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Why is Cred Valued So High: Cred’s Valuation Conundrum

If you are not living under a rock you must be knowing about Cred. Yes, its the hottest fintech platform in India right now. Still finding it hard to recollect? Remember those ads with Madhuri Dixit, Anil Kapoor, Bappi Lahiri during the last IPL season? Yes, it’s that cred. So, I recently covered in detail about what cred is and what does it have to offer. For those of you, who are too lazy to go give it a read, here’s a quick recap. Cred is a fintech platform where you can register yourself only if your CIBIL score is more than 750. Once enrolled, you can pay your credit card bills using cred and you would get some points (creds) in return. These points can be redeemed to get some discounts/freebies on cred marketplace.

cred headquarters

But this article is not about what cred has to offer. This time, I want to address a conundrum. Cred has been making losses ever since it’s inception (details in a while) and even then it is the fastest ever fintech to scale towards unicorn status ($1bn valuation). The insanity is to the extent that it recently got it’s latest funding in January 2021 despite generating ZERO profits. So today, I talk why everyone wants a piece of Cred. In other words, why is cred valued so high?

The Loss Making Story:

For most of the startups, initial few years are all about about customer acquisition. Therefore, a hyper-funded startup like cred, making losses is nothing new. However, things started getting spicier when it was recently revealed that cred posted an operating revenue of INR 52L by spending INR 378.4 crore.

cred's expense breakdown pie chart
Cred’s Expense Breakdown- Image Courtesy: Entrackr
cred's key financial in contrast with it's high valuation
Cred’s Key Financials- Image Courtesy: Entrackr

For the ones who hate mathematics, let me put it this way: Cred spent Rs. 727 for earning a single rupee of operating revenue. Where did all the money go you ask? Well, most of it went into advertising. About 48% of the entire expenses were going into spreading the word. This was a massive jump of 9x from the last year expenses.

Current Valuation of Cred:

And despite what looks like in numbers, the cred is currently valued at $800mn. Within 24 months of inception, this is the fastest scale any company has seen in the fintech startup ecosystem. In the latest news, cred is in talks with existing investors to raise $200mn at a $2bn valuation. Just prior to that, Cred had raised a whopping $228mn in January.

What are We Missing?

So the next obvious question to ask is, what in the god’s name we are missing. What is it that all investors can see but not us? Think about it, would you invest in a business that is posting numbers like this? Well, upcoming section may change your mind completely. Here’s why Cred is valued so high:

1. Premium Customer Base:

Remember I told you that one has to have a minimum credit score of 750 to sign up for cred? So, currently cred has 6 million such customers. Now, where else in India would you find a platform where you have accumulated all creditworthy individuals together. It’s a sweet spot for someone who plans to enter into lending business.

2. Lending Business:

Did someone just say lending business? Yes, that would be the eventual roadmap of cred as a platform. They have already started pitching a line of credit to it’s customers in association with IDFC bank. So, as a bank I don’t need have to scout for responsible individuals to disburse loans. They are right there on the system. This is possibly the lowest risk consumer base, a lending organization can get their hands on to.

3. Higher Spending Power with Brand Play:

A few months ago, I saw a company listed on cred market place which was giving “Chartered Flight Services” on discount. If I am a brand dealing with luxury products like this with high end prices, cred is possibly the best way to reach out to my target group. I already know that these customers have access to credit cards, they have a high propensity of spending, therefore, as a company, it cuts down my significant cost to search and advertise to my target audience. This creates a cheap, direct to consumer channel for brands. In this entire sweet little deal, Cred simply gets a share for enabling this for the premium brands.

4. Seamless Transactions:

Cred already has access to your credit card number. Don’t you want to pay online using your credit card exactly the way you can do with UPI? Cred can enable such a system seamlessly. It can also do it in a way that you are able to pay using your cred coins on the go. This will further help brands acquire customers by partnering with cred and having an option that says “Pay via Cred” on their websites.

5. The Industry Size:

Currently, the number of credit cards floating in Indian market is about 57mn. This is in stark contrast with the number of debit cards which is about 830mn. Therefore, the potential is humongous. Credit card is still an aspirational product in our country. But with growing middle class, higher disposable income, people will jump on to the bandwagon sooner than later.

Apart from the potential, the existing market is huge as well. In this 57mn credit card holders, the 6mn customers acquired by cred have paid an amount of massive $1bn using the platform. This is 12.5% of the total volume of credit card payments. Mind it, the company is just 24 months old as of now.

6. The Data:

Data is the new oil and cred plans to leverage it big time. In order to incentivize you to share your data, cred offers a service called cred protect. This allows cred to access your emails to cull out the credit card statement. The service will help you find out hidden charges on your credit card and hence save your money.

While all this is happening, in tandem, cred now also knows where are you spending your money through credit card. Once they have that information, there is a ton of analytics cred can run on its customer base. For all we know, it could become the Facebook of product recommendations. Basis your past history, I would be able to show you the products that have a highest propensity of purchase. Now that’s powerful. For brands and cred, alike.

Conclusion:

As we saw, cred is creating this mammoth of an ecosystem. They do this through a very innovative marketing strategy that revolves around the idea “Not everyone gets it“. People who are queued in the registration process because of CIBIL score < 750 are now actually working on improving the same. That’s the power of FOMO and a premium platform.

Are you on cred btw? Even if you are not, are you bullish on it’s future prospects?

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Until Next Time. . .

This blogpost is in association with Blogchatter’s #BlogchatterA2ZChallenge.

rgvdudeja
A techno manager by profession and a hardcore geek at heart. I love to poke my nose into tasks where other usually gave up on. My hobbies include, reading about latest trends in tech industry, playing guitar and yes, memes!
http://pandatechiein.wordpress.com

5 thoughts on “Why is Cred Valued So High: Cred’s Valuation Conundrum

  1. Thanks for this. It was very well researched and written. I had gone as far as the Google play store to download (influenced indeed by the ads on TV) but stopped short of actually getting it.
    I had seen the report too of the expenditure to revenue earned ratios and had wondered a lot about the app.
    Till date, still on the fence though about getting it or not.

    1. From a customer’s point of view, it’s a good app. I’ve been using it for an year now. The quality of offers has decreased a bit naturally but it’s still fun to earn while you are just paying your bills(which you anyway have to)

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