ZestMoney shifts to SaaS while PhonePe considers purchasing its technology and talent

• ByStartupStory     |    April 26, 2023

According to the Economic Times, PhonePe is negotiating the purchase of ZestMoney‘s technology stack, along with hiring 150 of its employees and canceling an $18 million loan it had provided to the financially struggling lender. This development comes after PhonePe reportedly backed out of a deal to acquire ZestMoney due to concerns raised during a six-month-long due diligence process. The potential acquisition and talent acquisition would allow PhonePe to expand its technological capabilities and grow its team, potentially enhancing its competitive edge in the digital payments market.

 As per recent reports, PhonePe is exploring the possibility of entering into a commercial agreement with ZestMoney instead of acquiring the cash-strapped lender. Under the terms of the potential deal, PhonePe would pay $8 million to ZestMoney for a licensing agreement, while also speeding up the launch of its own lending business by leveraging ZestMoney’s technology. 

This move comes as PhonePe applies for a non-banking finance company (NBFC) license and emphasizes lending as a crucial aspect of its latest fundraising. By collaborating with ZestMoney, PhonePe could enhance its lending capabilities and gain a competitive edge in the fintech market.

ZestMoney is reportedly in discussions with its existing investors to secure additional funding as it transitions to a software-as-a-service business model, with a focus on digital lending. However, PayU, which currently holds a 15% stake in the company, is not expected to participate in the funding round.

ZestMoney has shifted its business strategy to offer a white-label solution to other fintech lenders, non-banking financial companies (NBFCs), or banks to facilitate their credit business. The move was prompted by recent digital lending guidelines issued by the Reserve Bank of India, which impose strict regulations on the flow of funds and loan accounting for fintech lenders. This new business model is expected to position ZestMoney as a key player in the Indian fintech industry.

ZestMoney’s credit technology platform is now compliant with the latest lending regulations, making it an attractive option for other fintech lenders, NBFCs, or banks seeking to expedite their go-to-market strategy while remaining compliant. The company was founded in 2015 by Lizzie Chapman, Priya Sharma, and Ashish Anantharaman, initially as a loan-sourcing platform to enable fast credit disbursal at the point of sale, with a focus on online merchants. 

ZestMoney has partnered with multiple lenders, including Aditya Birla Finance, Tata Capital, and Hero Fincorp, and has acquired an NBFC, Nahar Credits, to retain a portion of the loans on its own books. It collaborates with major ecommerce players such as Flipkart, Amazon, Myntra, and Nykaa to offer pay-later as a product. A competitor in the fintech industry reportedly stated to The Economic Times that ZestMoney’s shift to a white-label solution will result in a smaller business that requires a smaller team. With the shift to a software service model, the company’s revenue will solely be generated from fees, unlike in credit where interest margins offer a substantial revenue potential.

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