News Update

PhonePe Scraps Acquisition of BNPL Firm ZestMoney

• ByStartupStory     |    March 30, 2023

ZestMoney faces funding crunch as PhonePe cancels acquisition deal due to due diligence concerns, which is a major setback for the BNPL platform as investors and venture capitalists have become more cautious while approving large amounts. Reportedly, Walmart-backed digital payment platform PhonePe has cancelled its acquisition deal of buy now pay later (BNPL) provider ZestMoney due to due diligence concerns. The estimated value of the acquisition was between $200 million to $300 million. This development is seen as a significant setback for ZestMoney, which has the backing of major investors such as Goldman Sachs, PayU, and Xiaomi.

A source familiar with the matter revealed to Moneycontrol that PhonePe has called off its acquisition deal with buy now pay later (BNPL) platform ZestMoney due to issues with due diligence. ZestMoney’s BNPL loans enable customers to repay their lenders in installments, with the purchase amount disbursed directly to the merchant from lending partners. PhonePe initiated talks to acquire ZestMoney in November 2020 to expand its digital lending services. Though PhonePe does not currently offer digital lending on its platform, it provides other financial services such as insurance, digital gold and silver, and mutual fund distribution. In January, the company raised $1 billion and announced plans to launch digital lending soon.

ZestMoney’s failed acquisition deal with PhonePe is a significant blow to the BNPL platform, which is currently facing a funding crunch. The year 2022 and the present year have not been favourable for BNPL companies due to the tightened monetary policy stance of the Federal Reserve. Talks between the two firms began shortly after new RBI guidelines on digital lending had an impact on BNPL firms, making it difficult for fintech startups to extend personal credit lines through cards.

Sources reveal that ZestMoney has been searching for a buyer due to its ongoing struggles to raise funds. Multiple media reports suggest that PhonePe was expected to acquire ZestMoney for a sum between $200 million and $300 million, which is lower than ZestMoney’s previous valuation of $470 million. RoC filings show that the fintech startup’s losses increased 3-fold YoY to Rs 398.8 crore in the financial year that ended on March 31, 2022. ZestMoney’s losses for FY22 were up by 216% compared to Rs 125.8 crore in FY21. ZestMoney was established in India in 2015 with a mission to cater to the underserved small loan market by Lizzie Chapman, Priya Sharma, and Ashish Anantharaman. 

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