Why CRED wants to become a currency

Why CRED wants to become a currency


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Good Morning Dear Reader,


Around a week back, someone was unhappy and tagged us on Twitter. Strangely, the complaint wasn’t about The Ken, but with emails sent by CRED, the Indian FinTech startup. 

At one level, I understand what @floatingspaceman is saying. CRED is an app that’s used by some people to pay their credit card bills in exchange for some rewards. Now these people are also getting weekly emails from CRED (all in lowercase) which claim to “demystify business and finance to bring the most interesting insights”. I imagine that this could be a jarring experience. An app that was used to pay bills is now explaining to you the business and strategy of companies like Netflix. 


The interesting thing though, is that this isn’t a one-off. CRED and its founder and CEO, Kunal Shah, have suddenly been interested in content businesses. If the company isn’t busy creating content of its own, it’s bringing content from other places onto its platform, either through a partnership or through an investment or sponsorship


What happens as a result? 


Well, if a user lands up on the CRED app, they see an aggregation of content, some from CRED, and some from others.

Why is a credit card payments app trying really hard to become a media company? In fact, there are examples of media companies attempting to do a FinTech play—think of Finshots, which started off as an outlet that sent you sharp, snappy explainers about finance and economy and is now attempting to sell you insurance. There are also examples of FinTech companies trying to create and aggregate content in order to “engage” users. 


However, for CRED, the answer is a little more complicated, and much more interesting. It has little to do with content, and more to do with CRED’s real ambition—of wanting to evolve from a regular payments app into something more audacious. 


CRED wants to become an actual currency, something that no Indian FinTech company has ever tried so far. 


Let’s dive in. 

The Two Steps to a Currency

Imagine a situation where you want to create a new currency from scratch. Where would you even begin?


Well, very broadly, you’d have to do a few things. 


First, the way a currency works is that it’s inherently valueless, but attains value because others accept it as legal tender in exchange for goods and services. A piece of paper with a number written on it is worth nothing in absolute terms, but it is valuable because others agree it is valuable.  


Second, because everyone agrees that these pieces of paper have value, we can’t have a situation where just about anyone can create these pieces of paper from thin air (or from their writing desks). So it’s imperative to control the production and flow of this currency. 


That’s really it. There are just two steps to create a currency. Mass delusion around something worthless that’s produced in a controlled way. That’s basically why everyone is going nuts about Bitcoin. Hype combined with scarcity. 


But back to CRED.


CRED is interesting because unlike other FinTech companies that attempt to help you make payments or get loans, CRED is a FinTech company that was created to solve a single use-case—paying credit card bills. A long time ago, the founder and CEO of CRED, Kunal Shah, created another company called Freecharge, which was also used to solve a single use-case—pay your mobile bills. Let’s just say that Kunal Shah likes building companies around apps that help users do exactly one thing that they do fairly regularly and predictably, at least once a month. 


From a product standpoint, this is a bit risky, and even counter-intuitive. The conventional wisdom around finance is to aggregate as many use-cases as possible, not narrow down on a single one. Finance apps are fighting tooth and nail with each other to convince you to do as many things as possible on their platform—from transferring money, paying bills, buying mutual funds, shopping, insurance, and much more. 


And here’s CRED, which wants you to use it for credit card bills. That’s it. 


This isn’t even a compelling problem. Nobody really needs CRED to pay a credit card bill, so it’s important for CRED to create that need. And they did that by offering reward points every time a user paid a credit card bill. These reward points are redeemed for cashbacks, discounts, and other offers on the platform. They act as a motivator, reminding users to take the trouble to log in to the app every month to dutifully pay their bills.


None of this is terribly unusual. Offering a made-up currency as a carrot in exchange for a regular, repetitive transaction is what airlines and credit card companies do all the time. CRED adopted this model and for a long time, followed the same playbook. Pay bill. Get points. Redeem points. Get some product. Repeat. 


Then CRED thought…can we take this up a notch? 


Reward points have a lot of problems. They are fragmented, and you never really see them. You could be making lots of transactions on your credit card, accumulating points, and with no idea about it at all. Also, the rewards for redeeming these points are often not that compelling, which further puts them out of sight and eventually…out of mind. 


What good is a made-up currency if you forget it exists? 


So CRED decided to do all it can to make sure that you never forgot it existed. It created newer products that gave you reward points for other behaviours, like paying your rent or taking a loan. More use-cases equals more time you spend on CRED’s app. It sponsored the Indian Premier League, one of the most marquee, high-profile events on television. It made some clever ads that went a bit viral. It created a user interface for its app that was polarising…because that was part of the plan. 


CRED’s idea was that if it had to create a currency, it had to be in currency. It needed as many users as possible to use its app, and have a reserve of CRED reward points. So it had to be in the news…all the time. It had to keep doing outrageous things because everyone talks about outrageous things, and then you never forget it exists. 


As my colleague Sanjana wrote in her piece for our daily newsletter, Beyond The First Order, CRED has no choice but to break the rules. 

At a time when the fintech rainbow has been painted on by apps of all shades, CRED faces direct competition from multiple players against whom it cannot win solely on the back of its product. It really doesn’t take much to be an app that reminds people to pay credit card bills and provides cashbacks. Instead, by being ridiculous and acknowledging it—releasing full-blown TV ads that suggest people use an app with such basic features—CRED invites people to be the same. Use the app despite its banality, and be ridiculous and rule-breaking.


