cred case study
Cred case study
CRED is one of the most fascinating
business case studies in the Indian start-up ecosystem.
In just 2 years, CRED went from 0 to hitting a $2B valuation
and became one of the youngest Indian startups
to reach this milestone.
Now, the peculiarity of CRED is that in 2020 alone
CRED incurred a massive loss of ₹360 crores
which is a massive increase of 492% from 2019.
And for every rupee of revenue that CRED generated
they spent ₹727 which is a massive cashburn.
We all have seen the result of massive expenditure into
So now the question is, even with such massive losses
how is it that CRED is getting so much funding ?
And what exactly is Kunal Shah’s strategy ?
Well, the beauty of this case study is the that if you only
understand what CRED is doing
you will more or less understand a large chunk of the Indian
because most of the giant companies like Jio, Ola, PharmEasy
also operate in a similar fashion.
and the most important factor that is common in all of them
they extensively work on altering the behavioural design of
And the anticipation of that behavioural design,
is what makes them billion dollar companies.
This golden strategy works out in 4 discrete steps
The first phase is what we call cash burn and here’s where
The company, first identifies a major problem in the
Number two, it designs a system to fix that problem
Number three, it raises a million dollars in funding
and lastly it entices the customers to use the product by
giving out unbelievable offers
which are almost too good to be true.
A very simple example of the same is Jio.
First of all, Jio identified internet accessibility as a
major problem in the Indian society
and then Reliance spent about ₹1.5 lakh crores into building
the infrastructure required for Jio.
And then in 2016 when Jio got launched, they gave out offers
that almost looked impossible.
-free sim cards, free calls and free internet.
And the moment this announcement happened, millions of
people rushed to buy Jio sims.
And Jio did everything in it’s capacity to maximise it’s
number of it’s users
without even bothering about profits.
Which is why, on top of the heavy investment that they made
they further incurred a loss of Rs. 31 crores in 2016.
Just like this, when CRED rolled out in 2018 they identified
3 of the biggest pains of a credit card holder which are;
number one, hidden charges
Number two, late fees due to forgetfulness
and number three is the extra interest.
And they rolled out massive cashbacks and offers to
incentivise the act of on-time payment.
And these offers were as amazing as free flight tickets
extremely lucrative discounts and ₹1000 cashbacks also
Fast foward to 2021, CRED today, has over 30 lakh users
and today, CRED is already processing 20% of all the premium
credit card transactions.
So this is how within a short span of time, in Phase 1,
companies present incentives
in order to get customers to use their product, eventually,
to increase their user base.
And this is what brings us to Phase 2.
Phase 2 is all about habituation.
Once you bought a Jio sim, you never bothered about
talktime, you never bothered about data.
And we all recklessly got habituated to this newfound luxury
Similarly, in case of CRED, the people who have 2-3 credit
found it so simple to use CRED that they stopped using their
wherein they had to go through this long list of their
or putting in effort to dig in and find out whether there
are hidden charges, on each credit card
My uncle is a CRED user, I can’t even tell you how amazing it feels.
as compared to having this terrible feeling wherein you have
no idea where the hell your money is going.
In fact, there was a time when my uncle thought that some hacker is
stealing his money, alright ?
and I’m not even kidding about this.
So, this is how in Phase 2, using their super efficient
companies seemlessly get us habituated to new normal
wherein we are no longer used to adjusting to the ‘hurdles
of the system’.
Here’s where we enter the most crucial phase of all, that
is, Phase 3
and Phase 3 is what we can call as Irreversibility.
A classy example of the same is Google Maps
Now you might have observed that most of the people of our
never even bother to remember the name of a landmark, street
In fact, I’ve got so used to Google Maps that in my own
city, if you leave me in some street
I will start wandering as if I am in some strange jungle.
That is how much I have got habituated to Google Maps
And by the way, this does not include those superhumans who
have this amazing memory
to remember any route, even if they have visited that place
and you know which friend am I talking about…
So the point is, Google Maps has made our lives so easy that
finding a way to a place no longer occupies our headspace
and in case of CRED, users no longer have to remember to pay
their credit card bills,
they no longer have to remember when exactly is their due
dates or bother about late fees.
Similarly in case of Ola, we are no longer used to finding
taxi on the streets
In case of Jio, when there is no Internet you all know how
So you see, once these companies came in there has been an
irreversible change in our behaviour
wherein the small acts of booking a cab or paying a credit
has changed to such a large extent that we will never ever
go back to our past system.
Now CRED is yet to complete this phase
which is why all the numbers that you see about CRED is in
the negatives now
because CRED is yet to change a significant part of the
After this we come to Phase 4.
Now, this is the goldmine that every investor waits for
wherein the company starts making profits
and if you look at the numbers, it literally looks like a
For that matter look at the numbers of Jio.
In just 1.5 years, Jio became profitable
that is in the 3rd quarter of 2017 with a profit of ₹504
From there onwards it has been on a magnificent run
wherein in 2020, Jio has posted a net profit of ₹5,562 crore
and the reason why CRED is also sitting on a similar
is because the customers of CRED are by default the richest
1% of the country.
These people are literally the dream customers of any
Their incomes are high, so they make expensive purchases on
a regular basis
which results into massive profit margins for every company
And my sense is that in the 4th phase, CRED could leverage
it’s golden customer base
in three very very powerful ways.
Number one, CRED could become this must have expense
which will also allow it’s users to file their income tax
and just like it cured the headaches of the credit card
by saving their money from hidden charges.
CRED might also might start saving it’s customers a ton of
through their income tax rebate filings
by turning the entire process of income tax filing into a
very simple and efficient process
and if this happens, I don’t think any of us will ever leave
the CRED club.
So, Kunal sir if you’re watching this please help us out
Number two, CRED has one of the most valuable customer data
in terms of purchase preferences
For example, CRED clearly knows that Parsh loves to spend
₹20,000 into sports.
Ganesh loves to spend ₹10,000 in education and books.
So CRED could use this data to show relevant advertisements
with exclusive coupons
Tto get people to spend heavily on the things they
eventually, to make a comission out of it.
Lastly, CRED could also became a bank for the top 1% of
and the reason why I think so is because
there are two important factors that are very very crucial
for any bank’s existence.
Number one, every bank wants customers who have a lot of
money deposited in their bank account
after all their investment and expenses.
And this money is what the bank uses to lend to businesses
in the form of home loans, car loans etc.
Number two, every bank needs borrowers who pay back their
So that they can charge an interest on top of it
eventually to make money out of the lending business.
And guess what ? CRED literally has these exact people in
it’s customer base
which is why my sense is, CRED could literally extend itself
to become a full fledged bank
or maybe even become a full fledged portfolio management
system for the top 1%.
Eventually to become the most revolutionary fintech start-up
So to put that straight, for people who are not rich
CRED might look like a weird idea
but in reality it is a revolutionary idea
coming from one of the most amazing entrepreneurs in the
Indian start-up space.
And we must consider ourselves to be extremely fortunate
that we are getting to witness their processes
and we must learn from these revolutionary start-ups
that are going to redefine 21st century India forever.
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