TFS Gulf 
- The Buy Now Pay Later (BNPL) startup ZestMoney, once valued at $450 million, is set to conclude its operations by the end of 2023.
- Regulatory constraints and an unsuccessful acquisition deal with PhonePe are believed to be the main reasons behind this decision.
- On December 5th, ZestMoney conveyed the news to its remaining 150 employees, urging them to look for new jobs elsewhere.
The rise of ZestMoney
The previously lauded, Indian Buy Now Pay Later (BNPL) startup, ZestMoney is ceasing its operations by the end of 2023.
On 5th December, ZestMoney communicated the decision to its remaining 150 employees, down from 500.
Founded in 2015, by Lizzie Chapman, Priya Sharma, and Ashish Anantharaman, the startup attracted customers with the ability to underwrite small-ticket loans.
Customers were given the flexibility to make smaller, periodic payments to the lender instead of having to pay the entire amount at once.
It boasted a network of 75,000 physical outlets and over 10,000 online partners.
Prominent investors such as PayU, Goldman Sachs, Zip, Ribbit Capital, Quona Capital, Xiaomi, and Omidyar Network had taken a big bet on this Bengaluru-based startup.
The startup experienced significant growth during the Covid-19 pandemic, with transactions soaring by 300 percent from 2020 to 2021.
ZestMoney raised approximately $140 million over eight years.
Everything looks great, right?
Until it didn’t.
Regulatory constraints
The RBI has prohibited non-banking institutions and BNPL services from giving credit lines to prepaid payment methods like wallets and cards.
Also, the RBI asked banks to increase the risk weights on consumer credit by 25%, making it 125%.
As a consequence, BNPL operations in India, including ZestMoney, came into turmoil.
Failed acquisition deal with PhonePe
ZestMoney’s founders, engaged in discussions with fintech giant PhonePe regarding a potential acquisition deal.
The deal was initially estimated to be valued between $200 million to $300 million.
The acquisition would have granted the company access to a Non-Banking Finance Company (NBFC) license.
Unfortunately, the deal did not come to fruition due to concerns arising during the due diligence process.
Issues such as disagreements on valuation and a notable high default rate (approximately 10-12%) emerged as significant obstacles.
Founders depart: the final nail in the coffin
In May of this year, the founders of ZestMoney decided to exit the startup following unsuccessful acquisition talks with PhonePe.
Subsequently, the founding team entrusted the leadership of the company to three new executives:
- Mohit Chhajer, Vice-President of Finance;
- Mandar Satpute, Chief Banking Officer;
- Abhishek Sharma, Senior Vice-President and Head of Growth.
This new leadership attempted to chart a different course for the company, raising funds from existing investors, but unfortunately, their efforts did not lead to a successful outcome.
The end
ZestMoney, saw its revenue grow from INR 89 crore in FY21 to INR 145 crore in FY22.
However, during the same period, its losses increased as well, from INR 125.8 crore to INR 398.8 crore.
This financial downturn led to the unfortunate dismissal of approximately 100 employees in April, accounting for nearly 20 percent of its workforce.
Since March, around 130 of ZestMoney’s employees have resigned.
A startup that was once valued at $450 million, will bid farewell by the end of December, putting an end to its 8-year journey.
