At first blush, you might think Kunal Shah is full of himself. The Indian multimillionaire, often seen in unassuming T-shirts you wouldn’t picture on a South Asian millionaire, frequently takes to Twitter for edgy posts on everything from Covid-19 to the pitfalls of a status-driven society (read: India). 

Shah might’ve earned the right to be. His first startup, a cell phone bill recharging company called Freecharge, sold for $400 million in 2015. The sale was the biggest acquisition India’s internet industry had seen at the time, propelling him to stardom in the startup scene. Shah leveraged his success, investing in about 80 startups, including Pianta, a health care service app later acquired by Indonesian ride-share unicorn Gojek; Unacadamy, one of India’s earliest ed-tech startups; and Razorpay, a billion-dollar Indian fintech company. Which is to say, Shah knows India’s tech scene like the back of his hand. 

In 2018, Shah raised $30 million for his second fintech venture on his reputation alone; venture capitalists beelined to finance his next startup, sight unseen. Five months later, he announced his latest innovation: a members-only payment app that, by Shah’s own admission, caters to India’s 1%. 

CRED is a mix between a payments app and a social credit system. In a country with a nascent credit score system — many landlords still vet lessees based on their ability to pay rent up front — CRED rewards customers for paying their bills on time with benefits like discounts on plane tickets and gym memberships. Eventually, Shah hopes it will lead to perks like expedited visa processing or early access to new car models. Anyone who scores well on CRED can get behind the velvet rope, regardless of social standing. 

By its very nature, Shah’s app has a limited audience: it caters to the country’s elites and upper-middle class, Indians who have money to spend. Only users with a credit score above 750 can apply to join CRED. In two years of business, its user base has grown to 5.9 million high-trust individuals.

The world’s biggest tech companies descend on India to tap into “the next billion” customers. Shah, of course, says they’ve got it all wrong: “We borrow these terms from companies and assume it’s the norm.” 

But when Shah talks, investors listen. For a man who bootstrapped his way from humble beginnings — he began working as a teenager, after his family fell into a financial crisis — money and class are his bread and butter. A week after Shah spoke to Rest of World, CRED raised a fresh round of funding, bringing the two-year-old startup’s valuation to over $800 million

Shah spoke to Rest of World via Zoom from a trendy Bengaluru coffee shop. This conversation has been edited for length and clarity.

How has your childhood shaped you as an entrepreneur? 

Somewhat of my family crisis came from not knowing how to deal with money better. We were doing business, but it ran into massive debt. It made me interested in answering two questions: How do you make money? And how do you increase the per capita of this country? 

Were you resentful toward the affluent class? 

I never had resentment. I was only resentful of their skills. I could barely speak a sentence of English until I was about 23 or 24 years old. I resented that. I wish I could express an idea like them. I wish I could sell something like them. I always resented skills, not the financial state they achieved because of their skills. 

“When you have not had money all your life, the value that you have for money is what it can do to other people’s lives.”

Tell me about your first venture, Freecharge. How did you identify your market? 

We launched in August 2010. At the time, companies were building platforms to sell shirts online, but most Indians had no money to buy a shirt; they could barely recharge their phones to talk to their families. We created an interesting platform where you get rewards for recharging your phone balance. Everyone was recharging their phones outside in [a corner store]. But you have data. You’re basically using a paan shop to recharge your internet, when you already have internet on your phone. It sounded stupid to me. 

When we exited the company, we were doing close to 1 million transactions a day. We focused on the college segment because we realized they’d understand the internet better. You’re the chief technology officer of your household, right? A generation before you, the kids had no say in where their parents bought. Now, because you understand the technology, your parents come to you and ask where to book a flight, where to buy, and more. That helped us get a lot of users. 

Then you sold that company for $400 million. What did you do with this pile of money? Did you go out and buy a car? 

I did not, actually. I have a Vespa scooter right now; I don’t have a car. The only thing I did was buy an apartment for my family, a nice apartment in South Bombay, because they still lived in a very small house at the time. When you have not had money all your life, the value that you have for money is what it can do to other people’s lives. That’s probably why I splurged and invested in like 70 to 80 startups. 

What kind of startups did you invest in? 

Mostly Indian startups, a few abroad. I don’t have an Indian flag on my Twitter account, but I’m extremely patriotic. I really believe my job is to help the country see prosperity, and the only way will be through entrepreneurs.

