Cred and the art of boring

Table of Contents

• 1. Introducing Cred

• 2. Margin Drivers

• 3. Future margin boosters

• 4. Conclusion

1. Introducing Cred

Cred was started in 2018 by Kunal Shah in India with a focus on enabling easy and timely credit card bill payments for customers. Up until this time, credit card bill payers had to resort to the website and mobile apps of their card issuers for bill payments.

Cred made credit card bill payments rewarding by issuing cashback per bill payment. It urges people to pay their credit card bills on time and avoid late fees. Card issuers earn lucrative late fees when customers miss their bill payments. It was a win for customers and was also supported by card issuers.

Over time, the company added a series of verticals including lending, P2P investments, brand stores, travel bookings, offerings for vehicle owners, insurance, UPI and an account aggregator integration. Cred last raised $80 million in June 2022 in its Series F fundraise at a valuation of $6.4 billion.

2. Margin Drivers

The firm primarily makes money through Lending, Payments and Insurance. Specifically,

a) Consumer Lending: Under Cred Cash, the firm facilitates unsecured personal loans to its customers through a digital journey on its mobile app. It partners with financial institutions (Banks/ NBFCs) including Yes Bank, DBS Bank, IDFC First Bank, Kisetsu Saison Finance, Vivriti Capital Private, Newtap Finance, L&T Finance and LiquiLoans (P2P lender).

Its focus on acquiring customers with 750+ credit scores resulted in offering loans to prime and super prime customers. This has built up a loan book of approximately 15,000 crore, ahead of even Navi’s 11,700 crore. This has allegedly resulted in non performing assets of 1.8% to 2%, under the banking industry’s 2.8% NPA.

b) Bill payments: Cred started its journey with credit card bill payments. It bolstered payments by enabling rent payments in April 2020, and utility bill payments in April 2022.

Cred was responsible for 37% of all bill payments (by value) on the Bharat Connect network as it facilitated ₹31,687 crore of bill payments in August 2024. It has achieved this with a stated monthly transacting user base of 11 million.

It earns a fee on credit card, utility and rent payments. Additionally, it levies convenience fees on usage of credit cards for bill payments.

Previously, rent payments via credit cards became hugely popular in the industry as users leveraged these to earn reward points from card issuers, achieve spend milestones and benefited from the credit period.

This was also wrongly used across bill payment apps to cashout money to friends/family, without having to pay fees on a credit card cashout transaction. This practice has reduced with card issuers levying fees on rent payments and/or withdrawing reward points. Additionally, payment apps have imposed stricter rules.

c) Insurance

Cred forayed into motor insurance with the launch of its vehicle management platform Cred Garage in September 2023. In one year, it has driven registration of 6 million+ vehicles on its app. Beyond this consumer facing self-serve platform for motor insurance renewals, Cred has been bundling insurance with its unsecured personal loans.

Taking an example with back of envelope math, assume Cred facilitates ₹1,000 crore of loans per month. With a blended upfront 2% premium of the loan amount, this is ₹20 crore premium per month i.e. ₹240 crore premium per annum (assume zero growth in the year).

This is a high margin offering with additional twin benefits. One, zero cost of distribution. Two, fully secured principal if insurance cover is triggered.

Additionally, Cred monetises through,

d) Advertising:

i) DSA for financial products: Cross-sell high margin financial products including credit cards.

ii) Sponsored brand listings: Leverage the spin the wheel format and other interactive formats to promote consumer brands.

e) Cred Pay payment stack: Brands can tie up with Cred and utilize its Cred Pay payment stack to enable Cred users to pay through their saved credit cards or their Cred UPI. This is a low margin payment offering. Brands including Myntra, Zepto and mamaearth leverage this payment stack.

f) Cred Escapes: The firm’s users can book discounted travel packages through Cred.

3. Future margin boosters

a) Co branded credit cards: With Cred’s focus on credit card bill payers, it can offer ​​a rewarding credit card to engaged users. It can partner with card issuing banks to launch multiple credit cards for different use cases: lifestyle/ travel/ business.

