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Podcast #29: Discussing credit scores, trust, valuing your time and habits of the wealthy with Kunal Shah



Less than 1% will know what their income per hour is. Therefore, if you find somebody who is making Rs 5,000 per hour (and there are many ways to calculate this). But let’s say you spend 30 mins to get a Rs 1,000 discount on your flight ticket – was it worth your time?

Deepak Shenoy of Capitalmind hosts Kunal Shah of CRED as they analyze the affluent – their spending patterns, usage of credit and habits that help them succeed. They talk about high trust groups, creating wealth and incentivizing good behavior.

Topics covered

  • Your hourly income rate and making decisions in that context to value your time
  • How spending changes and the prospect of revenge consumption
  • CRED warnings against the moratorium
  • Interest rates quirks and forex charges on your credit card
  • Wealth is non zero sum, envy is hyper local, negativity discourages future entrepreneurs
  • Incentivizing good behavior and prevention being better than cure
  • High Trust groups and nuance
  • Working with VCs, competence vs control
  • Scale in India vs China
  • India’s women participation rate in the workforce
  • Absence of women in the financial landscape and how Covid might change this


Deepak Shenoy: Hi and Welcome to another edition of the Capitalmind Podcast. This time we have with us a very famous personality – we have Kunal Shah. Kunal, Welcome to the Show!

Kunal Shah: Thank you for having me!

D: A quick introduction, of course most of you probably know about Kunal, he is the CEO and Founder of CRED. CRED is an innovative startup that started off helping you pay your credit card bills – but it’s developed into a proxy for credibility in India. Good financial behavior and rewarding people with good financial behavior over time. Establishing who are the better players in the mix and giving them a better place, better set of deals, better life [opportunities] really.

Of course, Kunal’s earlier avatar co-founded Freecharge where the idea was the recharge being a big concept, now slowly Freecharge became a synonym for recharge and eventually got assimilated with Snapdeal.

Firstly, welcome again Kunal to the show. Let’s dive right in. There’s been a bunch of things I want to discuss with you. The first thing, I read a Paul Graham essay from a long time ago about How to Lose Time and Money. And it says the rich don’t lose money because of spending because the high amount of spending or indulgences trigger a natural set of alarm bells – saying I’m doing too much of this or that.

Do you feel this is true of the Indian rich as well. Do the rich spend less time focussing on deals or coupons? Should they focus on it at all? We deal with the rich all the time and we hear about them losing money in bad investments – they were sold bad products by bankers and so on. Do you feel from a relative amount of money that they seem to lose on the investment side vs. on the spending side.

Should people who are affluent spend less time focussing on deals? What’s your experience with CRED?

K: That’s a great question. Let’s zoom out for a second. Most of the people who are probably making more than 25 lakhs a year – I’d like to call them the rich for India. They are probably making that amount for the first time in their family [history]. Majority of them are first time affluent.

First time affluent tend to [make] the same errors that a lot of family wealth people are less likely to do right? It comes from the basic concept of understanding value of time and value of investments and understanding what is the way wealth gets created.

So far they have managed to earn more and the natural tendency for most middle class families (and I grew up in one) is to save. The word invest is not part of the vocabulary and it’s slowly changing.

Therefore what happens is that a lot of emotional behavior is done when it comes to investments because it [investing] is done for the first time. And you’re usually very happy to listen to an “expert” who seems to be knowing what they are talking about. And we all know that when we rely on experts and not have any basic understanding of what things are – be it astrologer or investment advisor – we are likely to make a mistake!

In terms of understanding of chasing deals, I think the fundamental difference is India never had an industrial revolution right. Which means nobody was paid on an hourly basis. If you go to the west, nearly every single person – their first job is generally an hourly job – they worked in say a coffee shop or a teaching assistant. They are paid on an hourly basis. Any country that pays an hourly basis naturally trains people to value time.

In India, every single person started with a monthly salary. Therefore if I ask them what is their income per hour – nobody has a clue. I can tell you that of all the people listening in, less than 1% will know what their income per hour is. Which means they do not make good decisions per hour of their time.

Therefore, if you find somebody who is making Rs 5,000 per hour (and there are many ways to calculate this). But let’s say you spend 30 mins to get a Rs 1,000 discount on your flight ticket – was it worth your time?

What if you invested that 30 mins in reading a book or listening to this podcast? Systematically a lot of value will accrue to you because you are going to be using your time better. I think fundamentally this concept is not understood. I think India will take some time and maybe a generation or two before we get there. But in western societies this is very easily embedded because of the origins in the industrial revolution. Close to a century they have been on an hourly paid basis and have been paid weekly.

I believe India will value money a lot more if we convert monthly salary to weekly salary. But India is less likely to do that because in our mind we say it’s an administrative headache to pay 4 items a month. And there is a need to make people understand the value of time. That’s the reason we tend to value deals. I believe a lot of time the stock market also went up during Covid because we felt discount mil raha hai. And we love discounts.

I think that is a very deep rooted mindset. It’s not that the affluent person will not go to paani puri and will not take the extra sukha puri. We love the extra sukha puri. The value extraction concept which made us affluent to start with tends to stay with us. I believe that the only way you become wealthy from a rich person is when you start thinking about time and not money as the true value.

