WHY CRED HAS A BRIGHT FUTURE?

 

Adversity is the catalyst to any innovation; Cred, introduced in 2018, was such a company that took advantage of the pain points of the credit card holders like high-interest rate, high hidden charges and forgetfulness of customers in paying credit card bills which attracted a higher cost to the credit card users and made an application which would help the credit cardholders in solving the problems.

Cred in 2020 got a valuation of $2 billion, which made it the youngest Indian start-up to hit that valuation. On the contrary, it is constantly incurring losses. In 2020 alone, it incurred a loss of rupees 360 crores. It spends about ₹727 rupees per rupee of earning it has, which makes it pretty disadvantageous for the company.

So, what should we believe in, Cred a unicorn because of its valuation or Cred a failure because of its constant losses and such high costs? The answer to this lies in their business model, which is pretty similar to the business model of many start-ups.

Cred is initially focusing on making a customer base for itself. It is aiming at altering the behavioural design of the society which stays in the community even after a company providing the services shuts down, creating an opportunity for other such businesses just like iPod left a mark in the music streaming revolution giving apps like Spotify, Amazon Music, etc. its business idea. Cred is focusing on the credit card users and building a customer base of people with good credit scores (CIBIL score of above 750) so that they have the cream of the population using credit cards which is approximately 50 million out of which only 30 million are active users and Cred has 15% of these in its customer's list.

Cred is following the four-step business model starting from "cash burn". Providing services to solve the problem of credit cardholders with such huge discounts and offers would attract customers and make them a good customer base. Then comes the stage of "habituation", wherein they focus on making people habituated to their services to have customers who are loyal to them and don't leave. Cred has accomplished this stage by altering the behavioural trait of people who have gotten used to the new and easier way of paying their credit card bills. Next comes the set of "Irreversibility", where Cred stands now as it is making the habituation stage irreversible. Just like with the advent of Netflix and Amazon Prime, it has become irreversible for people to go back to CDs and DVDs for watching a movie or a show.

Then comes the final stage for which all the entrepreneurs work for is "profitability" because after making customers and changing their behaviour to stick to the services comes the point where we can make profits just like JIO started with making the services accessible and eventually has a gain of about ₹3508 crores in the fourth quarter of the FY 2021.

The Cred business model has been able to attract many customers who have a decent amount of money, so it can have future expansion plans as well, which will make it even more profitable. They can expand to make a bank by having the customers save their money and give them a loan to their customers, which it already does but on a smaller scale.  It can also expand into global markets because of its high potential there as the population having a credit card in foreign countries is much higher than in India. It also shows that Cred has enormous potential to grow its customer base by focusing on making more and more people adopt credit cards in India by providing such attractive and easy solutions to problems surrounding the adoption of the same.

Since Cred has such a vast customer base and has access to their data of spending, they can use this data and share it with big companies, which will help them target customers better; it can also expand into data distribution business later on so that the information is used for the right reasons and is not left unused.

Cred is sitting on a gold mine which is its customer base and future expansion potential; if used correctly and strategically, it can create history by being one of the youngest start-ups in India to be successful and earning fortunes of money and set an example just like Jio did earlier.

                                                       About the Writer

                                                            Ashwik Sharma                                                                   Pursuing PGDM at IMT Hyderabad.

An Automobile enthusiast and Cricket fanatic, intending to make a career in Finance write about the future of Cred.

(Special mention to Surabhi Sinha for helping with this blog.)