How Does CRED Make Money? Dissecting Its Business Model

Executive Summary:

CRED is a FinTech company that rewards users for timely credit card bill payments by providing them with exclusive offers.

CRED makes money from transaction fees, affiliate commissions, advertising, as well as referral fees from the loans it issues in cooperation with other credit institutions.

Founded in 2018, CRED has become one of India’s fastest-growing startups to date. It is now valued at more than $4 billion.

What Is CRED?

CRED is a FinTech company that rewards users for timely credit card bill payments by providing them with exclusive offers.

Users get rewarded in CRED coins, the native currency of its platform. One coin is given for every rupee paid off on a bill, which includes rent payments or phone bills, amongst others.  

Coins can then be redeemed in a variety of ways. This entails redeeming coins for actual cash (via the ‘Kill the Bill’ section), making donations to charitable causes, entering a lottery event, or receiving discounts at partnered merchant stores.

CRED works together with close to 2,000 brands, including Starbucks, Puma, Samsung, Myntra, and plenty more. And because CRED is connected to a user’s credit card, its app can also be used to make payments at selected partner stores.

Apart from its various cashback and other rewards, CRED also actively helps users to improve their financial literacy.

They can not only check their credit score within the app (for reference, one needs a minimum score of 750 to join) but also provides users with category-based analysis regarding their spending habits and even detect hidden charges.

CRED’s platform can be accessed by downloading its mobile app, which is available on Android and iOS devices.

CRED Company History

CRED, which is headquartered in Bengaluru, India, was founded in 2018 by serial entrepreneur Kunal Shah.

His claim to fame is somehow atypical in that Shah does not, unlike many other Indian elites, possess a degree from IIT-IIM (Indian Institute of Technology-Indian Institute of Management).

Instead, he began working at age 16, doing mundane data entry work while trying his hand at various side hustles such as teaching computer science to local school kids or selling CDs online.

Around the same time, his father fell ill and thus wasn’t able to run his small pharmaceutical distribution business, which forced Shah and his two older brothers to provide for their family.

He, therefore, enrolled at Mumbai’s Wilson College to study philosophy, simply because this was the only program that enabled him to attend college in the morning and work part-time jobs the rest of the day.

Several years later, he enrolled for a part-time MBA course at the Narsee Monjee Institute of Management Studies in Mumbai but ultimately decided to drop out.

The success of one of his businesses, an outsourcing company, essentially forced him out of university.

However, his short MBA stint would prove to be valuable later on. Five years after dropping out, in 2009, Shah launched PaisaBack, a cashback promotions company that would help retailers do cashback rewards in their stores.

The inspiration for launching the business came from ‘Consumer Behaviour and Marketing’, one of the courses taught during his MBA tenure.

Unfortunately, PaisaBack never really took off due to how fragmented the Indian market is, namely that there are too many stores and not enough footfalls in each of those stores.

Shah and his team, therefore, decided to pivot and, in 2010, launched FreeCharge. FreeCharge initially allowed customers to recharge their prepaid mobile phones and earn different rewards in the process.

The business took off like a literal wildfire. Just months after the launch, FreeCharge was already processing up to 15,000 transactions – per day. For the next five years, Shah grew FreeCharge into one of India’s fastest-growing startups.

In 2015, he successfully sold the company to Snapdeal for a whopping $450 million. A year later, after overseeing the integration, he departed from FreeCharge to refill his batteries by investing in other Indian startups, acting as a part-time advisor to Y Combinator, and being an advisor to Sequoia Capital.

Eventually, his entrepreneurial senses started to tingle again. The idea for CRED simply arose from the months of research he was doing as well as hundreds of people he was talking to.

During his tenure at FreeCharge, he would ultimately realize that it was nearly impossible to monetize the majority of Indian customers due to the low average income as well as propensity to fraud.

Instead, he wanted to build a product that was focused on the ‘right customer’, which proved to be India’s most affluent people.

It certainly helped that investors, such as Sequoia (also a previous backer of FreeCharge) or Ribbit Capital, were willing to provide $30 million in seed funding right before CRED’s launch in November 2018. Shah himself had previously poured $1 million of his own wealth into building the prototype and hiring the first few employees.

The business, fuelled by the nationwide press about Shah’s return, took off like a wildfire. That growth earned the team a second round of funding in just six months. In April 2019, CRED raised another ~ $24 million in Series A funding from investors such as Alibaba Group-backed investment fund Ganesh Ventures or Swiggy co-founder Sriharsha Majety.

Amazingly, this was not the last time CRED raised money in 2019. Later that year, in August, it was able to attract a stellar $120 million in Series B funding while being valued at $450 million – less than a year after its launch.

The money was primarily used to further its growth within India’s most affluent people. Interestingly enough, up until that point CRED wasn’t making any money (more on that later) and was able to garner its astonishing valuation based on its rapid growth as well as its founder’s reputation.

Despite the lack of moneymaking, CRED ended the year with close to three million registered users. Keep in mind that CRED runs some minor background checks to validate one’s credit score, which means that its user numbers are not boosted by fake accounts and such.

2020 continued to just be as positive as the year prior. The coronavirus pandemic led to heightened adoption of new FinTech offerings, with CRED being one of them. CRED also launched various new products, such as the ability to pay one’s rent directly from the app, a bulked-up e-commerce store, as well as the ability to donate coins to frontline workers.

