CRED's Late Entry into BNPL and Retail Payments

 Though CRED's founder Kunal Shah and the company's Bengaluru-based headquarters may seem grand, the fact remains that CRED shares the same struggles as many of India's top unicorns. Nonetheless, as CRED ventures into new sectors to increase its profitability, there may be hurdles that lie ahead.

While questions about CRED's profitability compared to its valuation are not new, recent data showing a cumulative operating loss of $5.9Bn in FY22 for 74 unicorns (55 of which incurred losses) has raised eyebrows. CRED has yet to become profitable while other fintech companies like Paytm and PhonePe have also struggled to show signs of profitability due to the strict regulations governing fintech models.

Startups such as Slice, Uni, OneCard and many others have been dampened by the RBI's notification for prepaid payments instruments (PPI) in 2022, affecting the credit card challenger model. Additionally, UPI has revolutionized payments, but the profitability of UPI apps has been caged by schemes like zero merchant discount rate, which have ironically played a crucial role in driving the growth of UPI, surpassing credit cards, in the digital payments space.

The digital lending space remains the biggest revenue channel for fintech startups, with investment tech and insurance businesses relying mainly on low-margin commissions. However, many companies are vying to capture even a small share of the lending opportunity. There is potential for UPI payments to generate significant revenue for fintech apps, but this is contingent on the elimination of the zero MDR regime. The introduction of the wallet-like UPI Lite feature is seen as a step in this direction, with the possibility of higher value UPI transactions attracting MDR in the near future. However, this is still speculative in nature.