Cred entering wallet space with an acquisition

Cred entering wallet space with an acquisition:

Cred, a credit card bill payments platform, is set to enter the wallet payments business by acquiring liquor delivery startup HipBar Pvt. Ltd, which owns a prepaid payment instrument (PPI) licence, three people aware of the development said. The PPI licence, granted by the Reserve Bank of India (RBI), permits companies to operate payments systems such as digital wallets, pre-paid transit cards, vouchers and so on. The RBI website lists 37 entities that hold the licence as of this month. HipBar was granted the licence in August 2016.

A confirmation of the development is the appointment of Kunal Shah and his brother Rohan Shah as additional directors on HipBar’s board list, as HipBar’s regulatory filings show. Its co-founder and director Rajalakshmi Natarajan has resigned from the company.

According to a separate filing, the share capital held by Natarajan and Prasanna have been acquired by CRED’s holding firm Dreamplug Technologies.

As per the share purchase agreement entered into by DreamPlug technologies (CRED), Rajalakshmi Natarajan, Prasanna (promoters) and Sipping Spirits Pvt Limited, CRED has purchased 175,67,568 equity shares from the promoters and 255,00,000 preference shares from Sipping Spirits.

The purchase consideration is not known yet, but it’s a 100% buyout, giving a full exit to the founding team and investors.

With the acquisition, CRED can start giving cashback in its wallets instead of user bank accounts and card accounts. Several experts point out that the wallet licence would allow the Bengaluru-based company to contain cash backs offered by the company inside its ecosystem (for credit card bill payments and buying from its merchant partners). A critical step up as its transaction volumes scale up, as cashbacks remain the largest driver of both user engagement and acquisition for the firm yet.

“It appears to be a smart move as the wallet would enable CRED to drive repeat transactions through its own payment instrument,” said one of the entrepreneurs from the fintech firm requesting anonymity.

HipBar’s acquisition was first reported by Mint.

CRED is a members-only credit card bill payment platform that rewards its members for clearing their credit card bills on time with cashbacks and reward points that can be redeemed in many ways. With over 1,300 brand partners, CRED claims to have a customer base of 7.5 million and a 20% value share of all credit card bill payments in India.

The Kunal Shah-led company recently announced a $251 million raise in its Series E round at a valuation of $4.01 billion (post-money). CRED is one of the handful of startups to raise three back to back rounds within a year.

CRED had projected a 208X growth in its operating revenues to Rs 108 crore during FY21. According to Fintrackr, the two-and-a-half-year-old company’s operating expenses are estimated to surge by about 79% to Rs 677 crore in FY21 from Rs 378.4 crore in FY20. Importantly, these figures are not from the audited statements as CRED is yet to file the annual financial statement for FY21.