Even as India is primarily a debit card driven market, the opportunity in the credit card segment is a niche yet a fast-growing one. The Reserve Bank of India’s data for February 2019 says India has 46 million credit card users, up from 36.9 million in February 2018 and 29 million for the same period in 2017. While banks have been offering points to their customers for using credit cards which latter can redeem for rewards, the market for incentivising people for making credit card payments timely was left untapped until Cred was announced by FreeCharge founder Kunal Shah in November last year.
However, within five months, Shah’s Cred, which allows credit card users to pay their bills and earn coins that can be used to claim rewards from brands across categories including Cure.Fit, Ixigo, Airbnb, BookMyShow, Urban Ladder etc., is already galloping when it comes to attracting tonnes of capital in fewer rounds.
It is not usual for a startup in India to raise around $25 million in seed round even before it is launched, which Cred did in June last year. Now, Cred has taken further leap, and is raising around $100 million in just about five months of the launch in another round, valuing it at around $300-400 million, according to media reports. Startups typically raise less than $500,000 in their first year of operation while $25 million is usually a part of Series B or C that comes during or after three-four years of business.
The First Mover
One reason for Cred to be on a roll, said industry experts, is having the first mover advantage in a market with no players. “For all credit card holders in India Shah has a shot of making Cred the most popular app. Credit card users of various banks don’t have a common app,” Anand Lunia, Founding Partner, India Quotient, told Financial Express Online. Moreover, Shah has many ways to monetise it including lending where users would be able to borrow capital for paying their credit card bills, added Lunia.
Kunal Shah didn’t respond to emails and calls to the query by the time of filing this story.
The bigger reason perhaps for betting too much capital so early on has got to do with the entrepreneur’s credibility as well. Shah is credited with building FreeCharge as among the leading digital payments platforms in India before it was acquired by Snapdeal for $400 million in 2015. “The proven execution capability of an entrepreneur and the team is always a plus point. Also if your business show characteristics of building a network effect model then that is another reason why investors would put a large amount. These are rationale for a scale-up fintech model,” Vivek Belgavi, Partner, India Fintech Leader, PwC India told Financial Express Online.
Building on Legacy?
Cred currently focuses on users with good credit scores to reward them for timely payment of their credit card bills, which will have a network effect by attracting more people to pay bills on time and have a good credit score along with helping brands get more customers. Moreover, while there have been acquisitions and buyouts under $100 million that have happened over last 10-12 years (when startup ecosystem started emerging), deals at around half a billion dollar have been very few.
“If you look at the top deals by entrepreneurs, not many of them have sold their companies at $400 million,” said Lunia, referring to Kunal Shah’s sale of FreeCharge to Snapdeal. “Shah is a very non-linear entrepreneur who had an interesting proposition and he executed it very well. That’s why he was able to raise such capital,” added Lunia.
However, not everyone is willing to bet on Shah’s potential to scale another company much like FreeCharge. Importantly, FreeCharge was later acquired by Axis Bank in 2017 for just $60 million — shrinking its value by close to 85%.
“I don’t think it (Cred) deserves that much capital. I don’t see Cred’s business model justifying such high valuation for focusing at just around 50 million credit card users in India. While people are going crazy but this is a surefire way of losing money. FreeCharge was sold at a notional value of $400 million reduced to $60 million later,” said an investor at a tier-I venture capital firm in India requesting anonymity.