With an initial focus on high credit score users holding credit cards, its partners can potentially underwrite these users for higher credit limits.

b) Credit Line on UPI: The firm can enable credit line on UPI with partner banks to tap into customers who heavily use UPI for their daily purchases. The regulator has mandated that a 1.2% interchange would be payable to issuing banks for interest-free credit lines from October 16, 2024. The payments app can earn up to 0.05% on each transaction.

As of August 2024, Cred was the fourth largest player in the UPI ecosystem with 147 million transactions accounting for ₹50,720 crore. This equips them to rapidly scale the CL on UPI offering.

c) Standalone Insurance: Cred has only offered standalone motor insurance and bundled loan protection insurance.

Cred should start by distributing travel and health insurance. Life insurance requires consultative selling and may not be as easy to sell on app. There is merit in learning from players like Ditto Insurance with their take on consultative selling.

d) Secured lending: The regulator’s focus on lowering personal loan exposure began with the November 2023 hike of unsecured consumer credit risk weights for banks and non-banking financial companies (NBFCs). With lending as Cred’s primary business model, it can expand into secured lending (for eg, vehicles/ securities/ gold/ homes). 

The Cred team is already testing loans backed by securities. These secured loans will be lower margin but will be safer on account of the linked asset.

e) Monetising Cred Money: The single screen view of all bank accounts and linked transactions was built using the Account Aggregator framework and launched in July 2024 as Cred Money. It is an immersive experience and helps fill in the blanks regarding a user’s financial profile beyond access to user UPI spends and bill payment history.

SEBI released a consultation paper in July 2024 proposing an investment product above mutual funds with a minimum ₹10 lakh ticket size that is below portfolio management services (minimum ₹50 lakh ticket size). This can be a relevant offering for Cred users in the future.

With the acquisition of Kuvera in February 2024, Cred is primed to offer wealth management products to its affluent base. The insights revealed by Cred Money can help the firm offer bespoke investment plans.

f) Gift vouchers: Beyond payment offerings, Cred can offer gift vouchers to its customers and drive commerce in addition to its deep discount brand store. This will help with increased insight into customer’s buying behavior and unlocks incremental margin.

g) Unlocking experiences: Cred Escape unlocked the travel segment for Cred users which is still an infrequent expense category. There is potential for enabling dining/ standup/ musical experiences for Cred users beyond the solid income streams afforded by credit, payments and insurance.

This venture can help make Cred cool as a brand but may dilute its credibility as an emerging financial institution. Cred has access to target users of such experiences and may choose to unlock these in partnership with the likes of Zomato District.

4. Conclusion

Cred competes in a heavily regulated financial services industry. It began with a focus on bill payments, chose to offer personal loans and has now become the fourth largest UPI player.

Its focus on brand building and interactive design has an equal number of fans and detractors. Long catcalled for fundraising with negligible revenue, its monetisation efforts are catching up. In September 2024, Cred declared ₹2,473 crore in revenue (up 66% YoY) for FY 2024 with operational losses of ₹609 crore (down 41% YoY).

It has a clear path to profitability. Cred does not have to do anything flashy and just has to execute on its roadmap. Thus far, it has built a reputation within 6 years of a trustworthy institution that can be trusted with data and money. This has merit in the world of Fintech where its competitor (UPI/ lending) was publicly hauled up by the regulator in January 2024.

It has had missteps including Cred Mint (now shuttered P2P offering) and rent payments (potential for misuse as cash out). These were industry wide debacles and so it was not personally implicated.

It can choose between two futures. As Kunal Shah said, ‘it will be exciting in payments and boring in wealth’. This future will build a credible institution serving creditable users.

The alternative future relies on Cred leaning into its promise as a club of trustworthy individuals. Their gatekeeping of users has merit and played out in the 1.8% to 2% NPA metric. Further, these users rocketed Cred up the UPI charts and in the Bharat Connect bill payer ecosystem.

Cred can craft a world beyond finance. It entails going deeper into commerce, real-life events, housing and community. It is a fuzzy picture but Cred has the runway to build this walled garden if it chooses.

The first future is dependable and will see them succeed in financial services. The second future is additive and entails a larger scope for Cred in the lives of its community members. No one will fault them for choosing to be boring. Viral advertisements aside, their ability to be boring for long periods of time brought them here.