India’s CRED, which rewards users for paying their credit card bills on time, is broadening its offerings to help its 7.5 million members gain more from the service.
The Bangalore-based startup said on Thursday that CRED users can now lend to one another at an interest rate of up to 9% annually.
Kunal Shah, founder and chief executive of CRED, said the startup is rolling out this feature, dubbed CRED Mint, initially to some users after testing this internally for months.
“We’re super excited about this because it’s the first time our community members will be able to invest in one another directly. It’s going to focus on high-quality, low-risk, but much better, inflation-beating returns you can get on your money,” he said in an interview with TechCrunch.
CRED members have on average 200,000 Indian rupees ($2,685) sitting in their savings accounts, the startup said. "At up to 9% interest, CRED Mint will help these users, India’s most creditworthy individuals, to be rewarded for responsible financial behaviour with a smarter way to make idle money work for them. CRED members can apply for early access to Mint," CRED said.
Peer-to-peer lending is not a new business idea. Several large and small firms operate in this space, but CRED appears to be uniquely positioned to solve one of the biggest challenges this category faces: defaulters. According to some estimates, more than 20% of individuals taking a loan in a peer-to-peer service don’t pay it back.
CRED members have a credit score of 750 or higher, making them the most trustworthy audience to provide financial services. On CRED, a user has to have a credit score of 750 or higher to join the app.
“We do believe that the product-market fit of our offering is very strong. We believe that this could set a new benchmark for what fintechs should be doing,” said Shah. CRED also does lending itself -- which is available to limited members -- and has disbursed about $269 million to customers in loans.
"Even at the scale of CRED Cash, the default rate has historically been less than 1%. To reduce risk further, the invested money will be routed directly to an escrow account held by CRED’s NBFC partner, LiquiLoans, and diversified across 200+ borrowers on average," the startup said.
For CRED Mint, the startup has partnered with LiquiLoans, an RBI-registered P2P NBFC. Shah said CRED will eventually partner with more players. Users can invest between 100,000 Indian rupees ($1,345) to 1 million rupees ($13,450) in about two minutes, and also request withdrawal at any time with no penalty.
"The withdrawal process is fully online, and the money with interest will be returned to the investor within a working day. As a digital platform, CRED reduces friction, inefficiency, commissions and overheads to pass on higher earnings for members," the startup said.
CRED -- backed by Tiger Global, Ribbit Capital and Sequoia Capital India and valued at $2.2 billion in an April round -- has also received inbound requests from internal investors to raise a new round of over $300 million, according to people familiar with the matter. The proposed terms value CRED at about $4 billion post-money. CRED isn't currently in advanced stages to close a round. Shah declined to comment on fundraise talks.