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'Payments is a zero-sum game, credit the only opportunity'

CRED CEO Kunal Shah says if 25 million premium customers won’t get him revenue, nothing would

Apr 29, 2019 by Moulishree Srivastava
'Payments is a zero-sum game, credit the only opportunity'

Picture credit: Neha Gudugunti

Kunal Shah has a knack for numbers. The Freecharge founder can recite stats on Indian economy and consumption as naturally as telling what he had for breakfast. Shah launched CRED last year after being amazed that India’s 25 million credit card holders drove 40-45% of all consumption in the country.

CRED targets the top 15-20 million credit card spenders or “premium consumers” and lets users with high credit scores pay multiple credit card bills while offering them exciting rewards.

In a candid interview with The Passage’s Moulishree Srivastava and Ruiyao Luo, Kunal reveals why he is betting on credit cards consumption when bigwigs like Paytm, PhonePe, Google, WhatsApp and Amazon are fighting tooth and nail to capture India’s half a billion internet users and dominate its USD 200 billion-worth digital payments market.

Edited excerpts:

The Passage: How has your journey been post Freecharge, and what prompted you to start CRED?

Kunal Shah: I spent a lot of time traveling in China and India. I was with Y-Combinator and Sequoia for a while and learned a lot from the entire journey. What happened was, I came across the market data about India.

I realised that the only thing common between India and China is population. How we look at India from the global lens is not the actual India. Only 10% of urban women work in India as compared to 86% in China. Per capita income growth is a function of trickle-down capitalism. When both genders work, they make money and hire more people to serve them, and more jobs are created. Just 25 million households contribute close to 40-45% of all consumption of India. To me, that was the most shocking thing.

A lot of Indian entrepreneurs got confused because all the global companies were happy chasing hundreds of millions of downloads and more RPU (revenue per user). I realised that the focus should be on the India that wants service and wants life to be better.

My second realisation was that in India, unlike the US, the systems are not so strong that you can make good actors win more than the bad actors. For instance, in the US, if you are a bad driver, your car insurance can be 10 times more expensive than that of good drivers. In India, there is no difference as there is no correlation of driving data to your insurance cost.

It became interesting for me to look at how you can systematically create a better life for people who are more trustworthy. It seems the only case where it is happening in India is lending. Even there, when a few people default, rest pay for them, and that is priced in your interest rates. Our goal is to help these cohorts who are likely to have disposable income and want service.

Interestingly, payments space started with prepaid and people loading their wallets. Then came UPI (Unified Payments Interface), which was more instant in nature. The third version is postpaid, where everyone is going to pay later. China is already 10-15 years into that game.

In India, ‘pay later’ is still in its early days, because only 45 million credit cards exist. But 45 million cards were only 18.5 million cards three and a half years ago. So, while the wallet story has taken off, the number of credit cards has also taken off.

The opportunity is to think about India differently, where there is a consuming class looking for more high-quality services. CRED was designed to be able to take a small audience and build for them, versus building for all of India and still do a poor job of it.

The premium customers are not interested in mass services like booking railway tickets. They want a more premium experience. Our goal was to focus on customers that can deliver value. As more individuals become affluent, we can include them in the customer base. That's broadly where we started the journey and what we are thinking of building.

The Passage: But UPI has levelled the playing field and even Google and WhatsApp are betting big on the Indian market. Why did you move over to the other side?

Kunal Shah: The UPI battle is going to be played by five big players — Paytm, Amazon, PhonePe, WhatsApp and Google. The problem is that UPI has been designed as a utility by the government, and the amount of money you can make on UPI is close to zero. You cannot dictate the price, so everyone has to find alternate sources of revenues on top of that.

For anyone who has a high distribution already, payments would just become a feature. You will not need a new app for that. For example, if WhatsApp launches recharge, would you go to another app to recharge is the question to be asked. This is exactly what has happened with WeChat. A lot of things have been done to prevent WhatsApp from coming into the market right now. If Google is working, WhatsApp should work too. Technically, they are going to make a big impact.

If people didn't love cards, the number of cards and card spends would have gone down. Credit card spends grew from USD 1.8 billion a month to USD 8 billion a month in three and a half years. These customers visit a very different type of merchant, have different types of spends and their behaviour is different. If 45% of the country’s consumption comes from this cohort, this is a focused enough customer base to build on. They are the ones looking for convenience. We are adding 1.25 million cards per month now. And there is no fintech participation in that, it’s banks alone. This is a huge opportunity in my view.

