Is somebody else making money from your credit card?:How CRED turns your credit card bill payments into a multi-billion dollar business

A credit card is like a small, continuous loan from a bank. When you buy something with this plastic money, you are not using your own money. Instead, the bank pays for your shopping expenses. The bank gives you a maximum spending limit (for example, ₹50,000). Every time you buy something, your available limit goes down. At the end of the month, the bank sends you a bill, and you must pay back the money spent. How credit cards work? Many people use credit cards every day to buy groceries, book flights, or shop online. But many users still do not fully understand how credit cards work. What is a Credit Card Billing Cycle? A billing cycle is the time window when the bank tracks your shopping. It usually lasts for 30 days. Think of it as a monthly schedule. Here is how it works step-by-step: Spending Period: For 30 days, you use the plastic money to buy things. Statement Date: On the last day of the cycle, the bank adds up everything you spent and creates your bill (called a statement). Grace Period: The bank gives you extra time (usually 15 to 20 days) to pay the bill. Due Date: This is the final day you must pay the bank back. When do banks levy interest? You do not have to pay interest if you pay your total bill amount before the due date. If you clear the full bill, the loan is 100% free. However, you will have to pay interest if you didn’t payback the entire money spent. When your bill arrives, the bank gives you two options: Total Amount Due: The total amount you spent. Minimum Amount Due: A very small part of the bill (usually 5%). How lenders trap users of plastic money? If you only pay the minimum amount, the bank will not call you a defaulter, but the lender will start charging interest on the remaining money. Credit card interest is very high—often around 36% to 42% per year. Your credit score will drop. A bad credit score means banks will refuse to give you loans in the future. Credit cards are very convenient. Plastic money lets you buy things with deferred payment. However, management of multiple cards and timely payments before due dates can be difficult. This is the area where fintechs like CRED tapped on the user behavious and made millions. But, you must pay the total amount due before the due date. If you do this, platforms like CRED will rewards you with points which you can avail off to buy products at lower price. CRED at a glance In April 2018, an entrepreneur named Kunal Shah founded CRED to solve this problem. CRED is an Indian mobile app that helps people manage and pay their credit card bills on time. To keep users hooked, the app rewards them every time they pay their bills on time. CRED started as an exclusive club. Originally, only people with a high credit score (above 750) could join, though the app has become a bit more relaxed these days. By focusing on trustworthy users, CRED has built a valuable community of premium customers. CRED – modus operandi: CRED is more than just a payment tool. It offers several features to help users manage their money: Easy Bill Tracking: The app shows users exactly how they spend their money (spending habit) and helps them plan their budgets. CRED Protect: This is a smart AI feature. It tracks payment dates, sends reminders, and alerts users about hidden fees or fake charges. The Rewards System: When users pay a bill, they earn ‘CRED coins.’ They can trade these coins for gifts, tickets, and discounts from famous brands like Myntra, Diesel, and AJIO. More Services: Today, users can also use CRED to pay their house rent or get quick cash loans. 3 pillars of CRED’s business Trustworthy users: People who want an easy way to pay bills and love getting rewards. The App’s platform: A simple, clean app where users pay bills and collect reward points. Partner Businesses: Small and large brands that want to showcase their products to CRED’s wealthy user base. How does CRED make money? Now the billion-dollar question: How does CRED make money? Since the app is free for users, CRED uses a few different ways to generate income: Fees from brands: Companies pay CRED a listing fee just to display products and discounts inside the app. Payment fees: CRED charges a small fee (around 1% to 1.5%) when users make specific transactions, like paying house rent through the app. Lending interest: CRED lets users borrow money through peer-to-peer lending via a service called CRED Stash. The credit card payment enabler earns interest on these loans. Profit sharing: When a user spends their CRED coins to buy a deal from a partner brand, that brand shares a piece of the sale profit with CRED. Market growth and future In its early years, Kunal Shah spent a lot of money on big television advertisements, which caused the company to lose money initially. To grow faster, CRED also bought other startups, such as Happay (an expense management tool) and HipBar (a delivery service). Today, CRED is one of India’s most reputed fintech companies. By teaching people to be responsible and disciplined with their money and rewarding them for it, CRED has created a highly successful business model. Meta eyes CRED: CRED will raise ₹8,550 crore or $900 million from Meta in a share sale process. Faceook’s parent company will become CRED’s minority investor and will not receive access to the platform’s customer information. As part of the leadership transition accompanying the funding round, CRED’s founder Kunal Shah will step away from his operating role as Chief Executive Officer while retaining his personal shareholding in the company. Shah will transition to Meta’s global leadership team, taking over WhatsApp.