I believe that the only way you become wealthy from a rich person is when you start thinking about time and not money as the true value. Click To Tweet

D: That’s absolutely true. In fact, I look at a lot of the small optimizations that we (the middle class) sometimes do so I’ll drive two kilometers to get mangoes at a rate that is 10% cheaper, but if I do the calculations – the petrol costs me more. Forget my time even the direct cost is higher before adding in my time. You’re right, that mindset change has to happen. That also means that people will spend time looking at deals even though the deal by itself won’t have changed their life substantially. Because they are rich enough to not care about it at all. The thrill perhaps of getting that deal has some attraction. Very interesting.

Let’s talk about the people who make 25 lakhs and more. I know that people think of this as CRED collecting data and a lot of stuff, but I think that data has a lot of insights when thought about as a business opportunity mindset. But also from how the economics works when you get to a certain level of wealth/affluence. So where do the rich in India spend? Food (as in groceries) is probably not a big expense. The poor – it is because of the inflation mix – 50% is fruits and vegetables and meat and fish. But I don’t think that’s the same in the affluent category. So what’s their spending mix?

K: I think it’s important to clarify about this data question that you talked about. It’s funny how we tend to doubt local companies for data whereas the data is in Gmail which is actually an ad company. We tend to not understand the difference between the two. I think there’s a natural problem in India to always kind of have doubts over local entrepreneurs and almost have worship for foreign companies.

I think that mindset is preventing a lot of wealth from being created locally. We naturally envy – or doubt – our fellow entrepreneurs. But are absolutely in worship mode when it comes to large companies. I think that mindset is preventing a lot of wealth from being created.

Coming to the data question, we chose that path with a simple reason – we realized that banks regularly sent alerts on every spend you do but banks never alerted you on any finance charges, any late payment fees and a lot of that was hidden in the statement. We thought if we can help create an executive summary and let you know what seems to be happening, we found 70% of CRED members did not know that interest charges were 45%. Then we started surfacing this data – that you have this charge, this annual fee (which you didn’t’ agree to) and it automatically becomes better for them because we are helping them surface this information.

A lot of times, the quest to do this is – we are proud of what we do with data. Because we are actually helping individuals and people who have benefited from that are really thankful. We have hundreds of emails where people have thanked us for helping them recognize a charge. A lot of people say I do not know that my forex charges is 8% (!!!) when I spend on my card. I did not know this. And people spend on this card not realizing which is the best card for you.

I think that’s a very big thing that we are proud of and I think we are going to continue to do more and more to keep making financial progress happen for our members. And sometimes we are assuming a position of a doctor which means sometimes you’ll have to give us the blood reports for us to tell you what to do. But if you’re saying that “hey – they are taking blood report from me and not acting like a doctor” that’s a dissonance we need to solve for.

Coming to spends, we’ve noticed that interestingly before Covid the spends were massively skewed for affluent on travel and eating out. And both these categories just disappeared. But the thing is interestingly groceries became almost 2x for the affluent. So there is a lot more focus and you’re sitting at home and you’re buying more stuff. E-commerce has taken off. Subscription behavior which is anything from Netflix to tinder – is going more and more. And we’re seeing a massive spike on subscriptions.

E-commerce is up. Retail apparel is down. Interestingly we noticed that when lockdown started, fuel spends went up 2x because people filled up their cars in anticipation but that kind of went down since April, May, June. So March had a spike in Petrol spends.

In terms of other spends, a lot of offline stuff has gone down. But a very interesting thing that has happened is when I was talking to some of the credit card heads in the month of June, while 50% credit card swiping machines are not active because restaurants, hotels are shut down – in terms of total spends we’ve already gone back to 75-80%. What has happened is that we have replaced cash and a lot of transactions that would have been done through cash, debit cards or UPI are moving to credit cards because people are liking the idea of having extra liquidity in this time of crisis. People do not know how to deal with crisis so they are liking the idea of more liquidity and spending more on their cards.

We are noticing many categories which were earlier not used on cards have now moved to cards. And the total spend on cards is moving to 75-80% (of steady state) which had dropped to close to 50% when the lockdowns started. But now we are seeing 75-80% coming back. As more things become easy, e.g., Goa recently announced tourism is open again and we are noticing people are massively going for vacations. We launched a new category around vacations on CRED. We allowed people to get the vacation for cheaper using their CRED coins. We managed to sell 300-400 packages in a single day [for this vacation] just in Bangalore for one property.

One property, one city – we managed to sell so many, there was so much pent up demand in the affluent. I think from July onwards we’re going to see a lot of revenge consumption starting to happen. The affluent are going to spend more and more. They’ve repressed their spends [till now]. Many many interesting things, people are buying extra devices because home offices need more gadgets than before. You need a full set up with a camera stand (which you never used to need at home before zoom), they are getting a lamp, a good comfortable chair for themselves and so on and so forth. I think the spends are showing some very interesting patterns but summary from me is – credit card spend have likely recovered the fastest. Because the affluent may have not seen the income drops like the long tail India may have experienced. And it is also likely to create new consumption categories which we have not seen before.

D: I agree. Even from a personal standpoint, the amount you spend on travel and food out, has now resulted in saving – and that saving is pent up consumption for a later date. Vacations, like you said, we’ve been bottled at home and everyone will want one in the future.

