Similarweb is far from accurate and is often off by upto 100% but usually around the 30-40% mark.
- 70% of users are male. I’m surprised it’s not 90%. Perhaps, this is the demographics of downloads and not active users.
- 71% are between 25-34 years
- The first–open post-installation is at 50% which isn’t unusual. They retain 20-25% of users who do a first-open. This is quite good considering those with a credit score below 750 don’t have access.
- CRED made good use of March to drive downloads :). Most advertisers stopped spending which resulted in a lower competition which in turn resulted in a drop in Ad costs. Spotting the opportunity, they likely increased spends and got downloads at a 30-50% discount compared with the other months
- While the large number of users acquired during March accounts for the increase in MAUs, it is also driven in part by the new retention & engagement features discussed in the previous section.
How does CRED make money?
As a kid, ‘Show me the Money’ was my favourite cheat-code in Starcraft while playing in single-player mode. I’d play against 7 computers and use the cheat-code to get unlimited resources. I’d still lose. There is no moral of the story; this is just a piece of information about me.
With some numbers to paint a decent picture, let’s dive into the question everyone’s been asking. How will CRED make money? But firstly, how does CRED make money currently?
Current Revenue Streams
- Rewards They charge a fee to brands. I’m unaware of the details but it’s likely a mix of upfront (listing fee) + performance (commissions)
- Rentpay They charge between 1% and 1.75% on the transaction. Thin margins but potentially high volumes. Remember, they process close to $1 billion in monthly credit card bills. With 2 million active users, it translates to $500 per user or Rs.35,000. This is ~12% of monthly credit card payments. If we were to assume these 2 million active users were paying Rs.35,000 monthly rent ($1 billion in total monthly), an adoption of just 10% translates to net revenue of $200,000 per month assuming an average transaction fee of 1.4% with 0.2% retained by CRED and rest passed on to payment gateways. Annual revenue of $2.4 million is not bad at all.
- Stash Instant loans of up to Rs.5,00,000 to folks with a credit score of above 750. I don’t have the data but my guess is that these folks are less likely to default on loans which mean CRED gets leverage to negotiate favourable terms with banks.
How will CRED make money?
On a night out drinking with friends working in startups, the question is bound to pop up. I’ve experienced it on multiple occasions which got me thinking.
Before I tackle the question of how CRED will make money, I want to explain something very important. As mentioned earlier in the article, CRED is an exclusive product for India’s top 1%. What they’re building is not just an app to pay credit card bills and claim rewards; they’re building your Top 1% Membership Card.
In Kunal Shah’s interview with The Passage, he posited “If you cannot make revenue with the top 25 million customers, you cannot make money on anything.”
I wholeheartedly agree. This forms the thesis for what I believe will be some of the things CRED will use to build a revenue model. When you have the highest spending Indians on the platform, what do you do?
Here are some of my thoughts.
Launchpad for D2C brands
I’ve heard from a few folks that CRED is driving significant volumes for a number of D2C brands. For younger brands, this is a substantial portion of their revenue. On a few brand rewards on lifestyle products, finance etc, there were between 20,000 and 40,000 visits to the brand website from the rewards section. I gleaned this data from Bitly links that were used on CRED (back when Bitly was publicly trackable). Given that they can easily drive volumes, I see them becoming a launchpad for D2C brands, an incubator of sorts where they take equity in exchange for driving growth. They might possibly launch D2C brands through partnerships, similar to Swiggy Cloud/Dark Kitchens.
Another possibility is revenue-based financing, something I hadn’t considered but Vivek Raju posited on Twitter. In revenue-based financing, a loan is provided with companies making repayments as a percentage of their revenue. As of now, Klubworks operates in the space and Razorpay has a similar offering.
Could CRED influence your purchase of a car or a house? Or get you to take a luxurious European summer vacation? Could they influence purchase decisions on other high-value goods and transactions? I can’t say for sure, but it’s plausible.
They already facilitate high value transactions in credit card bills and rent payment. They also offer credit through lending partnerships with banks. How about a credit card from CRED? Or taking it a step further with CRED as a Neobank? After all, ‘Neobanks in India are just a UI wrapper on the poor UX of traditional banking’, as posited this Twitter thread by Nihar Bobba. With the leverage that CRED has, they could arm-twist banks into improving user experience and become the foremost Neobank for the Indian elite. Would you pay a small annual fee for a superior banking experience :)?
With accessibility to a significant portion of India’s retail investors (>60% of CRED users investor from what I’ve heard), wealth management is on the cards. Rather than build this out themselves, they’ll do what they do best – integrate with other players and provide a superior UX. Since I work at smallcase and might be privy to certain ideas that were bounced around, I can’t go into details. FYI, these are not necessarily integrations with smallcase although products like Publisher & Gateway could potentially integrate into wealth management plans that CRED may have.
Here’s what Kunal said in his interview with The Passage, “Eventually we will do more up-selling and cross-selling of financial services, but this will be different from mass up-selling and cross-selling. Our goal is to systematically help banks up-sell and cross-sell more. Because, if people are going to come to our platform to get personal loans, we want to be able to power banks on our system. This customer is usually very easy to give a loan to, and to cross-sell and up-sell. So we want to become a platform where we can aggregate banks to come together and offer benefits to the customers, and make a revenue share model on top of that. Can we help convert a transaction to EMI? Can I help you with a personal loan? That’s the direction we are going to take.”
Subscription and ‘Service as a Service’
TimesPrime says that they’re the only membership you’ll ever need. CRED might beg to differ.
How much would you pay every month or year to get priority access to things around you? Skipping queues at airports and lounge access, benefits on health and fitness, bundling of other subscriptions services (Netflix Spotify, Hotstar etc), priority banking, home maintenance, car maintenance, and every conceivable convenience + luxury to really make you feel like you’re that 1%. All of that packaged into an annual subscription fee with a virtual assistant or concierge to manage all of this for you.
100,000 people paying Rs.10,000 a year equates to Rs.100 Cr in annual revenue ($14 million). Sweet. 100,000 people is 4% of the TAM. Very achievable numbers. Also, Rs.10,000 is a generous number; I’d price this at a premium.
Credibility as a Service
You’re a top 1-percenter. Shouldn’t this translate into bettering your professional life? No specific ideas off the top of my head, but there could be plays with networking, introductions, jobs, unlocking doors etc. Could flashing your CRED make things happen for you? And would you pay for it?
While it’s not a direction I see the companying going, the possibility exists.
Conclusion: What next?
Like many, I was sceptical about how CRED would evolve as a business. Having spent time deciphering their business, I’m convinced that they can make money. Is that revenue enough to justify their current valuation (reported at $450 million) or a future unicorn valuation? I cannot say because I haven’t worked out the math just yet.
International expansion would unlock higher networth audiences. My first move would be to Singapore or the Middle East but getting into the West would help them achieve scale.
If they were to stick to the Indian market, with a number of products that they could possibly roll out, I believe $100 million in annual revenue is achievable. It would probably require 10 million active users with 5%-10% of these users adopting products such as Rentpay or Stash, or paying premiums for convenience and luxury.
Reiterating what Kunal said, if CRED can’t make money off of 25 million of India’s highest spenders, then how will any of the other startups make money off of mass India. Casting doubt on CRED is like casting doubt on the rest of India’s B2C startups.
However, I’d like to end with a thought that pokes at the ‘exclusivity’ pitch. If every top 1% of India were on CRED, would the club be exclusive?