Cred’s share of credit card payments shrinks, takes shine off premium offering

While Cred has raised almost $800 million and still has a lot of cash reserves in the bank, the company may have to soon realign its growth expectations and marketing.

Cred is in a spot with respect to its growth strategy. The average value of a UPI transaction on the platform has dropped to a third and its share of the credit card bill payment market has shrunk. An indicator that its core business of facilitating credit card bill payments for the rich may be struggling.

The average value of a transaction on Cred through the Unified Payment Interface (UPI) dropped to Rs 4,529 in April from Rs 13,300 in January 2022, according to data on the website of the National Payments Corporation of India, which owns the platform. Additionally, the total value of UPI transactions on Cred increased 46 percent, mostly due to growth in the merchant scan-and-pay facility that the company started late last year.

The data suggests that an increasing percentage of growth in UPI transactions on Cred during the past six months were possibly not credit card bill payments, but small merchant transactions carried out on its new scan-and-pay service.

More than 95 percent of credit card bill payments on Cred are made through UPI and that has remained more or less the same over the past couple of years, according to multiple sources within and outside the company. With credit card spending in the country having grown 48 percent over the past 16 months, the drop in Cred’s average transaction and a lower growth in value of transactions on UPI also suggests that its customers are either leaving or using the app less frequently.

Cred disputed the numbers and added that the publicly available data does not reflect the growth the platform has managed in the last year or so. The company said that its customers use multiple payment methods including debit cards and netbanking for paying credit card bills. However, the company declined to share the information on how much credit card bill payments were settled using UPI or other payment methods.

But official data from the last couple of years show that debit cards and net banking payments are seeing a gradual decline, making it unlikely that these payments may have gone up on Cred.

To be sure, the decline in market share of credit card bill payments in itself is not a reflection of the overall revenue growth or monetisation on the platform. But Cred’s central premise seems to have undergone a shift, from a credit card bill payments app for creditworthy users to an app that is increasingly an aggregator of credit cards.

The number of credit cards disbursed in the past 16 months grew 22 percent to 85 million in April from about 70 million in January 2022, according to Reserve Bank of India data. Credit card spending climbed to Rs 1.3 lakh crore in April from Rs 88,000 crore in January 2022. Cred has around 11million customers on the platform as of now. The company added that its user engagement has doubled in last one year.

The total value of UPI transactions on Cred increased 46 percent over the past 16 months – lower than the growth in credit card spending – even after accounting for the fact that most of the growth in value did not come from credit card bill payments.

Shift in strategy?

Cred, which offered rewards to customers who paid their credit card bills on its platform, has always stated that its focus is on the top 3 percent of the country’s rich population. However, its marketing campaigns during the just-concluded Indian Premier League and the rollout of Rs 5 cashbacks on its merchant UPI transactions suggest otherwise.

When it started – and even now – the company claimed it wanted to go deeper with its “rich customer” profile, but its UPI transaction value and volume numbers indicate that it may only have been trying to acquire less-desirable customers.

The company bet heavily on UPI, which has grown but has not made any serious market share gains. After introducing the scan-and-pay facility at merchants late last year, it rolled out money transfers to contacts over UPI two months ago.

Cred said that even its premium customers use UPI and they wanted Cred’s trust and privacy features on UPI, which prompted the company to launch the scan and pay as well as peer to peer UPI payments.

Cred rides UPI wave

While the number of UPI transactions on Cred almost doubled in the six months since November, a large part came from its recently introduced features. However, even though volumes doubled, Cred’s market share by UPI transaction value declined marginally, probably because of low-ticket scan-and-pay merchant transactions.

About 84 percent of merchant transactions are less than Rs 500 in value and more than half of them are below Rs 200.

It’s not clear whether other payment apps gained at Cred’s expense. Popular UPI apps such as PhonePe, Google Pay, Paytm, Mobikwik and Amazon Pay also have the credit card bill payment feature on their apps.

Before these UPI apps started, bank apps were the most preferred way to settle credit card bills and even today, most card bills are settled within bank websites and apps or through standing instructions.

Today, about one-third of credit card bill payments are made through these popular UPI apps. About 13 percent of the country’s credit card bill payments happen through Cred, according to bankers.

“The only reason rich people would share card details with a deep data platform like Cred is because the rewards are big enough. As rewards decline, the interest will go down. If the value of the rewards declines, you will attract value seekers and that does not look good for an app like Cred,” said the head of a private sector bank’s digital division.

Cred founder Kunal Shah has always maintained that it targets only premium customers. However, the recent numbers suggest otherwise, unless it is shifting its strategy to chase growth.

However, Cred maintained that its credit score threshold remains at 750 for people to be onboarded on the platform as well the average credit score of customers on the platform is also much higher than the threshold. This the company said that is an indication that the users on the platform continue to be premium customers.

Cred’s UPI conundrum

Almost 75 percent of retail digital payments are made through UPI and this will potentially rise to 90 percent in the next two to three years, according to a PwC report released this week.

It is hard to ignore a platform that is as dominant as UPI, even for the top 3 percent of the population who use credit cards for large purchases. However, as the value of credit card reward points shrinks, the propensity of customers to use cards more often is getting lower.

The rise of co-branded credit cards also means that an increasingly large proportion of spending on credit cards is becoming platform-specific. An Amazon Pay ICICI Bank card is used mostly on Amazon. For most small payments outside the platform, customers could likely use UPI.

Credit card bill payments in itself would not generate revenue for Cred. It is mostly a reason for Cred to attract premium customers. However, Cred coins, which users accumulate on the app for paying these credit card bills, has often come in for trenchant criticism on social media for the lack of value. Cred users also point to the disconnect in offering miniscule cashbacks for UPI payments to a presumably rich cohort of users.

It makes sense for Cred to target a larger pie of UPI payments when many transactions are moving towards the platform. For instance, Apple does not accept card payments in India and prefers UPI.

However, even Paytm, Amazon Pay and WhatsApp have failed to shake the dominance of PhonePe and Google Pay, which have a market share of 47 percent and 35 percent, respectively. And these top two companies have grown their market share in the past 16 months.

This does not mean that Cred is going after customers with lower credit scores, but a segment of the population that is not as high spending as its initial set of customers.

Loan portfolio

Last year, Cred found a profitable revenue growth path. Its lending division under Cred Cash has been disbursing about Rs 2,000 crore worth of loans every month. While this has grown over the last few months, Moneycontrol could not ascertain the current numbers.

Regardless of whether Cred’s customer base is not expanding or if customers are leaving the platform, customer loyalty is important for the company to keep expanding its lending portfolio.

Cred is said to be looking at buy now pay later (BNPL) loans under its Flash product to accelerate lending growth. While Cred Cash has disbursed loans above Rs 50,000 to customers with higher credit scores, BNPL could be targeted at customers with lower credit scores or with limited credit history seeking much smaller loans. But this market is crowded with smaller fintech companies targeting the segment.

ET reported earlier this week that Cred could target such customers through its acquisition of CreditVidya, a loan underwriting platform.

While Cred has raised almost $800 million and still has a lot of cash reserves in the bank, the company may have to soon realign its growth expectations and marketing.

Note: This copy has been updated to reflect Cred’s responses after Moneycontrol published the story earlier today.