ZestMoney, an 8-year-old India’s fintech lending startup, is shutting down. Despite attracting substantial investments, including from Goldman Sachs, this Buy Now Pay Later (BNPL) pioneer finds itself succumbing to the complexities of regulatory uncertainties and a failed attempt at a business revival under new leadership.
During a meeting held on December 5, the management of ZestMoney delivered the sobering news that the company would be winding down its operations, resulting in the unfortunate departure of the remaining 150 employees. In a strategic manoeuvre, the company plans to maintain a skeletal legal and finance team to navigate and oversee the shutdown process. This decisive move follows the stepping down of its founders months earlier, leaving the company under the stewardship of investors and a new management team.
In a gesture of support, ZestMoney is committed to providing employees with two months of severance pay and outplacement support.
Notably, several ZestMoney employees have updated their LinkedIn profiles with ‘Open to Work’ tags, reflecting the tense atmosphere and the proactive job-seeking efforts underway.
One anonymous employee expressed the surprise felt by many, noting, “We knew something was happening, but we didn’t expect they will shut it down. We were promised salary for next month, but the situation is very tense. Many have started reaching out for jobs outside.”
ZestMoney, once valued at an impressive $450 million, experienced an unravelling of its fortunes after the breakdown of acquisition talks with PhonePe. Despite the company’s ambitious efforts to steer towards success through its turnaround plan, labelled ZestMoney 2.0 or ZeMo 2.0, the desired results failed to materialize. The company’s journey, marked by high valuations and strategic shifts, underscores the challenging landscape of the fintech industry and the intricate dynamics at play in its corporate trajectory.
Over the past eight years since its inception in January 2016, ZestMoney has etched a remarkable presence in the fintech arena, amassing a substantial customer base of 17 million. Facilitating monthly loan disbursals of Rs 400 crore, the company boasted 27 lending partners and established impressive merchant collaborations with 10,000 online brands and 75,000 offline stores.
What caused the downturn for ZestMoney? How did a well-capitalized startup in India’s vibrant fintech sector find itself grappling to maintain operational stability?
Factors Contributing to ZestMoney’s Shutdown
The downfall of ZestMoney can be attributed to a confluence of challenges and pivotal events:
Regulatory Landscape: India’s fintech sector is subject to rapid regulation changes, and ZestMoney faced hurdles following the Reserve Bank of India’s (RBI) notification in June 2022. The RBI’s directive restricting non-bank institutions and fintech companies, including those offering ‘buy now, pay later’ services like ZestMoney, from loading credit lines onto Prepaid Payment Instruments (PPI) impacted the company’s operations. Subsequently, ZestMoney initiated efforts to seek a buyer, ultimately proving unsuccessful in its endeavours.
The regulatory directive from RBI has triggered a chain reaction, impacting various buy now, pay later businesses throughout the country. Notably, even the U.S.-based BNPL startup Sezzle decided to halt its operations in India. Adding to this trend, another Indian startup, PayU, decided to shut down its BNPL card service, LazyCard.
Acquisition Talks Breakdown: ZestMoney’s trajectory took a hit when talks with PhonePe for acquisition fell through. In November 2022, discussions were in full swing for PhonePe to acquire ZestMoney, with the potential deal valued between $200 million and $300 million. However, in March 2023, the Walmart-backed fintech juggernaut walked away from the negotiation table, citing issues with due diligence. This unforeseen development left ZestMoney in a state of uncertainty, prompting them to let go of 20% of the workforce and actively search for a new buyer.
Shedding light on the financial dynamics, Sameer Nigam, CEO of PhonePe, revealed to Moneycontrol that ZestMoney had received approximately $18 million in loans from PhonePe the previous year. Nigam characterized this sum as a ‘lifeline’ for the company, underscoring that the buy now, pay later platform was teetering on the edge of potential bankruptcy at the time of their initial meeting.
Transition in Leadership: The departure of ZestMoney’s founders marked a significant shift in the company’s leadership. Lizzie Chapman, Priya Sharma, and Ashish Anantharaman tendered their resignations on May 15, 2023, just two months following PhonePe’s decision to step away from the acquisition deal with the BNPL platform. The transfer of control to new management and investors can sometimes result in challenges in maintaining the original vision and strategy, especially when coupled with broader industry challenges.
Funding Challenges: Although ZestMoney had significant funding in its earlier years, sustaining operations and adapting to market changes require consistent financial backing. In September 2022, ZestMoney secured $50 million from Australian BNPL fintech Zip Co. This investment was part of a broader Series C fundraise, drawing participation from existing backers such as Goldman Sachs, Quona Capital, Xiaomi, and Alteria Capital. However, in August 2023, ZestMoney received a lifeline when existing investors, including Quona Capital, Omidyar Network India, Flourish Ventures, Zip, and Scarlet Capital, all together injected only $5 million to sustain the business.
ZestMoney’s struggles highlight the volatile nature of India’s fintech industry, where regulatory shifts, market dynamics, leadership changes, and operational challenges can collectively impact even well-funded startups.