Covid has changed behavior and consumption patterns. Some of these more valid or longer term consumptions have kind of impacted negatively, will likely come back and take a greater percentage of wallet share.

Like you said, there’s a new consumption category itself that’s been created that would have never existed. I have 2 kids, both of them have to be schooled remotely online. So now I have 4 devices – one for each family member. We have equipment to go with each of them. All that goes on the card. It doesn’t make sense to do this with UPI. Credit card is so much easier.

From the CRED aspect of course, you would have seen this evolve. Do you see a lot of your customers doing the moratorium which they’ve been offered to credit card players as well.

K: I think we saw a lower percentage in CRED members to opt for Moratorium because we warned our customers that Moratorium is bad for them. The reason it’s bad is because a moratorium helps you not get a negative mark on your credit bureau report but it does not free you from interest. And if you are going to pay 45% interest for 6 months of moratorium – you are going to get a shock of a lifetime.

We warned a lot of our members to not delay their credit card bill payments and pay them on time. Otherwise they are likely to have a huge amount of challenge [when the interest has to be paid off]. Where the interest could be – if you had 1 lakh due and you chose to not pay for 6 months – your interest rate could be anywhere from 25 to 35,000 which may not be pleasant to receive [at the end of the moratorium].

At an industry level, I am sensing it is as high as 20-30%, which means a lot people are either not understood what is the moratorium impact on their financials or they have challenges to be able to repay which is causing them to not be able to generate enough cash flow to pay off their bills.

D: I think the cash flow part may be understood because many of these credit card providers – they don’t spell this out clearly. Interest costs are tremendous and you don’t get any interest free period for new purchases as well. They start accruing interest from day one. Earlier you used to get a 45 day interest free period – but with an outstanding balance you don’t get anything. Rs 1 lakh could produce 20-25K rupees of interest in 6 months. And there’s no way 1 lakh in the bank account would earn that much interest.

Also, we looked at the SBI cards IPO, they make half their money purely on interest and fees. Only half of it comes from what they get from your spending (the interchange they charge merchants). It’s a huge number.

K: If you understand the credit card industry. Approximately before Covid – $ 100 bn was spent on credit cards every year. Revenue from this is 5-6 billion dollars which includes interest and MDR (merchant pays). The EBITDA would be 1.5 to 2 billion dollars on that industry and that is largely because of the interest rate factor.

In the US, the credit card interest rate is about 16-19%. We are in the 45% range. Brazil is extreme at 175%. Credit card industry the word “revolve” – in India seems to have 14 billion dollars outstanding on credit cards right now.

D: That’s like 100,000 crores of rupees. Business is for them to generate money and every incremental person you convert into understanding this, the people who have made that journey, is one customer who will love you for life.

K: 90% of people who have credit cards in India are people who have got credit cards for the first time in their entire family. First time users of that product in the[ir] family. Therefore it tends to be this situation where no one really knows what’s going on. There’s a massive taboo on discussing financial matters in India. It is considered to be weak if you are taking a loan or revolve your credit card. So people just hide it and in hiding no one discusses this matter and it creates this huge amount of debt that people get into.

Our idea is that can we democratize this? Make it simple for you to understand? Can we be the guardian – CRED has a principle we are interested in the financial progress of our members. This has 2 dimensions – prevent financial losses that you should not be incurring and figure out a way to increase the benefits from the money that is lying around with you. Our goal is very simple and we are taking multiple dimensions to upgrade the lifestyle of our members.

We were doing a user test and calling users and a colleague’s friend – she’s a top 10 CA student, AIR rank 10 or so. That person did not know that once you pay the minimum balance on the card do you still have to pay interest!

We have confused education of finance with financial literacy. That’s a fundamental challenge – it’s a compulsory course we should be teaching in school on how money works. What is the concept of compound interest. I recently did a twitter poll on whether people would take 6 lakhs a month till you die or 10 crores up front. 70% of people chose 6 lakh Rupees. I thought this was weird and asked stand up comedians to ask on instagram and twitter and as high as 84% of people chose 6 lakh rupees. And this is english speaking stand up comedians so their audience is english speaking, educated people in decent jobs. This is the state of the country.

We cannot teach people how to use credit card or investment until we teach the concept of compound interest. If we don’t understand that how will we understand investments and inflation and everything around that.

D: On the investment side of things we face that all the time. The difference between having 1 million dollars in rupees or 70 lakhs today and what it will do for you 20-25 years down the line is something that’s lost on a lot of people.

You don’t realize that at 5% inflation, in 20-25 years the 70 lakhs is worth what 25 lakhs can do today. Being a crorepati 30 years from now is not quite as attractive as being one today.

When I was a kid we used to learn about how to calculate interest on your saving deposits. You had Rs 100 on the 5th of the month, on the 11th you put in another Rs 100 and what’s the interest? They never told us that your credit card bill will balloon if you just pay the minimum due. This should have been obvious even 20 years ago.

K: One specific nuance I did not know till I started CRED, if you don’t pay the full amount in the month of may, every spend in June is automatically charged the whole interest. It’s not [only] the previous month that will be charged on interest. Every spend you do after that is also charged interest. You lose the interest free period completely.

