Fintech industries have become a topic of discussion again! Reason? Because of sky-high losses. Almost every fintech company is facing losses due to current economic conditions. Similar is the story of Cred. Its financials are no less than a mystery for startup watchers. Why? You may ask. Because it gained unicorn status two years back i.e. in April 2021. Also, it raised its valuation to $6.4 billion in a series F round in FY22. Not just that but Cred revenue also grew to Rs.393 crore at the rate of 4.4X. Unfortunately, its losses plunged to Rs.1279 crore. This was a huge shock for all the fintech admirers. What led to these humongous losses? Let’s find out!
CRED’s Financials
Before diving deep further, let’s have a brief look at the financial health of CRED. Also, we will compare its financials with that of last year.
| Particulars of CRED | FY22 | FY21 | Rate of Growth |
| Revenue (Operating Revenue) | Rs.393 crore | Rs.89crore | 4.4X |
| Expenses | Rs.1,702 crore | Rs.619 crore | 2.7X |
| Loss | Rs.1,279 crore | Rs.524 crore | 2.4X |
As you can see in the above table, its expenses seem to be the main culprit for its humongous losses.
CRED’s Expenditures
The two key expenditures of Cred were-
| CRED’s Expenditure | Amount of Money Spent |
| Marketing Expense | Rs.973 crores (3X Jump from last year) |
| Employee Benefit Expense | Rs.307 crores (2.3X Jump) |
These cost elements described above caused financial losses to the company. Just like every other firm, CRED also spends heavily on marketing. Especially on television advertisements featuring famous celebrities. Such as Ravi Shastri, Rahul Dravid, Neeraj Chopra, etc. And you know very well, celebrities dig out a huge chunk of money for advertisements!
How CRED managed to raise its valuation despite humongous losses?
Well, the figure of loss (PL Statement) was released after the funding rounds. Earlier, the investors were quite optimistic about the financial CRED due to its latest and unique features. Such as incorporating the UPI feature and offering cashback to increase the user base. Apart from that, its features like a loan business linked with a P2P platform help it to stand out in the market and to beat its competitors like CRED. The P2P (Peer-to-Peer) platform has contributed to the rise of huge volumes by all accounts. This was a significant differentiating factor of CRED. Thus, it offers high credit quality to its lenders as well as borrowers.
(Note: You can look at the CRED business model for more details.)
Its lead investors are-
- Falcon Edge
- Tiger Global
- DST Global
- Insight Partners
- Coatue
The Stance of Founders on CRED’s Losses
Even though the losses seem to be quite alarming for the company. But the founders don’t seem to be agitated with the loss figures. According to Kunal Shah (CEO of CRED), the loss figures are a sign of the huge investment done by the company. He attributed the losses to the company’s dedication to building strong branding and expansion of the user base. Let’s compare the user base of CRED for the last two fiscal years.
- FY22: 11.2 million
- FY21: 7.5 million
So, yes. Its user base has grown considerably. What led to this massive growth in user base? You may ask. Some of the key reasons are-
- Rewarding the customers for paying high credit card bills
- Approving only highly credit worthy customers with a minimum credit score of 750
- Building multiple use cases for customers like cash, mint, pay, credit card bill payment, travel, etc.
- Raising the monetization levers such as merchant products, e-commerce payments, rent payments, etc.
Thus, the above investments will emerge as multiple revenue lines for the company. Thus, it hopes to become profitable in future.
Future Plans of CRED
The ongoing global financial crisis has affected CRED too! But CRED didn’t lose its spirit. Not only had it raised a significant amount of funds from the Series F funding round. But also planning to enter the BNPL (Buy Now Pay Later) space. As per Kunal Shah, despite regulations in the fintech sector, they are keen to build exclusive products for consumers. Although it is going to consume a lot of time it will be highly beneficial for the company as well as the customers. The CRED revenue is expected to increase significantly in future!
Final Words
Let’s conclude the whole issue. CRED, a financial technology company, experienced a significant increase in losses and revenue growth in FY22. The company’s losses surged to Rs.1279 Cr while its revenue grew 4.4 times to Rs.393 Cr. The key reason for its losses was due to its huge expenditure on television commercials with celebrities. The results would have been different if CRED focused more on digital marketing than traditional marketing. Because the former is cheaper and more effective than the latter. But the officials are optimistic about CRED revenue. CRED doesn’t see the loss of Rs.1,279 crore as losses. But as a potent investment that will bring fruitful results and revenue to the company. The company is also planning to build and launch new products that will add to its revenue streams. Thus, despite the financial crunch, CRED is hoping for a bright future.
