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 (Photo: Jayachandran/Mint)
(Photo: Jayachandran/Mint)

Kunal Shah: Scoring on trust

  • The Cred founder talks to Mint about capitalism, million-dollar exits, and his plans to create a trust-based community of 1-percenters
  • ‘Wealth is created when you do the opposite of what everyone else is doing,’ says Shah

It’s teatime when we walk into the Cred office in Bengaluru’s Indiranagar on a Friday evening. Tea and snacks have just been served in a small pantry off a wide open space at one end of the office, where employees are lounging on bean bags, laptops perched on their knees. A man in a black T-shirt breaks away from one of the groups hanging around a table and comes towards us, and we realize it’s the person we have come to meet: Kunal Shah, the founder and CEO of Cred, one of India’s hottest fintech startups at the moment.

A week or so after our meeting last month, Cred—which currently enables creditworthy users to pay their credit card bills on the platform and earn rewards, but has much bigger ambitions of building a trust-based community of users for a variety of financial transactions—raised a $120-million (around 862 crore) Series A round, unprecedented for an early-stage startup in India. “We are looking at growing to international markets.… Another thing we will do is to allow personal loan offers—wherein consumers will be able to avail of a loan from a bank in a seamless manner on our platform," Shah told Mint after the funding announcement, which inevitably led to a publicity bonanza for Cred and its thoughtful and articulate founder.

When we meet, though, Shah claims right off the bat that he is not a “PR-friendly person". “I just generally shy away from media. We don’t have a PR person in the company. It’s something that we should do better, honestly. Like I remember telling Vijay (Shekhar Sharma, founder of Paytm) once, ‘Vijay, if you run a PR company, it will be a $10 billion company,’" says Shah, 40, laughing, as we settle down in a small meeting room.

Shah’s is one of those dramatic success stories of making it big despite the odds—pretty unusual in the Indian startup ecosystem, where a large percentage of founders are from cushioned IIT-IIM (Indian Institute of Technology-Indian Institute of Management) backgrounds, with the privilege of being able to fall back on a top-class education if entrepreneurship fails.

Shah started working at 16 at a data-entry job while running “side-businesses" like selling CDs and mehndi cones, teaching computer science to neighbourhood children, and running a cyber café from his home in Mumbai.

“I come from a Gujarati family, and, in Gujarati families, having a job is unusual behaviour. But when I was 16, my dad, who had a small pharmaceutical distribution business, went through a rough time and the family was in financial distress," says Shah. As the elder of two brothers, he had to support his family and pay for his education. He wanted to study science but ended up doing a bachelor’s in philosophy from Mumbai’s Wilson College instead, because that was the only course which allowed him to attend college from 7-9am and then work at a part-time job.

However, entrepreneurship was in his blood. “We never had any real summer vacations. My summer vacation was to go to dad’s office and work. I used to be given 5 per day and was trained to go to the bank and deposit it. This was when I was in class V," says Shah. “I can empathize with failing entrepreneurs because my dad was a failed entrepreneur. For me, that was a big lesson."

Even though he took up philosophy because of the timings, Shah says he actually enjoyed the class and did well, scoring 70% in the final exam. “I am the only tech founder without an engineering background," he says. He is convinced about the importance of a strong grounding in humanities for those who study science and engineering.

“A lot of smart people don’t choose the humanities because it’s considered to be something that dumb people do. But I believe humanities are extremely important in today’s world. For example: Just imagine a time when people discovered rivers and the only way to create wealth was to build dams. Suddenly, there was a need to find engineers. Then there was an oversupply of engineers. Now we have engineers building dams and everyone has lost the ability to detect rivers or understand how they impact society!" he says.

“Human motivations are constantly changing. Unless you understand humanities, you are less likely to understand where the next motivation is coming from and what kind of dam you should be building. Today, there’s an insanely high supply of engineers and extremely low supply of people who can detect what to build next."