D: It’s retrospective. If your bill is generated on May 20th and June 3rd and you don’t pay on June 3rd, then any spend between May 20 and June 3 starts accruing interest from the day you spent it. I’m going to charge you interest going back and redact the interest free period. This earns 1000s of crores for the industry when people don’t realize it. There’s a bunch of fees on top. Changing behavior is a must.

Let me switch to another part of this whole thing. This is about Kunal Shah the person. Thought process on where you are. You’ve mentioned in interviews that as a kid you’ve even gone hungry for a few days for lack of money. In the past decade, you’ve become one of the richest self made Indians of this generation.

How do you as Kunal Shah manage your money personally. I know you do a bunch of angel investing, do you do stocks? How do you think of your money management?

K: One thing I’ve learned about myself is that I get very obsessed with what I do. I decided early on is that I will not be directly involved in investing money and I depend on my co-founder at Freecharge Sandeep to manage money for me because I believe he’s much more level headed when it comes to managing money. I am a more risk driven person, I like to invest in startups, I’m very fortunate to invest in many good companies and to me I believe that the way the country is going to become more prosperous is not by creating more people who seek jobs but by creating more people who create jobs.

I think the only way I can pay back on what I have been fortunate with is to get more founders to realize their dreams and create more jobs. So what I do is I consistently invest in startups not for a financial returns a lot of time, I believe that I have been very fortunate to learn a lot of lessons. I think there’s a problem in the word self made. There’s 1000s of people who have worked in your journey to make you who you are. To me the only way I can pay back their generosity of time/money is to pay it forward. Can I create this for more people and create an ecosystem that is thriving.

India has a natural tendency to not support local entrepreneurs which is quite counter intuitive. If you look at twitter it’s filled with hate about local companies. But you’ll never see people going against a large corporation because I’ve observed envy is a hyper local phenomenon. We envy people like us. Nobody is envying Elon Musk for wasting money. But if an Indian founder is found to be burning money there are 1000s of people who will come and shame that founder or hate their methods. It’s quite fascinating to me. How we are the way we are. A lot of people think that companies are burning money – but nobody questioned JIO when they gave data for free for 2 years to millions of customers. It seems to be this unique pattern where we are not understanding what is wealth creation. I always tell people that the only way to be successful is to not envy the wealthy. You should envy the skills of the wealthy people.

Nobody really pays attention to the skills of the wealthy people. If you’re asking me what I do with the money, you should be asking every wealthy person who do you spend your time, how do you take decisions, how do you make choices, how do you pick this vs. that. The moment we study that we will evolve and become wealth seeking.

At this time we are in the zone of constantly becoming, all experts. Like me sitting at home and thinking Dhoni is an idiot to send this batsman vs. that batsman. We’re not interested in the skill of being Dhoni or an entrepreneur managing to raise money. I’ve never been asked a question on how to raise money. There’s always a discussion on oh you managed to do this exit.

When I had an exit, a lot of people were upset about it. You just managed to sell a company (companies are never sold, they are usually bought, no one sells a company or plans to sell a company, if you build a company to sell it, no one will touch it).

Recently Freecharge was acquired by Axis Bank and it turned profitable and it’s doing well. A lot of times these stories are such long periods but we just have to much, if you see an Indian founder the amount of angst he has to deal with from the local fraternity. It’s not about supporting or cheering. There’s a huge need to go on twitter and complain about this and talk negative things about it. Every negative twitter post makes 500 customers not touch that company again while you may get 20 likes for it.

I think there’s this fundamental disconnect. Answering your question about what do on money/time – everyone should aim that their money makes more money than they can make with their own time. If they get that principal right, they will be always creating wealth.

The only goal you should have in life – yes I went through massive hardship including not having food to eat, not having money to pay rent – I realize that I will not work for money after I am 35. It’s funny enough but the Freecharge exit happened when I was 35. I have consistently believed that I am going to create more wealth for a lot of other people and then create a pandemic of wealth that can create more people who want to create wealth for other people. I think that is what is needed in this country. We need to become wealth creating. Wealth is not zero sum. That’s another point most Indians understand. They think Deepak has to become poor for Kunal to become rich. There is no such thing. If that concept if it is not understood at school level, we will remain in this society that is confused about money

D: I agree at multiple levels with you. I’ve been an entrepreneur before it was fashionable to be one. I started my first company in 1997. People used to say you didn’t get a job in an IT company, and I used to say I actually run an IT company. So they would be like whatever. There would always be this feeling of fighting the odds. Over time I have realized that India is like that. People hate..

K: We should change that Deepak. We should not accept the way things are. Having a voice in this country and not participating in changing this mindset – we will never create wealth in this society. We’ll always be this Indian crab society which is not good. We all need to be creating a wealth mindset and not envy/hate the wealthy.

There is a popular theme to hate the wealthy, how will we become wealthy if we hate everyone who becomes wealthy.

D: We’re both in Bangalore. In Bangalore itself the whole concept of this person drives a Fiat from the 1985 timeframe, he’s so rich but he still does that, this somehow – you don’t need ostentatious stuff but.

K: Deepak this is funny. The advice given to me by affluent people after my exit was Kunal don’t buy a fancy car. Because a lot of people will hate you for it.

I was like, if we appreciated wealth then we will desire it. What if all the entrepreneurs drove super cars. Shouldn’t it inspire other people that I want to be like [that] guy. I think this mindset.

