CRED’s interest in Smallcase and its revenue model

“Very cautious spenders are like a dam that keeps building up and eventually splurging on emotional life events,” said veteran angel investor and founder of fintech startup CRED, Kunal Shah tweeted in April this year.

Also, the former founder of the mobile wallet company Free load, Shah’s philosophy was clear: spend big to buy something if you really want it. For six months, the Indian fintech start-up CRED has been negotiating an investment in a wealth management start-up small business. The seven-year-old stock exchange platform is backed by Zerodha, Amazon and Sequoia Capital, among other venture capitalists.

At the start of the talks, CRED intended to invest in Smallcase rather than acquire it. Although CRED has yet to comment on the deal, conflicting reports have emerged indicating that the acquisition is either in the works or slips through the cracks.

Meanwhile, in June, CRED raised $140 million in its Series F funding led by Singapore’s sovereign wealth fund, GIC. Other existing investors also joined in the funding, which now values ​​the fintech company at $6.4 billion, up from $4 billion in October 2021.

CRED revenue and loss growth, Source: Entrackr

The CRED revenue model

But what does an app that helps customers with their credit score have to do with wealth management? Over the past year and a half, CRED has developed in seemingly random directions.

Last December, Shah bought corporate expense management company Happay in an undisclosed deal. Indexed reports Happy to valuation at $180 million. Founded in 2015, Happay manages over one million users worldwide with companies like TATA Grow, PwC, Maruti, OYO and Byjus as customers. In a press release, CRED said: “While Happay will operate as a separate entity, the team will work closely with CRED management to leverage its ecosystem, grow distribution, expand product offering and scale up.”

CRED acquisitions, Source: StartupTalky

Announcing the Happay deal, Shah said CRED had grown rapidly over the past three years after resolving credit card management issues. He said professional expense management was now a natural path for the company. To begin with, CRED’s main service was to help users track their credit card bills and make payments on time. If they made timely payments, they were rewarded with CRED coins which could be redeemed on the platform itself by taking advantage of offers from certain brands. CRED made money from brands that had paid to be listed on the app.

To be objective, that in itself was a preface to their product offerings. But Shah’s marketing blitzkrieg popularized CRED at breakneck speed. The startup had soared $800 million in valuation over two years to enter the unicorn club in 2020. While the platform’s business model seemed questionable to outsiders, in hindsight, to Shah, it made perfect sense. Think of a hook to attract customers and make sure they stay.

As of October 2020, the app had 30 lakh users as its customer base. First of all, the app’s interface was slick and attractive. Second, it has captured the attention of customers and continued to grow with exciting products. Then, CRED launched an e-commerce store and paid installation. Users could choose from its curated products and make purchases on the in-app shopping platform Credit shop. Then he threw Cred Rent Pay, with which consumers could pay their monthly rent via their credit cards. Users would get CRED coins after paying the rent and also redeem them.

CRED revenue model, Source: StartupTalky

Spend big to increase lending

Shah continued to make a series of purchases for this purpose. In November last year, Newtap Technologies Pvt. Ltd., a company Shah had started, acquired an NBFC called Parfait Finance & Investment, signaling that it was interested in getting into the lending business. The acquisition of an NBFC would give CRED access to low-cost capital to expand its lending operations. Last year, it also launched a peer-to-peer lending service that allowed customers to lend to other CRED users at a rate promised to “beat inflation”.

Shah was on a similar wave of acquisitions in other service areas like restaurants and liquor deliveries. It acquired HipBar, an alcohol delivery startup with a prepaid payment instrument license. Last year, CRED was also in talks to acquire Dine out owned by Times Internet, which is used to discover restaurants, offering discounts and free food. Co-founder and CEO of Dineout Ankit Mehrotrahowever, denied the report.

Founder and CEO of CRED, Kunal Shah, Source: The Federal

In for the long haul

CRED had also discussed a potential purchase with Wealth of Victory, another investment platform. Wint has a bunch of notable names among its investors, including Zerodha’s Rainmatter Capital Fund, A better capital, Pravin Jadhav of Raise Financial and Shah himself. Negotiations with Wint, which were reported towards the end of last year, also broke down after the founder and CEO Ajinkya Kulkarni refuted the reports.

Wint himself encountered new regulatory problems. Last month, the Securities and Exchange Board of India issued a document targeting non-institutional online bond platforms such as Wint Wealth, GoldenPi, Harmoney and BondsKart which sold debt securities to investors. Regulatory plans have so far put a damper on Wint Wealth’s plans.

Skyrocketing CRED revenues and losses in 2021, Source: Entrackr

According to Shah, the choice to reach scale before revenue generation was deliberate. Most internet businesses, he said, start with distribution, then upsell and finally crossover. He cited Facebook as an example, noting that the social networking company run by Zuckerberg didn’t start turning a profit until four to five years later.

In its results released this year, CRED reported a 45% increase in losses for FY 2021 as marketing spend rose from Rs. 57 crore in FY 2020 to Rs. 222 crore last year . Shah is undeterred. After positioning itself smack in the middle of high-income cardholders, CRED is eyeing a long game. Loans may not seem so trendy, but there is real money to be made in it. For now, Shah’s agenda is: have money, spend.

Sallie R. Loera