Decoding CRED

CRED is one start-up, which has been getting a lot of media attention since it was launched by its charismatic founder, who in his previous avatar founded a very interesting start-up and gave a massive exit to his investors, when that start-up got acquired by Snapdeal. VC world loves a successful exit, for very obvious reasons. What do they love more than that though? They love it even more when the same founder offers them another chance at yet another successful bet. This time the confidence is higher, the dreams are bigger hence the bets are also bigger. Thus starts the journey of CRED.

Now most of us reading this post know about the massive funding round raised before even the launch. They are also aware of subsequent massive funding rounds before the start-up has even made any revenue. However there is one question in everyone’s mind. What exactly is CRED? Some call it a Fintech, while its own founder used to call it a Lifestyle company; some are still clueless. Very recently I read someone calling it an status symbol also. To that I jokingly mentioned that now the investors must be dreaming about it becoming the Louis Vuitton of the digital world and how they are now looking at another spectacular exit. Some may have even started planning, what they would do with this massive windfall.

I, like every other curious minds in start-up and Fintech space, have paid attention to CRED. Despite having no use for the base service it is offering, I yet downloaded the app. I even referred it to my wife to check what exactly is happening with their coin offering. One thing is for sure. The app is good to look at. It is one app, that I check from time to time without ever needing to use it for any purpose. I am someone who likes to keep things clean around myself, meaning when I don’t find the need for an app for a prolonged period of time, I just delete it. This is one app, I still keep. It’s just that good to look at. Design team of CRED, take a bow.

Let me start with a small story. Recently I was invited by my alma mater to mentor their budding entrepreneurs in the campus and I met this team of very bright young men still in their 2nd year of B.Tech. They are working on building something focused on students living in various campuses, so that companies wanting to advertise to that specific group of people can use their app to run campaigns on their platform and they can earn from these advertisers, while offering all the services to their users for free. They had thought of a bunch of services they were planning to offer. These services were all needed by students but not correlated or complimenting to each other in anyway.

I asked the team,”who is your customer?” They answered,”students.” I told them,”well, your customer is who pays you. While students are your users, your customers are the advertisers.” Then I tried to explain it to them using obvious examples of Google and Facebook and how the service they offer to their users is a mean to acquire user base, because their service is not their product. Their user base is their product. Then they find creative ways to sell this product (user base) to their customers, who are the advertisers.

I told the team that their thought process is in the right direction, however they should not focus on building ten services from the beginning. They should pick one to begin with, that they find most appealing and engaging to their potential user base and use that service to acquire as many users as possible. They may end up building all those service in the long run, but they should find an organic path towards it.

At this point in the discussion I invoked CRED. I told them while Facebook, Google and many more have built useful services to acquire user base for selling them ads, Kunal Shah is one brilliant mind. He noticed that in today’s market scenario the easiest way to acquire customers is offering them rewards. So instead of putting too much efforts in creating a service offering, he just picked up the common attribute of his target customer base (credit card) and offer them rewards for the very reason of possessing a credit card.

Under normal situation, one would spend resources building a service, then spend further in marketing and customer acquisition. This entire exercise will require a lot of money. Why not use that very same money to offer rewards to people and acquire them. Sounds simple? Well; it is. Now you can acquire the customer with this strategy, how you keep them engaged? Two ways, make the reward recurring (earn points on paying your monthly bill) and introduce gamification (lottery).

How do you make money now? The big question. Now that CRED has acquired a large number of customers who like to spend on lifestyle expenses (credit card users), next step is to connect Lifestyle brands to these customers. Imagine I run a premium coffee chain, opening a new outlet in Powai. What is the best way to market it? Whatever your answer is, unless it is CRED, it’s wrong answer. All you do is create a campaign for users living/working in Powai and surrounding area (200 Rs discount on your first visit up on burning 50,000 CRED points). Maybe you are launching a new premium FMCG brand. Create a campaign on CRED (spin the wheel to get 10-70% discount on your first purchase).

Why all the earning and burning points then? Well as I said Kunal is one of the smartest brains we have around. His offerings are designed based on users’ psychological needs not your mundane obvious things like paying your bills and all (this is probably the reason some people have called it a status symbol). All this earning and burning completes the loop and you are the hamster keeping the loop moving. It also makes this customer acquisition loop an opt-in. CRED is not into the business of selling your data. You will have to opt-in for the offer.

Just in case you have still not understood, how the money will be made; let me state it clearly. Each brand spends on customer acquisition, today they may be utilizing all the money they would be getting from brands for creating the offers, but they can always increase their margin. If the coffee chain offers you 200 Rs per customer acquired, you can make the offer 100 Rs discount instead of 200 Rs. Or spin the wheel. It may even go Google Pay’s “better luck next time” direction if there is too much pressure to generate revenue. Right now it looks like they have enough cash to keep on burning.

Some people may have question on why then they recently started rent payment and lending offerings. COVID is expected to hit the non-essential lifestyle expenses the hardest. With this situation, people will be less interested in visiting a new coffee chain or trying out new expensive face cream. That means the whole “Lifestyle company” business will slow down. These two recent offerings are attempts at offering something that is related to essential needs to its customer base.

He has not done this for the first time. Even Freecharge was same thing, targeting a completely different customer base though. You can say CRED is affluent person’s Freecharge. I think Freecharge had potential. When Snapdeal acquired it, the deal made some sense to me but when Axis Bank acquired it from Snapdeal, I knew it was a mistake and I also knew Axis Bank did not have any clue what Freecharge was all about (Axis Bank thought it was a Fintech, probably). This made me conclude that a Kunal Shah business can only be run by a Kunal Shah and there are not many Kunal Shah out there. He has an amazing understanding of how human psychology works and he uses this knowledge beautifully when creating his offering. So as long as Kunal is at the helm of CRED, it has the potential to grow into something unique and extraordinary and if he decides to sell it; there is a big chance it will also end up like Freecharge i.e. people in-charge of it having no clue what to do with it.

PS: Last night I heard the episode of Cyrus Says podcast with Kunal Shah, that more or less confirmed what I have written above. He also mentioned about a Mall that opened in Mumbai many years ago, which allowed entry only to people possessing mobile phones, cars or credit cards. So maybe he is trying to create that mall digitally. He has got the customers in the Mall already, he is waiting for brands to open their stores in this Mall and pay him rent for using his digital real estate.

PS 2: While I agree with most of the point he made there is slight deviation on what he mentioned about India being a low trust society. It may be true for cities, for whom most of the techies are building offerings, but I when we move beyond cities to smaller towns and villages, India is an extremely high trust society. I may be wrong, but being born in a small village and growing up in smaller towns my experience has been such.

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