homepersonal finance NewsLoss making companies enabled India’s fintech growth, says CRED founder Kunal Shah
Loss-making companies enabled India’s fintech growth, says CRED founder Kunal Shah
"We can say what we want, but unless we had these loss-making companies, we'd not have seen the fintech growth we have seen so far," he told CNBC-TV18’s Shereen Bhan at the Global Fintech Fest 2023.
India’s fintech boom would not have been possible without loss-making companies supporting the growth story, according to Kunal Shah, founder of CRED.
"We can say what we want, but unless we had these loss-making companies, we'd not have seen the fintech growth we have seen so far," he told CNBC-TV18’s Shereen Bhan at the Global Fintech Fest 2023.
The bulk of the growth in Unified Payments Interface (UPI), which crossed 10 billion monthly transactions in August, has come on the back of distribution and behavioural change enabled by investments from fintech startups, Shah explained.
Currently, India is the world’s third largest fintech ecosystem, with at least 18 unicorns, who have combined raised more than $30 billion. Nearly half of the funding came in the record-setting period of 2021 and 2022, subsidising and catapulting India’s fintech adoption to over 85 percent, exceeding the global average of 64 percent, as per an EY-Bain report.
However, with the onset of the funding winter in the second half of 2022, India’s fintech unicorns are under pressure to display profitability.
“It's going to be a long time before profits come in. But, it's not hard for some of the companies to achieve. Among the unicorns, the majority of the companies that have managed to cross the $100-$200 million revenue run rate are fintechs. It's hard in other categories," said Shah.
In the larger Indian business landscape, "There are 183 companies that have Rs 1,000 crore in Profit After Tax (PAT). I would say, 40 percent of that PAT is in financial services. Funnily enough, the total number of retail companies in that group is two or less than two. We are far away from expecting profit pools from something else. But, not in financial services," he added.
As it stands, only a few unicorns are showing profits. The bootstrapped Zerodha leads the pack, followed by the likes of Razorpay, Billdesk and Pine Labs. The publicly-listed Paytm has managed to achieve operational profitability, that’s if the ESOP costs are excluded.
When it comes to CRED — valued at $6.4 billion after raising nearly $800 million since inception in 2018 — the Kunal Shah-led unicorn is loss-making. While the startup is yet to file its FY23 earnings, the loss stood at Rs 1,280 crore with revenue at slightly under Rs 400 crore in FY22. The reward-based credit card payments platform burned about Rs 4 to earn Rs 1 of operating revenue.
Marketing and promotions formed 60 percent of CRED’s nearly Rs 1,700 crore expenditure in the previous fiscal, which is not surprising at all given IPL collaborations and its infamous ads with celebrities, ranging from Rahul Dravid, Kapil Dev, Zeenat Aman and Neeraj Chopra, among others.
Highlighting that marketing spending has since significantly reduced, Shah said CRED’s customer acquisition cost now stands at 1/10th of what it was earlier.
"We frontloaded brand investments with IPL, advertisements etc. Unfortunately, in financial services, if you are building a consumer brand, it requires consumers to feel trust that you are somebody with credibility,” he explained.
On plans to go public, Shah didn’t give a timeline but indicated that an IPO would require the company to be in a much stronger position in terms of growth metrics and profitability.
First Published: Sept 7, 2023 8:33 PM IST
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