I saw a tweet today questioning whether Cred, a credit card reminder app, deserves to be a $6.4 billion idea. And what value Cred offers that existing banks don’t.

Valuing a private company is hard. So let’s ignore that.

Let’s discuss why Cred has managed to attract world-class investors and a lot of capital from them.

A lot of Indians are asset rich and cash poor. It takes a long time to build a good credit score and even that may not be a true reflection of whether someone can repay a loan. There is also social stigma associated with borrowing.

I remember when I was in my first job, my manager was going through the process of securing a loan. The bank officer was supposed to come to our office for verification. It was a small start-up where we worked. And the loan amount was big. Think it was a home loan. Imagine the anxiety of my manager. It is an arduous process that nobody likes to go through. And you might be turned down. Even more humiliating.

I remember a friend telling me that his father who has a cash flow of more than 1 Cr INR yearly through his business, has his account with HDFC, but had issues securing a loan from HDFC. Most banks are risk averse and over-index on saving themselves from NPAs.

Okay, now you can say that a lot of people take home loans now. It has become acceptable.

But what about personal loans? Do you want to go through the whole process of borrowing from a bank, knowing that people might get to know during the process, and realise that you are short of cash? Most people would rather pay a little more interest than go through the long and complex process of securing a loan from a big bank.

What about borrowing from a relative? You know the word will get out. Your relatives will gossip that you are not as successful as you seem and need to borrow. It is a last option for many.

Cred has simplified the process of taking a loan. One click and that’s it: you have your loan. Cred has all your data. They know your credit card statements. They are prepared to take more risk. They have to. They are unlikely to send someone to your workplace to verify your employment.

You are borrowing from Cred, not some random relative who will bombard you with repayment requests. No one will know that you faced cash flow problems. And many people do have that: cash flow issues, especially towards the end of the month.

We are a status-driven society, as Kunal says, and people spend a lot of money into maintaining their status. Credit helps.

And that is why they have managed to grow their loan book to 10K Cr INR (data from last year). Probably one of the fastest private companies to do that in India.

Finally, I know that a lot of regulation in P2P is on the way. Fintech is not that hot anymore. Revenue multiples have come down. And some of Cred’s bets, apart from the lending business, have not worked out so well. But no one can say that Cred is not adding value. And is not a real business.