Every billionaire on twitter always has the hands folded/humility emoji. Because we just cannot accept them to be very good at their game. I think the concept is that we are not trying to abstract their skills. We are not trying to learn how did Tata group become Tata group. How did Reliance become Reliance. Where are the notes on skills required. Where are the notes on billionaires on why VIjay Shekar is doing what he is doing. We don’t even know that part of it.

But everybody has an opinion about This guy is all about funding or this guy is about that – why?

There is a deep challenge on this mindset to be changed. You and I should equally participate in changing that. We should do a good job of making people realize what is money and how it works and the principles of money. Making people understand that wealth is not zero sum and focussing on learning the skill sets of wealthy people vs. constantly envying their possessions.

D: It’s such a deep topic. Zero sum for instance, we talk about the stock market being zero sum. I buy a stock at Rs 100 and sell it to you for Rs 200 and I’m happy. You buy it from me for Rs 200 and sell it for Rs 400 and you’re happy. The guy who bought it at Rs 400 waits for it to become Rs 600 – who has lost money? No one. It’s not zero sum, it’s the assimilation. To me it’s more important to create the environment that creates that assimilation than to tell people which stock to buy.

For every rupee that a person does not lose in credit card fees, there will be a person who uses that for something more productive. This is very interesting and I’d love to have you on another podcast to talk about the philosophy of these things.

From a practical standpoint, I was on Twitter today telling people that Twitter is like a dementor. There are people who are trying to suck the very life/happiness out of you. But that’s a challenge in itself. You have to be thick skinned to be an entrepreneur.

K: I don’t think there is a question! All the entrepreneurs who are somewhat successful are because of their thick skin. I have been ridiculed for raising money, for creating money for my investors, for creating wealth for my team, for everything. There is no such thing that you won’t be ridiculed for when you’re an entrepreneur. When you see that kind of behavior other people will be discouraged from becoming entrepreneurs. I’m not going to be discouraged because of twitter – i’ll probably make 5 companies before I die. The question is will other people be disheartened from this? I think one very interesting thing a banking person told me is that Kunal this is a country that loves to create gods and do their visarjan.

We love to make somebody big and then put them in water. This is a problematic thing. If we are going to demonize people who are wealthy, who seemingly have more wealth than us, then we will have this feeling that this is unfair and the only way you create wealth is through unfair behavior.

Deepak you’ve been running a business forever, you have provided value and therefore you are doing what you are doing. So you’re not screwing or cheating people to make money. Nobody creates wealth like that. I think that mindset needs to change.

D: At some point there will be somebody unhappy with something. Whether you run a business or work in a job, you’ll never have 100% happy customers or managers. At some point, the problem is that this sentiment drives away other people. They call it the Filter – if this company has been around for 60 years, just the fact that a company has survived for more than 25 years in India, you give it 2-3 extra points just for survival.

Let me go on to the other parts. Maybe the consumer part. You pointed this out a number of times. In the US you have credit checks for applying for a job, rent an apartment and a bunch of things. It’s not just for financial things. In apartments in India, when I came to Bangalore the person asked me if I eat non veg or not! That was his credit check.

K: Or we replace credit checks with a 10 month deposit.

D: I was in Gurgaon before this where it was a 2 month deposit, Bangalore and Mumbai have this practise.

K: Just imagine the amount of money stuck in rental deposits in this country. And do you think landlords go and invest this money? It’s probably lying around in a bank account.

D: In my family, we have people who rent out their apartments and put the money in fixed deposits.

K: FDs are more premium behavior. I know people who just keep it in their bank account saying kabhi bhi nikalnga par sakta hai so liquidity is important. What if the tenant doesn’t work out. The point is that credit score is a way to shape a society. Think about it in a slightly different way. In the US, you are less likely to get a job if your credit score is low. Which means you are less likely to money misbehaviors and will be more responsible with it.

In the US, car insurance premiums can go up or down based on credit score. They’ve observed that people with poor credit scores have rash behavior when it comes to driving their car.

There are so many impacts of these things that if you look at every society that has managed to become very prosperous, they have designed these systems which prevent this. In this country, the number of jails has not increased from the time the British left. The population has gone up multiple times. Which means have we become nicer as a people? Probably not. But it’s impossible to punish all bad behavior.

There is no way we can punish bad behavior at this scale. The pending cases in the legal system probably are worth 40 years now. Only thing we can do is prevention of bad behavior by incentivizing good behavior. So can we incentivize good behavior?

Recently, I read that Income tax is going to make it a separate queue for people who are going to pay taxes regularly. This is a very powerful thing in my view because why not be having pride about it. You and I paying a large amount of tax every year, why are we not treated in a more positive way?

Why is somebody whose credit score higher not treated in a more positive way. If we do that, more people will want to do that behavior. Unless there is a difference in treatment between people who have good trustworthy behavior, we are going to have a challenge. I’ll give you a small example. Let’s say Myntra says our return policy is only 7 days. But what if for people who are with high trust scores, they are allowed 30 days to return stuff? And people who have generally shown bad behavior to have no returns policy for them. The problem is we create one standard platform of 7 days. Good guys are bad guys are treated equally. I’ll give a small example, a friend [from abroad] in India observed this weird that we have separate compartments for women. We don’t even think about this anymore. No where else in the world do we have this challenge where women have this.