Also, getting people to download the app (and give it all the necessary permissions) is all CRED needs. This provides it a trove of data on which it can someday build a personalised and contextual fintech platform; it’s keeping its options open for the future.


Meanwhile, building a brand at a massive scale—which its nearest competitors would not be able to do for a while—is CRED’s real business model.


CRED would lose if it played by the rules, so it has to break them. And it can, backed by its vast pool of funding and the credibility of its founder, Kunal Shah. As he said in his interview with The Ken, “Shah Rukh Khan broke into the industry by choosing villain roles, doing the things that incumbent protagonists never did. So for CRED to be memorable, we would also probably need to do something that the incumbents would never do.”

CRED has no choice but to break the rules, Beyond The First Order, The Ken

Do things that get attention. Get users. Make them accumulate your made-up currency. 


That’s step one. 


Logically, the next step is to create value for this currency. The idea is to make CRED reward points valuable enough that it can be used as a way to purchase expensive products and services. 


This isn’t particularly easy. 


Say you are a merchant, like say, Flipkart. If CRED comes to you and asks, hey can you sell a television worth Rs 50,000 to my users in exchange for say, a million CRED reward points, what would you say? 


Well, chances are you’ll most likely tell CRED that anyone can “purchase” your television using CRED’s reward points, bananas or dogecoin. As long as you get Rs 50,000 in your bank account at the end of this transaction, that’s all you care about really. 


This is what Flipkart probably tells all loyalty companies interested in a special offer. Do what you want as long as Flipkart gets its money. And not in CRED reward points. Flipkart wants it in a currency it believes in. 


This is probably where CRED makes an interesting proposition, which goes something like this: CRED has a lot of high-value users who spend a lot of time on its app doing all kinds of things to earn reward points. Would Flipkart be interested in advertising to these users? This wouldn’t be a regular ad, but an interactive one, in a way that made the product extremely aspirational. This is unique, and something that only CRED can offer. Put your product in front of a high-income audience, with an experience that’s unmatched. Maybe it’s not that easy to buy a television using reward points. Maybe users will have to play a game, and the television is given to the winner. It’s a prize. And users need to spend lots of reward points to attempt to win it.

This is one way to do it. Another way to do it is to offer a discount towards purchase of a product, but in a way that makes it look like the user earned it, like winning a game. Or offer a special reward to the highest spender of CRED’s reward points in a day or a week. The idea is the same. Take points. Get a discount. Pay the rest. 


Suddenly, your reward points have value. 


It’s closer to becoming a currency. 


There’s just one final step, and that’s what CRED has started doing over the last few weeks. It’s built a new product called CRED Pay with Razorpay, which is a payment option alongside wallets, credit cards, and netbanking. 

This is the first instance of a FinTech company creating its own payment mechanism and a currency. Many have created a payment mechanism (Eg: Wallets, UPI, Cards) or an internal currency (Eg: Payback, Airmiles). 


Never both. Until now. 


And we are seeing this pop-up in several places. Like in Dunzo. 

This is the culmination of CRED’s ambition. It has your credit card details, which it will use to help you make payments. Also, if a merchant makes a transaction via CRED, CRED makes money off it thanks to a transaction fee. And CRED will ensure that its users will pick this payment option over others because it’s the one that makes the most amount of sense for them financially. Over time, CRED’s users will be the ones asking merchants if they support payments via CRED reward points, and will insist on it getting added to the checkout page. 


But all of this hinges on users visiting CRED’s app regularly. 


That’s why CRED is suddenly obsessed with content. It needs new and fresh reasons to make sure that CRED’s users open the app regularly, and not just when they want to pay the bills. The more they use the app, even to consume content, hopefully, along the way, they will do other things like use their coins to make purchases, spin wheels, and pay their credit card bills on time to get more reward points. 


CRED is on its way to becoming a currency.


I’ll end with this excerpt from Sumanth’s interview with Kunal Shah. 

We have a complex relationship with money; it is a very sensitive topic. We don’t talk about being in debt. We don’t talk about being stuck in a credit card loop. So it is a compounding problem in multiple ways.


I worked from the age of 15 as my dad went through bankruptcy because he could not manage money properly. We had to sell our business and apartment. I grew up in a 100-square feet place with my brother, mom and dad, and I had to do a job at such a young age to help feed the family. So in a sense, I have always appreciated the value of managing money well.


But in India, there are millions of people who are bright and well-educated but have no clue about money. India has one of the highest ROAs (Return on Assets) on credit card margins. It is not even that these credit card companies are trying to be evil. 


There is just no financial literacy even in the most affluent segments. 


A basic understanding of money is simply not there.


Kunal Shah, The Interview – Kunal Shah on improving Indians’ relationship with money through CRED


Take care.


Praveen Gopal Krishnan



P.S: Kunal Shah and CRED have either made investments and entered into partnerships with multiple media companies such as The Morning Context and Finshots whose scope extends to business and tech news coverage, often overlapping with The Ken’s own focus areas, and may thus be construed as a potential competitors.


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