Cred detected Rs 11K crore in credit card hidden charges: Kunal Shah

Credit score was never designed to be a consumer product, instead it was made for banks to be able to lend without having to worry about the customer's behaviour, Kunal Shah said

Credit management platform Cred on Tuesday announced a suite of products under the Svalbard brand, including a credit line against mutual funds (MFs), a tool to predict and improve customers’ credit scores, and a non-profit entity called Cred Foundation aimed at financial literacy, representing 1 per cent of the Bengaluru-based company’s cap table. Founder KUNAL SHAH explains the rationale behind rolling out the machine learning (ML)-powered offering, plans to extend secured credit products, and potential initial public offering (IPO) plans in an interview with Ajinkya Kawale. Edited excerpts:

 

Svalbard uses ML models to extend tools that can predict and improve credit scores. How did you go about it?

 

Earlier, most products designed by the system were intended to be consumed by themselves. Credit scores were never designed as consumer products; instead, they were created for banks to lend without worrying about customer behaviour. But users have been penalised for things they didn’t know. We worked with ecosystem players, including banks and credit bureaux, to make the tool powerful. We detected ₹11,000 crore in hidden charges related to credit cards and Cred members in the past year, and the number could be larger for the country.

 

How can potential real-time reporting from credit bureau assist?

 

I think the regulator is taking the right steps to make reporting more real-time. The Reserve Bank of India (RBI) is taking the necessary steps to encourage responsible credit behaviour among consumers and ensure that banks and non-banking financial companies (NBFCs) don’t have to deal with rogue elements.

 

Financial technology companies are moving towards secured products. Would credit against MFs be a first for you?

 

We work with five to six partners on the unsecured side, and they are now offering us a secured line. We can build on that, improve interest rates, and create a frictionless experience regarding the limits users can access. Secured products improve credit scores, reduce interest rates, allow users to leverage, and enable foreclosure without heavy charges.

 

Is Cred domiciled in India, and what is the timeline you would look at for an IPO?

 

It is 100 per cent domiciled in India. We are just a six-year-old company moving in the right direction with supportive investors. At present, we are focused on having the right set of partners, users, and business models. We have set a timeline for achieving certain revenue and profit benchmarks, and if we have stability, an IPO becomes an option.

 

Operating losses declined to ₹609 crore in 2023-24, down from ₹1,024 crore in 2022-23. What is your profitability guidance for 2024-25?

 

Every year has to be better, but we can’t always predict it, as the market has its ups and downs. We are confident that we’ll have another good year.

 

Cred is among the top five third-party Unified Payments Interface (UPI) apps. But the credit line on UPI has not scaled yet.

 

Credit should not move fast. Any rapid expansion can lead to crashes and years of effort being wasted. I think the RBI, the National Payments Corporation of India (NPCI), and banks are taking the right approach by scaling it up gradually to ensure the quality of the book is not compromised. I believe 50 per cent of (credit) UPI volume will be on RuPay (credit) in the next three to four years.

 

Cred’s attempt to increase its stake in its NBFC arm, Newtap Finance, was not approved by the regulator. Any update?

 

Newtap was our vehicle for experiments. We have always been a partnership-driven company and will remain so. It should be a vehicle for us to test new products, prove them, and make it easier for banks and NBFCs to replicate them with us. It has never been our vision to become a large NBFC business. Rather, the goal is to act as a sampling business — exploring multiple opportunities and growing as that expands.