I answered that we have this so they can be protected. She said why can’t the men protect them in their own compartment? The question is that we just have a blanket solution – separate compartment. It is quite fascinating that we are still – we have separate queues for women. And sometimes we don’t understand these things, that they even have a curtain. This sounds like a practice only in backward countries now. And this is airport – not even something [more masses access].

You can’t apply a single principle, you have to have nuanced treatment. RBI has 2nd factor authentication on all credit card payments. But what if I want to opt out of it. What if I as a user of this facility want to opt out and not do OTP every time. It’s not possible today – because India has a tendency to create one solution. This comes from the mindset of not being nuanced. I remember somebody very senior told me that I think the only thing we did during lockdown is enforce lockdown. This is the thing – we tend to have a lot of pride in enforcing rules, creating bans – which are non nuanced solutions.

Any investor will be afraid of investing in a country that does not handle things with nuance. And creates this blanket rules which seem to be a sign of a society that needs to evolve a lot more.

D: As much as I think we’ve seen in the past few months, we create those barriers at different levels, earlier it used to be a caste system. Now there are other layers of barriers which are not logical – why should government officials not pay Tolls at Toll Booths. They pay you a salary, pay the toll and get it reimbursed if you have to from your department but why would you create a separate thing that I”m a government official so I shouldn’t pay a toll.

K: Issue is that there is a separate queue as well.

D: Yes, there’s one reserved only for them. On the other hand, having that as a criteria which is not say “merit based” like good financial behavior that’s rewarding – so it’s available to everyone regardless of birth etc.

K: Exactly. And you create incentives to do well. All the good actors will win. The bad actors will not. So more people will want to be good actors. Small example from the US. Insurance can be as expensive as 10 times more if you have bad driving behavior. Because of that someone who is a good driver -their costs will keep going down.

In India, you’re a good driver and I’m a bad driver and we’re both paying the same insurance cost. This is the problem of a non-nuanced solution. Credit score as a system

The criteria for joining CRED is that you need a credit score of 750-800. Why? If we are enforcing that on our members, we should hold ourselves to the same bar. That permeates that culture that people are aware of. In the US everyone knows their credit score by heart and pays it regularly. In India most people did not know their score till CRED told them here’s your score.

It doesn’t matter to you because it does not impact your life but if it did impact your life you would care.

D: I think the need is obvious. CRED has done [solved] part Get my credit score which is a lot more complicated in other places. What other ways do you see CRED playing a role in reducing the friction of society in a way.

K: I think we are very interested that can we create more and more benefits for people for having higher credit scores. One of the things we are considering is can members rent apartments to each other. Because the credit score is high we don’t need to go to external trust mechanisms to do that.

Today if you want to sell or buy a second hand car. What sources do you go to? How do you go to trustworthy sources?

We’re also thinking about working with many organizations which gives us a special privilege for high credit scores and make it faster for them. Or give them extra benefits for being trustworthy. We are really working here to make sure that there is a differentiated treatment for people with high credit scores. My strong belief is that it will take a long time and CRED will not be the only company who manages that. There will be multiple participants.

If you notice one thing about American visa, if you have an American visa many countries allow you to come to their country. That removes the need for getting so many visas. Same way, we believe that if we do a good job of creating that as a standard and allow more people to participate in their things and really allow these customers to get a benefit from that. We’ll be able to make a huge difference and more people will improve their scores. More people will care about being timely about their commitments and so on.

D: So it’s not just the deals that you can get from the credit card but also the fact that you’re now in a group of people who are [trustworthy] and use the mechanism to get you a rental etc Very brilliant idea – problem really is that every time you do something for a large set of people, the people that are going to abuse that system come and over-ride/over-whelm it and people end up making rules against it. The idea that you don’t need those rules simply because you’re only letting people enter that have

K: Prevention is better than cure!

D: That gives you more data because if anyone misbehaves within your system it’s easier to identify. Let’s switch to times like now, we’ve got a system where perhaps who is creditworthy four months ago is no longer that creditworthy. And we as a society are not yet aware of how this has changed. Sometimes it’s within ourselves, sometimes there is an intent to pay back if I have a loan but there may not be the resources to do so. In some cases the intent did not really exist in the first place so now it’s become obvious because of the lockdown. This perhaps plays a role now because CRED needs to figure out if a person is still what they were a few months back. So this financial behavior or the concept of things changing- how has it affected the people that you’ve seen or the customer that you have through the lockdown. Have you seen something surprising or interesting?

K: So Deepak what we’ve noticed is people who care about their scores and naturally prone to be very conscious about keeping their repayment behavior intact even if they’re having financial turbulence, they ensure that their history is kind of spotless in some ways. I think this is a very important thing. If you fundamentally keep a powerful mechanism through which we create a strong behavior to say – hey, I am going to be conscious about not dropping this [ball] and I will figure out a way. If you notice that people do not get a lower score if they do not pay the full bill but not paying it completely results in a lower score. Paying partially also results in scores being intact. Moratorium obviously that fee is not there but in general people who are conscious about their scores tend to keep it really really solid and ensure that they are not deviating from that. I’ve noticed that there is a need where customers need to think about modifying their own behavior to ensure that their signaling value does not deteriorate. In these times there are people who have lost jobs, potentially had medical situations in their families and increased their spends – I think what we have noticed is that people who tend to have a higher score do not let these events impact their scores. They figure out through savings or investments how to sail through this period. Because there is a general financial responsibility we’ve seen along these customers. But we do not know how deep the impact of Covid situation is going to be. We do not know We’re going to have more and more situations of second order impacts coming because of this and I don’t think we truly anticipate this. Those who believed that cars will not sell but I believe cars will sell because no one wants to go in cabs, we do not know how some of these behaviors are going to shape. It means that we are going to have unique scenarios emerge in each sector which we have never anticipated before.

