Daybreak - What makes Cred an 'unusual' fintech?

Episode Date: October 21, 2024

Earlier this month, CRED, released its financials for the year ended March 2024 at a press conference. Cred claims to have about 13 million monthly active users. For the financial year ended March 2024, it saw revenue rise more than 60% to nearly $300 million, and losses shrink by around 40% to about U$70 million. Plus, its monthly transacting users grew by more than 30%. Shah said how it's the top 10% of households who drive 60% of consumption. Even with UPI, he said, it was the top 30–40 million that drove billions of UPI transactions. And out of that target audience, Cred claims to have about 13 million monthly active users.But Cred says it does not present the option to take a loan for many of its users. And while a little more than a third of them are qualified to borrow, only about 10% have taken on a loan. According to Shah, Cred has taken a deliberately conservative approach here, which is what makes Cred unusual and 'popular with the chief risk officers of banks in India.'Tune in.We are now on WhatsApp at [phone]! Text us or send us a voice note to tell us what you thought of this episode. Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording.

Intermission launches on March 23rd. To get an alert as soon as we release our first episode, please follow Intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Earlier this month, Kredd released its financials for the year that ended in March 24 at a press conference. Founder Kunal Shah who was present looked pretty relaxed. I mean, he's been in the fintech space for more than 16 years now, and in a light moment, he even called himself the uncle of this category.

But these days, he's better known as the founder of CRED, the 6-year-old credit card payments platform. And it's only over the last three years that CRED, which is currently valued at $6 billion, has begun monetizing. According to the company, it's been able to do this by acquiring high-quality users. Shah reiterated that Kred's focus remained steady on India's most creditworthy. It is the top 10 of households who drive 60% of consumption in our country. Shah pointed this out and said that even with UPI, it was the top 30 to 40 million that drove billions of UPI transactions. And out of that target audience, Kred claims to have about 13 million monthly active users. For the financial year that ended in March 24,

CRED saw revenue rise by more than 60% to nearly $300 million. And its losses shrank by around 40% to 70 million. And its monthly transacting users grew by over 30%. So today, we look at what is working out for CRED and what isn't. Welcome to Daybreak, a business podcast from the GEN. I'm your host, Nygdha Sharma, and I don't chase the news cycle. Instead, every day of the week, my colleague Rahid Filippo's and I will come to you with one business story that is worth understanding and worth your time. Today is Monday, the 21st of

October. In a recent edition of her newsletter, Kuching, my colleague Arundati Ramanathan, explained exactly what Kred has going for it. And it is average revenue per user or ARPU. At $23 or $1900,000, CREDS ARPU looks better than even phone pays, which has nearly 20 times the users, double the revenue, but only one-tenth of CRED's ARPU. CRED says it has monetized roughly about one-third of its monthly active users. And this monetizable base expanded nearly 60% just from a year ago. All this is definitely good news for a company that has been constantly hit with the question. but how does CRED make money? CRED's revenue comes from three top sources.

Fees earned from banks when credit card holders make their payments on credit and from distributing insurance and loans. In fact, distributing loans is an important part of how it makes money. It has distributed credit worth nearly $2 billion currently. For comparison, PTAM, the largest distributor of loans among Fintex in India accounted for over $6 billion in the year that ended in March 24. Kred says it does not present the option to take a loan to many of its users. And while a little more than a third of them are qualified to borrow,

only about 10% have taken a loan. According to Shah, Greed has taken a deliberately conservative approach when it comes to loans. He even said it himself. We are an unusual fintech company that, adding that while banks do all the underwriting and come up with the rules, it is CRED that tells the banks to be conservative because it does not want to contribute to an already overheated credit market. And of course, you cannot pick holes with a conservative approach like that,

especially with credit. But if CRED's platform has the most creditworthy and risk-free users, then it should be a lot bigger and a lot more popular with big banks than it is. right now. Stay tuned for more on this. At the press conference, Kunal Shah said Kretz's focus on prime and super prime customers made him popular with the chief risk officers of banks in India versus the CEOs. He said, and I'm quoting, we've ultimately been a sourcing partner and would like to make sure that banks do not have any surprises. End quote. Right now, KRED works with lending partners like IDFC First Bank, DBS Bank and non-banks like Credit Seizon and Vivrithy Capital.

Most recently, it also started working with Yes Bank and L&T Finance. All of them disbursed loans on KRED's platform and KRED makes a commission on distribution. And according to Shah, the platform will strike more relationships with other banks in the future. Though he did not disclose which ones. He said, we will see more and more. top institutions wanting to work with us and some of them exclusively wanting to work with us. One reason he cited for this is the company's affluent base. In fact, a source associated with credit claim to Arundati that 60% of all new credit cards

issued in India are two existing credit members. And also, 65 to 70% of credit members invest in equities and that 30% of outstanding home loans are also with CRED members. But a banker that Arundati also spoke to was not as enamored by CRED as you might think. Banks like his are not so keen to partner with CRED just yet. And guess what the reason is? He said, why should I give out my loan on credit and then pay a commission when I can give it directly to my customer? This is also why big banks are absent from even platforms like PTM. There is also the question of just how credit worthy credit users are.

A financial executive aware of the matter who works with credit said that the average salary of a credit user is 6 to 7 lakhs per year. So how can they be the Krem Della Krem? Crettspoke person says that the company does not track the data of its users. Now, to be sure, low-income customers can be creditworthy and high-income ones may be bad credit risks. intent to pay is not dependent on income. But according to the banker,

credit should also be seeing many more of its users qualify for loans if it already has a high credit worthy set of users. After all, even for large private banks, more than 30% of credit card users would be eligible for a personal loan. And these are all kinds of credit card users, not just the top ones that credit says it has. Credit also gate keeps its platform and onwards only those with a credit score of over 750. So, the banker said, and I'm quoting,

if we are talking about a base of all high-quality users in the platform, then at least half of those users should be able to qualify for a loan. Anyway, something that Arundati importantly points out is that someone with a credit score of 750 is a good user is also a myth that needs to be busted. because in India, the credit score assigned by credit bureaus is largely broken. In order to calculate a proper credit score, bureaus would need to give equal weightage to five criteria. Repayment history, utilization of credit limit, number of loan inquiries, the mix of secured and unsecured loan one has, and the age or vintage of the credit history.

But the bureaus give an inordinate amount of weightage. to just repayment behaviour. This was explained to us by a financial services executive, which means that credit scores aren't always a measure of good creditworthiness. And credit will only get some real credit once most of its high-quality users can get a loan on the platform. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras.

To subscribe, head to the ken.com and click on the red subscribe button on top of the Ken website. Today's episode was hosted by Snigda Sharma and edited by Rajiv Siyah.