The stellar growth was rewarded with yet another funding round in November. This time, CRED raised $81 million while being valued at $800 million. Throughout 2020, CRED was able to double its user base from 3 to almost 6 million. At that point, the platform was processing over 20 percent of all credit card bill payments in India.

The cash injection also allowed CRED to promote its service through a variety of TV commercials as well as by becoming a sponsor of the Indian Premier League. Additionally, it was attracting users through gameplay-like mechanisms such as its lottery in which people used their coins to win various prizes, including iPhones and even a Bitcoin.

As a result, CRED, in April 2021, became the youngest Indian startup to be valued at $2 billion or higher and effectively more than doubled its valuation from its last funding round. That month, it raised $215 million in its Series D round.

Yet again, that money was put to good use, primarily through the launch of additional services. In August, with now 7.5 million registered users, CRED introduced a peer-to-peer lending platform that allowed people on its platform to borrow money from each other.

Unsurprisingly at this point, it was time for yet another funding announcement. This time, in October, CRED was able to raise $251 million at a valuation of $4.01 billion. For most of its funding rounds, its existing backers largely returned, which often serves as a positive indicator for companies in growth mode (i.e., investors believe in the company and its business model and want to continue participating as they believe its value will rise even more).

The funding allowed CRED to make its first two acquisitions. In October, it first bought HipBar for an undisclosed amount. The acquisition granted CRED a prepaid payment instrument license (PPI), which essentially allows them to create its own wallet and thus issue its own prepaid cards, cash vouchers, and more.

Then, in December, CRED purchased Happay, a business expense management startup, for $180 million. The acquisition allowed CRED to enter the enterprise space, which offers clients that a) tend to spend more and b) are less likely to default. Happay, however, continues to operate as a separate business.

How Does CRED Make Money?

CRED makes money from transaction fees, affiliate commissions, advertising, as well as referral fees from the loans it issues in cooperation with other credit institutions.

The business model of CRED is centered around building an ecosystem of products for its highly affluent user base.

Much like other FinTechs such as Robinhood, the company started out with one simple premise: helping people to manage their various credit card bills and get rewarded for paying on time.

Once it managed to build up a loyal user base around this use case, it began to expand into other revenue-generating avenues. This includes providing loans to users or allowing them to make payments right out of the app.

Additionally, it reduces risk and thus costs by only targeting users with high credit scores (namely above 750) who are less likely to default or commit fraud. Going forward, CRED could grow by launching new products or expanding into new markets.

Additionally, India’s middle and higher class also continues to expand every year, which does provide CRED with plenty of legroom in its own home market.

Let’s now take a closer look at each of the company’s revenue streams in the section below. The analysis excludes income generated from Happay, which is a business CRED acquired in December 2021.

Transaction Fees

Users on CRED can use the app to pay their rent bills. Dubbed CRED RentPay, the service imposes a transaction fee of 1 percent to 1.5 percent, on the user’s credit card network.

CRED, in all likeliness, does not get to keep the whole amount. Instead, it shares a portion of the transaction fee with the credit card network that provides the underlying payment infrastructure.

CRED works together with dozens of banks, including HSBC, RBL, Union Bank of India, and many more to enable those payments.

Users are incentivized to use the product by being able to earn one CRED Coin for every rupee that is being used.

Advertising & Affiliate Fees

As previously stated, CRED allows users to purchase products from hundreds of brands within its own store.

Most of the brands it works together with are Direct-to-Consumer (DTC) startups that are seeking distribution and want to be discovered.

CRED’s platform, with its millions of registered users, acts as the perfect avenue. If a user, therefore, purchases a product through the store, CRED charges them an affiliate fee of around 10 to 20 percent.

Additionally, brands can also advertise their products on CRED’s platform. They then pay a listing fee, which is dependent on the time that a campaign runs as well as the overall exposure provided.

Loan Referral Fees

Another line of business that CRED launched is CRED Stash, a lending facility provided to its members.

Through the product, CRED offers loans to individuals directly within the app. The loans themselves are issued by IDFC FIRST Bank and not CRED itself.

As a result, CRED does not generate revenue through interest paid on those loans but receives a referral fee from its banking partner for facilitating the loan.

IDFC FIRST Bank is then able to access one of India’s most affluent user bases, a group that would be extremely unlikely to default on their loans.

On top of that, CRED knows about a user’s creditworthiness as well as his/her spending habits, which acts as another data point to determine risk.

CRED Funding, Revenue & Valuation

CRED, according to Crunchbase, has raised a total of $722.2 million across eight rounds of venture capital funding.

Notable investors include Sequoia Capital India, DST Global, Coatue, Tiger Global Management, Ribbit Capital, and many others.

CRED is currently being valued at $4 billion after raising $251 million in Series E funding in October 2021.

For the fiscal year 2020, CRED posted annual revenues of about $68 million, which it expects to double for the fiscal year 2021.

Does CRED Sell Your Data?

CRED mentions in its privacy policy that it does not user data to third parties. However, CRED does use the data internally to display targeted ads on its platform.

For that, though, now personally identifiable information is shared with any third-party online advertiser or app.

In the future, CRED may also use that data to power some of its own services. For instance, its lending product is, in all likeliness, already informed by a user’s spending habits and other data points.

Hi folks, Viktor checking in! Years of experience in various tech-related roles have led me to start this blog, which I hope provides you with as much enjoyment to read as I have writing the content.