And I always tell this joke, “the largest employer of this country is inefficiency” and in a world where everybody was forced to be more efficient – all of us are more efficient than before because of technology being generously used in our life now. Many jobs will not come back. That is a scenario that is going to cause a huge amount of ripple effects on this and we have to be constantly focussed on these aspects.

The largest employer of this country is inefficiency. - Kunal Shah Click To Tweet

D: I’ve written a bunch on this – STD/PCO operator. Where did that job go? There were 100s and 1000s of them – what happened?

K: Or Xerox machines

D: Your phone is your watch, your torch your fm player – there was a thing called a pager at some point. Somebody told me in my first startup, Deepak I’m proud that you’re creating jobs and I said that’s not the objective. If you’re telling me as an entrepreneur my job is not to create jobs. My job is to run a successful business, if I do that with more jobs or less jobs that’s great either way. But you will not see me say I’ve hired a 100 people that’s why I’m proud. I’m proud because I run a successful business.

If we create a 100 entrepreneurs like me you’ll have jobs naturally.

K: As long as we have less job seekers and more job creators, it doesn’t matter how many jobs we create.

D: I believe this lockdown will teach us to become better entrepreneurs and bring more entrepreneurs in because there are opportunities in the destruction of a little there is a creation of a lot. We look at these wealthy companies of the stock markets who are giants who don’t change. You on the other hand see the smaller entrepreneurs much more. I wish we could have you, Vijay Shekar Sharma or some of the big companies in India – I hope they list on the stock exchange so we can proudly own some shares of them. I think the change will start to be visible at your end rather than at the stock market end.

Let me take you to another question, this is complex, I’ve heard both sides of this story. Some of your successful peers in the Indian startup ecosystem have now taken a stand that they want zero or a very limited involvement of VCs and external investors while building a company. This may be because they’re successful and have enough money and so people may have the option of funding their own companies by themselves or you may have had the option of doing this yourself vs. talking to external investors, but how has your experience been in that respect – you’ve done this twice with Freecharge and now CRED, what’s a lesson you’ve learned from Freecharge and that you’ve decided to differently with CRED.

K: I think what you expect from your investors changes as you get to running your second or third company. The level of advice I’m seeking has changed. Earlier I would seek advice on who should I hire or how should I structure my team? How do I do branding? Now my advice is on how do I think about regulatory frameworks 10 months out. How do I think about changing this entity into a large profit making entity in 5 years from now. How do I think about that and so on and so forth. My view is that I think there’s a pattern on 2nd or third time founders that tends to be that the lessons are looking for are very very different and advice is very different. But having said that, we are at a very early stage in our entrepreneurial ecosystem. We do not really understand this. It is still sexy/shiny stuff from the outside.

Nobody knows the dark stuff of running Captialmind or what running CRED is. It looks fancy because we have lots of twitter followers so people assume it’s such a nice life we live. But it is not understood truly.

In terms of more control – I think it is problematic to think you need to have more control. You need to have more competence on your side. Sometimes the competence comes in the form of board members, sometimes team members, sometimes co-founders. Everybody should be looking at accumulating competence and need to be worried about control.

I think controlling mindset naturally repels competence.

D: You’re saying the VC fear of losing control is probably less important than a fear of..

K: Everybody is too busy making a big thing happen. I think everybody realizes that it’s best to have the founder run the show as much as possible unless there is something wrong about it. We’re all learning and getting there.

D: I guess one of the problems that I hear is stories of founders being kicked out of their startups though I feel it’s a business problem.

K: I think a problem is that 1-2 stories become the norm of news. We have to look at things not through anecdotes but through data. I think that culture is a little bit amiss in our ecosystem.

D: For instance in public markets, it was known that for 20-30 years businesses which didn’t work out very well would go back to a bank and say I didn’t work out, you guys take a haircut and let’s start again. So you gave 100 crores of loan, took a 40 crore haircut, business has only 60 crores, it can do things, it can take a 200 cr loan, it doesn’t work out so the promoter syphons things in the middle. Come a new regulatory framework called the bankruptcy code suddenly you can’t go to banks – they’ll take the haircut but won’t let you run the company. Suddenly everyone is crying foul – the new has replaced the old.

K: This incentivizes good behavior…

D: if you don’t want to lose your company, don’t do this bad behavior. If it’s truly something that can’t be fixed you would have lost the company anyway. From the VC behavior also we tend to over-rate or under-rate a few stories whereas the ecosystem is very raw right now. We don’t have exits in the way they exist in the west. At the same time it just takes a few people to be successful to change that situation. More power to you on that.

I’ll end with one part, fundamentally, you’ve been an entrepreneur, you’ve met investors, you’ve spoken to investors both abroad and in India, entrepreneurs both abroad and in India, what is is unique about a founder in India or being a founder in India in terms of the experience or the opportunity?