Before you started your latest venture, CRED, you spent time at Sequoia, Y Combinator, and sat on the board of the largest newspaper in India. What did you learn about the Indian market during that period? 

A lot of people think that India is a country of the masses. I looked at the data, and 70 to 80% of discretionary spending was by 25 million families. That’s all! When I was involved in Times of India, I noticed that the English newspaper ads reached a million customers. Hindi or other languages were close to 10 or 15 times that. It’s the same ad. I realized English was the biggest marker of affluence. 

Global startups came to India for DAU [daily active users] and MAU [monthly active users], not for ARPU [average revenue per user]. I realized that YouTube, Google, and all of these companies had hundreds and hundreds of millions of customers, but their ARPU was literally nothing. YouTube is used by almost every Indian, but the ARPU of YouTube in India is probably less than $2 per annum, which can barely cover the streaming cost. 

But these big companies don’t mind it. Because when you’re a global company, you can show 4 billion active users to the public market, and they’ll give you a better market cap for it. Your ARPU comes from America, but you get your DAU from India. When you join the numbers, they look nice. 

“High income doesn’t make you financially literate. High income is just high income.”

What about Indian startups? 

Unfortunately, they’re just being stupid about it. They’re trying to go for 100 million customers when they don’t have the money to afford the basics. India has approximately $2,000 per capita income. If you remove the top 25 million families, that would drop to less than $800 per capita, which is 50,000 rupees a year [683 dollars]. What do you think people can buy with that? So why is no one building for the 25 million? Everybody is building for the 100 million who have no money.

So you decided to build an app for the top 25 million, because that’s where the money is? 

And do a good job for them first. What’s the point of just building for everybody when the people who can spend — we haven’t catered to their needs properly at all. 

Banks historically did better when people went to branches, and they could cross-sell more products. Come to the branch, and I’ll give you a home loan, a credit card, and more. None of us are going to banks anymore; most of our interactions are on an app. So if you could create a superior app that people would like to use, you can cross-sell services that a bank would do. 

What we do at CRED is use the utility of credit card payment and rewards as a way to bring customers and give them a superior experience. We’re creating a superior interface for banks to cross-sell. We believe tech companies are much better suited to creating a desirable consumer interface than a bank ever could. 

To me, in Indian society, if you have connections, you can skip the line. Your financial status doesn’t matter, if you have connections. With CRED, are you proposing that merit helps you skip the line? 

The notion we had in the past is that affluence and creditworthiness were the same thing. Before credit scores emerged, we assumed creditworthiness was a function of how wealthy you are. But credit scores democratize trust in some ways. It’s not that you can only trust the big guys to repay the loan, but you can also trust somebody with a middle income to pay their bills on time. What we are essentially trying to say is, Hey, if you’re creditworthy, can it be applied to most things in life? Can it be something that will result in better benefits from a rank? Could a brand give you better offers? 

High income doesn’t make you financially literate. High income is just high income. We noticed that most consumers don’t understand their financial statements. Our job is to make sure you understand everything and are making conscious choices. For instance, interest rates on credit cards can be as high as 42%. But if you ask most CRED members, they’ll say their rates are 10% to 15%. So when we see them paying a lower amount, we tell them, Hey, you’re going to be charged upwards of 35%. Do you want to proceed? And a lot of people just thank us, saying they didn’t even know.

Literacy works when you do it contextually. It’s best to intervene when people are likely to make mistakes. 

Do you think the way big foreign tech companies focus on the “next billion” will change? Is there another way to look at the Indian market? 

We borrow these terms from companies and assume it’s the norm. Who’s decided it’s the next billion? It could be the next 25 million who will go get jobs and decent income first. 

I say our country is going to be built by cohorts of 20 to 25 million people each. If you’re expecting a magic bullet solution to make a billion people come up, it’s not going to happen.

Speaking of consumption, if increased consumption is the way ahead, why have you only bought a Vespa with your money? Why not a designer car? 

I don’t know. I think about it a lot. I don’t feel I deserve it. I’d rather be investing in other people’s dreams, because that’s more likely to change fortunes. I’d rather invest in a startup any day. I think I’m likely to be this way forever. 

Anyway, in India, the commute doesn’t get better in a superior car. The issue is the roads, not the car.