Firstly, we are going to bear what CRED is. So CRED is an Indian fintech startup based out of Bangalore, Karnataka. Kunal Shah founded it within the year 2018. CRED’s main feature is to permit users to create mastercard payments through their app, that the users get rewarded. Later, CRED added certain more features like making house rent payments and introducing short-term credit lines. By 2021, the corporate had onboarded over 6 million users & processed about 20% of all mastercard payments in India. CRED is currently valued at $2.2 billion as of April 2021. Despite many huge profits, the corporate also posted losses of around Rs. 360 crores in 2020, caused mainly because of the high expenditure on marketing and advertising campaigns.
Many new startup ecosystems are coming into today’s world, and that they all primarily work on a model named- The cash burn model. Behind such an incredible business model and putting in of a totally new startup, three significant steps were taken:
Step 1- Cash burn rate:
The cash burn rate is that the cash spent or used over a selected time, which may be determined through income statements. And it indicates the negative income. This rate is sometimes calculated by new businesses and is employed to investigate the cash spent or the expenditure for generating revenues or cash flows. during this model, a brand new company comes, they see and address a major problem in society and supply a selected solution for that & for that purpose, they gather colossal funding. Through the budget, they entice the potential customers, and after customers avail their services, they offer huge offers, which seems quite unbelievable from time to time.
For example, when Jio came for the first time, it invested nearly Rs.1.5 lakh crores, and it initially started providing completely free internet within the country. They identified a big problem of internet accessibility within the biggest democracy of the globe. Therefore, they invested and commenced a corporation named Jio. the same as this, CRED identified three significant problems in mastercard payments:
Banks kindle the price of hidden charges.
Banks charge late fees and take huge penalties.
In late fees, interest rates became very high, as per-day interest rates were counted.
Many times, the mastercard holders weren’t able to think why they’re charged most. So, for these three problems, CRED urged the people to form mastercard payments through their medium at the proper time and ensured the purchasers that they might get rewards from the corporate. Initially, they even gave IPOD as an award. This helped the purchasers in saving their money.
Step 2- Habituation:
Kunal Shah wanted to make such a difference that folks do not get back to the normal methods, but instead, they’ll become habitual of the new model. In a meet, he asked a pair of audiences to convey ratings (out of 10) to 2 different models (One being traditional and therefore the other being a replacement model). He said if the difference of ratings between the 2 is over 4, then the new model are going to be more efficient, and that they will attempt to make it the mainstream model. And if the difference is below 4, people should persist with the standard one. the 2 models he took, for instance, were those of the taxi services. One was the standard method, and therefore the other was online mode ( ola & uber). The audience responded more to the new one. This gave him the thought.
Step 3- Goldmine profitability:
During this stage, after implementing the strategies, the gross margin rose to such an extent that investors, at some extent in time, weren’t ready to decide where to place their money.
Such an amazing idea and a distinct model by Kunal Shah revolutionized the complete finance cycle and brought a replacement dimension to fintech.