K: I have noticed that Indian founders who have done profitable businesses before and when they enter tech businesses, they are a lot more creative than people who have not made profitable companies before. The reason is that in India profitability only comes from creativity.

Like I said, in India it’s really hard for people to pay for convenience so you have to find interesting ways to charge. The reason we don’t have big SAAS companies is because no one will pay for a software to make their life more efficient.

M&A environment is not big because we don’t value time of buy vs. build. We are mostly thinking that I’ll just build this myself (is me kya hain, main khud bana loonga). The mindset has created this thing of more creativity in general and I think I’ve noticed that we are not designed to scale things a lot. Scaling as a mindset is not well understood. Western countries and founders tend to have a scaling mindset a lot more than Indian companies in general. In terms of other observations I’ve had – nobody in India thinks about very large games. Most people are stuck very happy if I make Rs 100 crores…nobody is thinking what will it take to create 10,000 crores. I think ambition is smaller in this country.

I’ll tell you why this happens. I was in China once and I saw the great wall of China. If you go there it is mind blowing when you see it is so tall and so broad. And made for 22,000 kilometers. It blows your mind. You see a lot of Chinese kids go there during young age and they see enormous structure and they know it’s man made right? So they know scale is possible through human ambition. But if you ask anybody in India what is the biggest man made structure of India – they’ll say Bandra Worli Sea Link. That’s the scale difference they think about and it fundamentally changes ambition.

The average Chinese has 100x more ambition than India because we have not seen something of scale physically emerge in many ways.

Another difference is the gender ratio. In the US you see a fair amount of female participation in the founder system or senior leadership. In India less than 20% of women work now, that is lower than Pakistan and Bangladesh! In fact urban female participation has dropped to 8%. That is lower than many countries around India including some of the most conservative nations – we are lower than that. These facts are not understood by Indians that unless women work, jobs will not be created.

Let’s say an affluent family has both genders/spouses working. You are creating 10-15 jobs because of your dual income. You’ll have nanny’s, use more products etc. A lot of urban women are currently home with the skill set of the same degree as their husband. That is a huge problem that we are not going to grow this country’s per capita income. Just to put things in perspective the urban female participation in India is 8%, urban female participation in China is 90%.

The urban female participation in India is 8%, urban female participation in China is 90%. Click To Tweet

Which means if you go on a street on a regular day, you’ll see equal genders on the street going to work. We don’t understand this and I’ve so many times asked a VC what do you think is the female participation in India – and they guess 50% and I ask them kabhi railway main gaye ho? 12 compartments for men and 1 for women. In airports, 1 queue for women and 10 queues for men. This is not understood by most Indians. I think that unless we realize that we won’t become a very wealthy nation.

D: Perhaps we’ll be forced to because if everybody is working from home, why can’t women work too?

K: Work from home can create an unusual opportunity for women to be extremely successful and financially independent and not have these similar restrictions as they had in the past. But it is first a cultural change. I think we have a society that needs to have an open mind about this and fundamentally create an ecosystem where there is more conducive nature for a lot of people to participate in the labor force.

D: I’m with you for that. For 2 reasons, one layer of course that you’ve got in the investing world, we face this question all the time, we need couples to together talk about financial planning and so on. But to a very large extent I’ve found that my job as a financial person, who looks at stock markets etc, is that discipline and rigor and simply not going crazy every once in a while, makes you a lot of money in the long run. You just have to keep your head down and do it.

More women are capable or good at this (call me sexist, it’s my experience) than men and yet the world of investing is dominated by men.

K: Funny you are saying that. 92-93% of credit cards are owned by men. 95% of all personal loans are taken by men. 90% of car loans are taken by men. 90% of home loans are taken by men. The question is – it’s not just about investing, women are just missing from almost all dimensions of financial behavior and that needs to change.

D: I think this might be an opportunity, a great time and I hope everything on that front changes and there’s more to participation like you said fundamentally and I see where you are in terms of scale, ambitions, the ability to think of Rs 100,000 crore number – that’s not a lot of money by world standards. But it literally changes the game for everybody who is in India and they look at you and say isn’t a 1,000 crore outcome just as good?

The attitude of the number of people who think of 100,000 crores is countable on one hand. That layer perhaps has to still evolve. It’s very fascinating being, I did not take opportunity as well as I did 20 years ago when I was an entrepreneur. But it was not even 10 years ago we were in different fields. Watching this whole ecosystem evolve, I think what you are saying is going to come true in the next few years. All the negativity, envy will change – we just have to stick to our guns.

Thanks a ton Kunal – it’s been a wonderful time talking with you and I hope I see you as among the top, I don’t have to see you, I’ll know that you’re one of the top/most successful Indian companies out there.

The word CRED and the company CRED have a great future and CRED is how big economies evolve and we are by all definitions a big economy. To all listeners and viewers I hope you do try CRED, I’m a member so I’m biased. Also I’ve known Kunal for a long time.

K: Thank you so much

D: Thanks everyone for watching. We’re at @capitalmind_in @deepakshenoy and Kunal is at @kunalb11. Please visit and be positive so Twitter isn’t all dementors. Wash your hands, be safe! Do tell us what your views are.


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