Jan 02, 2023

Cred Business Model: How Does Cred Make Money?

Business Model Innovation
by Stefan Lemmerer

What is Cred?

Cred is a financial firm that provides users with a platform to pay their credit dues, rent, and other obligations in an one location, while also earning benefits for timely payments. It provides customers with an instant credit line and enables a secure environment for peer-to-peer lending between high-trust persons at far more advantageous interest rates than traditional lending sources.

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Cred Homepage

Concept Behind the CRED Business Model:

Cred, the brainchild of Kunal Shah, was created in April 2018 with the intention of capitalizing on the industry of high-trust individuals whose good financial behavior will be rewarded.

The goal of CRED is to create a closed ecosystem of trustworthy persons with high levels of trust, as well as mechanisms for them to link and communicate with one another. It is a credit-based ecosystem that allows private lenders and financial organizations to lend money to reputable persons in a secure environment.

Individuals' creditworthiness, as measured by their credit scores, is used as a metric to filter the community. Then, in order to retain clients, it pays them with CRED coins for on-time payments made through the platform.

Kunal Shah Founder of Cred

Who Are the Customers of Cred?

Cred aims to acquire a sizeable proportion of wealthy, affluent, and dependable credit card owners and users. It builds a gated community of trustworthy and dependable persons in order to construct mechanisms for them to connect and expand in the future.

CRED's Value Proposition:

CRED's business approach distinguishes itself by giving the following client benefits:

  1. It is a comprehensive application for paying credit card bills, rent, and other bills with only five taps. It simplifies, streamlines, and makes more convenient the process of managing many credit cards, hence reducing the bother involved.

  2. It offers users an instant credit line and facilitates P2P lending at an interest rate of 9%, which is far higher than what savings accounts and deposits typically provide.

  3. It tracks loan limits, analyzes hidden costs and overall spending of customers, monitors payment due dates, and provides timely payment reminders.

  4. It compensates users who make timely payments with CRED coins that can be redeemed on the platform 'Discover' for discounts on various products supplied by CRED partners.

  5. Users can also compute their credit scores for free and utilize CRED's assistance to maintain a positive credit profile and make prudent financial decisions.

Most significantly, CRED is a niche network of creditworthy individuals with high levels of trust. It functions similarly to the velvet rope effect, when individuals "pay together and can play together." This develops a social network that connects people to a vast array of additional opportunities!

Cred Market Valuation And Funding

CRED has a market valuation of $2.2 billion and has received total funding of around $551.4 million. Its growth and spike in google trends are tremendously disruptive.

Cred Revenue Model

CRED is a free program. Prior to becoming more focused on profit generating, the organization is primarily concerned with scaling and extending its customer base. Accordingly, they are making a "deliberate choice" to concentrate on gaining scale rather than generating income, as most internet-based firms do in their early phases.

Revenue Sources For CRED

CRED has a tremendous revenue-generating potential. Among the sources of income that they are now utilizing are:

Affiliate Income

CRED forms partnerships and alliances with other companies that sell their products to consumers of the 'Discover' platform. This gives CRED users more options to choose from when redeeming their CRED tokens. Conversely, businesses benefit from visibility and attract user attention. Thus, each time a user selects an offer from the app, the business pays a charge to CRED for introducing them to the customer.

Revenue From Advertisements

CRED's target demographic is the 1% cream population, and having data about their purchasing and spending patterns enables it to optimize marketing to drive greater spending through the platform and earn commissions on product sales.

Cred Homepage

Transfer Charges

In addition, the platform charges a processing fee of around 1% to 1.5% on all transactions.

Revenue From Loans

The introduction of peer-to-peer lending has resulted in approximately 9 percent interest rates for lenders and 10 to 12 percent interest rates for borrowers. In addition, CRED offers consumers loans through an instant credit line called CRED Stash, on which it receives lower interest rates than those associated with the use of conventional credit cards. These are therefore valuable revenue opportunities for CRED.

Expenses Incurred

In the past couple of years, CRED's marketing expenditures have increased significantly, from Rs 19 crore to Rs 180 crore. A significant portion of it is attributable to the IPL sponsorship it signed last year. It contributed to the company's market awareness and gave it tailwinds. Additionally, its personnel expenses have increased from Rs 17 crore to Rs 75 crore during the past few years.

What makes it special?

CRED's method of marketing is highly original and inventive. It distributes cakes to the offices of its users in order to spread awareness and generate buzz. This assists the organization in initiating a viral loop, generating additional customers, and creating a "bragging proposition."

As clients continue to pay their bills and utilize the platform, the corporation will amass a large quantity of their financial data, which it can later monetize. Even if they do not sell the data to another financial institution or bank for privacy reasons, they can still utilize it to improve and personalize the app experience for customers.

It emphasizes developing a gated community and implementing the startup's underlying concept prior to expanding and becoming profit-driven. Kunal Shah, the founder of the company, focuses more on how the demand for services or products should shape the startup's concept and have a unique and braggable proposition.

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