Indian fintechs take pride in their epiphanies. For instance, the realisation that ‘payments won’t make money; we need lending’ made them flock to the buy-now-pay-later (BNPL) kinds. That too, it appears, has proven to be a letdown.
But not all startups have the capital to survive a series of realisations. Just ask ZestMoney—a BNPL platform that claims to have disbursed loans worth $1 billion across 17 million users in its seven years of existence. A growth story that came at a cost.
That’s why ZestMoney is in the final stages of being bought by online-payments giant PhonePe, The Economic Times wrote wrote The Economic Times PhonePe may buy BNPL startup ZestMoney in big consolidation move Read more in late November. A person close to the potential deal confirmed the information to The Ken, adding that the Bengaluru-based company has been on the block for at least six months. He declined to be named as he didn’t want to comment on an ongoing deal involving a former employer.
PhonePe and ZestMoney declined to participate in the story.
The acquisition is pegged at $200-300 million and is possibly the most important consolidation move in the new-age lending segment, as ZestMoney was one of the earliest BNPL fintechs in the country. Though the person quoted above said the final sale amount could be even lower.
As a non-banking financial company (NBFC), it offered its BNPL services at the point of sale (POS) to retail customers and merchants online, as well as offline, in tier-I and II cities.
In fact, ZestMoney had a good year ended March 2022, at least in terms of loan-book growth. Its assets under management (AUM), as of March 2022, increased nearly 80% to Rs 1,059 crore ($127 million) from a year ago. Its income from operations in the year ended March 2022 rose almost 65% to Rs 143 crore (~$17 million) from a year ago. But it also paid the price.
ZestMoney saw its losses surge over 3X to Rs 399 crore ($48 million) as of March 2022 from a year ago. And its biggest expense was ‘service deficiency charges’, or the cost of paying for bad loans, which stood at Rs 244 crore ($29.5 million).
Also, the company’s rate of defaults stood at an all-time high of 12-13%, according to the person mentioned above. “This number should not be more than 2-2.5% for BNPL lending,” said a former ZestMoney executive, who declined to be named as they did not want to comment publicly on their previous employer. ZestMoney, in a statement to The Ken, said it will not comment on speculation. But denied that it has such high defaults and said its non-performing assets (NPAs) stood at less than 1.5%.