BNPL Startup ZestMoney, once valued at $450M, to shut down | Technical, Finance, Investment Questions

BNPL Startup ZestMoney, once valued at $450M, to shut down

Sushmita Pal

3 months ago

The popular BNPL startup ZestMoney is currently making headlines due to its unexpected shutdown and mass dismissal of close to 150 employees. Such an event was not expected, and a lot of people, including industry insiders and customers, are curious about what has caused the shutdown.

ZestMoney had an innovative strategy of offering cheap borrowing packages and, as such, became very popular. However, the closure of ZestMoney and sackings have caused an uproar and left many wondering whether the BNPL industry is indeed viable and whether fintech ventures can thrive in this highly competitive era.



ZestMoney and Their Mission


The company was founded by Lizzie Chapman and Priya Sharma, among others, in 2016. The company manages to disburse loans worth about RS400cr every month among a customer base of 17 million. ZestMoney has 27 lending partners and a relationship with 10,000 online brands and 75,000 offline stores.


The main aim of ZestMoney was to transform the credit market, providing easy access to loans for consumers. Their primary concern was to ensure that credit became affordable and easily available and, in so doing, redefine the normal credit environment. Through the provision of instant loans that could be paid within a flexible time frame, ZestMoney sought to give power to people whom conventional banking systems had overlooked. The demise of ZestMoney has triggered questions on the problems faced by fintech startups in the highly competitive BNPL market and how affordable credit services may survive in the future.



ZestMoney's Journey to Shutdown


In June 2022, RBI announced a warning to all non-bank institutions and fintech companies, including the famous ‘buy now pay later’ service providers, that they are prohibited in India. This has been a major decision that changed the way it operates for some of the buy now pay later businesses in India. Such as BNPL startup Sezzle, operating from the US and shutting down operations in India. However, a possible buyer has been actively searched for by ZestMoney.


Last November 2022, the number leader on the UPI payment platform, PhonePe, held discussions to buy out the fintech company ZestMoney. Such a move would have been PhonePe’s entryway into the digital lending market. The transaction was roughly valued between US$200 million and US$300 million. However, in March, the Walmart-backed fintech decacorn pulled out of the deal due to concerns over diligence, leaving ZestMoney in a dilemma.


Zest Money suffered a blow following the failed acquisition by PhonePe and had to take some harsh measures to save the business. They released approximately 20% of their workers, about 100 in number. On the other hand, some of them luckily managed to secure jobs at PhonePe.


Interestingly, last year, PhonePe had lent ZestMoney $18 million. Financial help was essential to ZestMoney during difficult days.


To further add to the turmoil, the CEO of three ZestMoney founders - Lizzie Chapman, Priya Sharma, and Ashish Anantharaman quit on May 15. The sudden quitting of ZestMoney raises doubts about its ability to survive in a poor position.


ZestMoney is still in doubt about what to expect in the future as it goes through these tough times. Will the company be able to survive in the cutthroat Indian fintech industry? It depends on which buyer will buy and help it overcome these financial crises.




The Final Blow : Layoffs and Closure


After the departure of the founders, it became necessary for ZestMoney, an established fintech start-up, to change leadership. The company appointed Abhishek Sharma, the head of growth, Mandar Satupte, the chief banking officer, and Mohit Chhajer, the vice president of financial operations (FinOps), to steer the firm. The new management team launched ZestMoney 2.0, which is a plan that provides employees with assured variable pay and monthly salary increments in this month.


ZestMoney received a large amount of money in August as it aimed to maintain the operation of the business. Existing investors such as Quona Capital contributed nearly $5 million, along with contributions from Zip, Scarlet, and Flourish Ventures.


ZestMoney closed up a total of $50 million it raised in September 2021 to raise money for its Series C round. To cap it all, an additional raise of two million dollars brought this sum to an astounding total of $20 million. The company managed to raise $140 million in investments from various sources such as Zip (an Australian BNPL platform), Goldman Sachs, Quona Capital, and Xiaomi.


However, ZestMoney recorded huge losses in FY22. The company’s losses shot up by 216% to Rs 398 crore as compared to Rs 125.8 crore last year. However, profit was up by 62% to Rs 145 crore for FY22, which they recorded as revenue of Rs 89.3 crore in 2020-21.


ZestMoney had to shut down the business as it could not guarantee additional funding to help the company or find a buyer to save it out of its financial mess. This unfortunate event was announced by the new leadership team in a town hall meeting held on December 5. Therefore, they shut down the company, resulting in mass layoffs of its 150 workers.


For the retrenchment of the workers, ZestMoney will give the outgoing personnel two months’ payment and outplacement help.



Conclusion


ZestMoney, a BNPL startup, has shut down and discharged around 150 workers.

The laid-off workers will get two months’ salary as severance payment and other outplacement assistance from the company.

The shutdown of ZestMoney fuels apprehension over the BNPL sector and financial technology struggles.

A notification was issued by the Central Bank of India forbidding non-bank institutions and FinTech companies, along with BNPL services.

If it can find a good buyer, it can continue serving in the Indian fintech market.





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Sushmita Pal

Agent at Xeloxo

3 months ago

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