Several years after completing his BA, Shah enrolled for a part-time MBA course at the Narsee Monjee Institute of Management Studies in Mumbai. His LinkedIn bio proudly proclaims that he dropped out of this course. “Most people came there to get a degree but I was there to learn. When the movie 3 Idiots came out, I really identified with the lead character. I wasn’t there for the marks. By then I was already running a BPO (business process outsourcing) company and I wanted to be in college to learn and not improve my career. I got into business before I learnt how a B-school teaches business," recalls Shah.

Even though he dropped out of the MBA course, frustrated with the way it was being taught, one subject that continued to fascinate him was consumer behaviour and marketing. In 2009, he started PaisaBack, a cashback promotions company that would help retailers do cashback rewards in their stores. “But soon we realized that in India the problem with this model is the market is fragmented, there are too many stores and not enough footfalls in each store. So I decided to pivot, though PaisaBack was a profitable venture from the first month itself. FreeCharge was actually born out of PaisaBack, because we wanted to create more footfalls for stores," says Shah.

When investors showed interest in FreeCharge, which initially enabled users to recharge their prepaid mobile phones and earn rewards, Shah was bemused because he had not thought of it as a payments or e-commerce company but a B2B (business-to-business) marketing one. “But we were doing more transactions than most e-commerce companies. When we met the Sequoia Capital investor (around December 2010) we were doing 14,000-15,000 transactions a day and he thought we were quoting per month figures at first," he says.

When the investor asked him what his “CAC" was, he had no clue. “So he said, what’s your customer acquisition cost? And then he explained to me what that was. And I was, like, zero," says Shah, laughing. “We had built the company without spending any money, and that is what Sequoia liked. We didn’t even have a presentation before we raised money from them."

Shah famously sold FreeCharge to Snapdeal in 2015 for 2,800 crore in cash and stock. “When I exited my company, I was told, ‘don’t buy an expensive car, people will be envious of you.’ I don’t understand why Indians are so anti-capitalism. Why are we not inspired that someone who didn’t have money to eat managed to come so far through hard work? How can we have growth when we shame people who have money? We don’t understand capitalism in this country," says Shah, shaking his head.

It’s natural to ask him why he has started something like Cred, which, unlike his previous ventures, is targeted not at the mass market but at a niche segment of 1-percenters (the top 1% income earners in a country). “Wealth is created when you do the opposite of what everyone else is doing," says Shah. “When everyone is doing the same thing, it’s hyper-competitive and crowded. So you do the opposite. When I built FreeCharge, everyone was focusing on the affluent, and I chose the mass market because no one was there. When we told everyone that FreeCharge was the gateway to online transactions, no one believed us. But it’s simple: Would an Indian, unused to doing online transactions, first buy a shirt online or recharge his mobile online?"

Today, he says he is focusing on the niche and untapped segment because “it’s impossible to make money from the masses when their per capita income is not going to allow to pay for convenience". Cred is focused on building a trust community in a low-trust economy like India. “When I was on a break between FreeCharge and Cred, I travelled a lot and I observed that all the countries that have high trust were prospering more than countries that have low trust," he says. “Look at the rental market in India: Landlords take fat deposits because they don’t trust the tenants, and if you think they invest this money, let me tell you they don’t. It’s a loss to the entire economy! But what if both parties were trusted players?"

Essentially, Cred is building a community of people with high “trust scores" (identified using credit scores from rating agencies CRIF and Experian) and is creating other services around this, like helping banks lend on the platform, helping users invest in real estate in a fractional manner or in foreign companies—or even acting as a niche classifieds service. “Whether you want to sell a car or a piece of furniture, middlemen in this country are the trust brokers. What if you didn’t need them because you trust people you are directly selling to?" He got the idea from noticeboards at elite clubs in India, where members sell everything from cars and apartments to companies and factories within a trusted community. “We have not launched these services, but we will once we have a critical mass of users," says Shah.

“We are not entering the payments business because, by design, it’s not likely to make money ever. So the idea is, can you create more consumption avenues, more wealth-creation avenues?" says Shah, who is clearly on a mission to not just change the way we pay our credit card bills, but the very way we live.

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