The Passage: All payment companies are going for scale, targeting hundreds of millions of users. Are the 25 million credit card holders you target a good enough user base?

Kunal Shah: I will never enter a mass market game. The mass market game is already lost to Jio, WhatsApp and Xiaomi. Why would you want to enter that market?

Global companies like ByteDance, Facebook and WhatsApp have come to India because it is a cheap place to get MAU (monthly active users) and DAU (daily active users). You cannot make RPU (revenue per user) from this country because mass India has no money. The mass market is a very hard market to crack. If Facebook's RPU in this country is 30 cents, how are you going to make more money? Facebook's RPU is the greatest indicator of how deep the market is for internet companies.

My focus is consumption, where people are buying for convenience, and that is a big enough market. For example, HDFC bank has close to 30-40 million customers with a USD 100 billion market cap, whereas the State Bank of India with 450 million customers has a USD 35 billion market cap.

A lot of times we get confused between downloads and the actual number of people using that app. How many customers are actually transacting on the payment services platforms?

If you take the top 100 publicly-listed companies, no company has more than 30-40 million customers. The number of e-commerce transactors is only 30 million in this country. The cohort we are targeting drives 40-50% consumption in the country.

So, the Premium is the only segment that tends to make money. The fashion designer Sabyasachi makes more money than an e-commerce portal selling fashion. Because the concentration of money is significant and the margins are significantly higher. I believe, Indians will pay disproportionally more for status than convenience. In China and the US, that is not the case.

The Passage: What is your revenue model?

Kunal Shah: We charge merchants a marketing fee to participate on the platform. Eventually we will do more up-selling and cross-selling of financial services, but this will be different from mass up-selling and cross-selling.

Our goal is to systematically help banks up-sell and cross-sell more. Because, if people are going to come to our platform to get personal loans, we want to be able to power banks on our system. This customer is usually very easy to give a loan to, and to cross-sell and up-sell. So we want to become a platform where we can aggregate banks to come together and offer benefits to the customers, and make a revenue share model on top of that.

Can we help convert a transaction to EMI? Can I help you with a personal loan? That's the direction we are going to take.

The Passage: What is your response to those who say CRED doesn't have a revenue model?

Kunal Shah: I am not building it for those who have these doubts. I am building it for customers. About 90% of our customers come back every month. I am worried about where the other 10% are going instead of proving to someone whether the revenue model will work or not. If you cannot make revenue with the top 25 million customers, you cannot make money on anything.

The Passage: What is your partnership with the 150 plus brands that you have on your platform?

Kunal Shah: Right now we charge them a fee. We didn't want to do it by default initially, because we had just launched. The idea is to eventually charge all of them to come to the platform. It can be anything from listing fees to (charging) per redemption. There are multiple models. Our partners will get customers. For instance, if you take a one-month membership, what if you like it?

Our selection of merchants will be a function of our customers wanting it. Our game is slightly different and we will follow where credit cards are used.

The Passage: Do you fund rewards?

Kunal Shah: We cannot afford to give rewards of this nature because we would go bankrupt. We have hardly spent any money from our first round. Most of the money is in the bank. If you are growing at a scale and burning your own money, you will never get there.

The Passage: When do you see this venture making some money?

Kunal Shah: You shouldn't be asking this to a four-month-old company. If we cannot make money on these customers, we should all move to China.

The Passage: Is collecting data one of your drivers and will it be used to offer insights to other companies?

Kunal Shah: Quality data is useful if you can give the right offers. It helps us understand users better. Data only has one objective. Can you create great personalisation experiences? If you can do that, I think you can create a big impact.

We will not even do advertisements, forget about selling insights. That's a different level. We want to participate in consumption. We will get people to give offers and it is all transactional. Display ads are pointless.

The Passage: Are you looking at a new round of investment from Hillhouse and other Chinese investors?

Kunal Shah: Around 80-90% of the raised money is still in the bank. We have a lot of inbound interest and are in discussions right now. But we are too far from pulling the trigger on that.

Chinese investors like that the company has some traction. A lot of inbound interest is coming primarily because the company is being talked about. I think they like it that I can understand how Chinese companies work. That’s because I have spent a lot of time researching and have a team of Chinese interns who give me information about the Chinese ecosystem. If you can explain why WeChat works more than Alipay in some cases, they understand that you get the game.

Moulishree Srivastava

Moulishree Srivastava is a Bangalore-based tech journalist. She focuses on emerging Indian startups and unicorns. She can be reached at

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