PhonePe acquires ZestMoney; The deal is valued at $200mn-$300mn

NEW DELHI: Digital payments and financial services provider PhonePe is in the process of acquiring buy-now-pay-later (BNPL) fintech startup ZestMoney, two people aware of the matter told Mint.

A third person said the deal was valued at $200 million-$300 million. “The deal is still in the works and is 2-3 weeks away,” he shared.

ZestMoney raised its previous funding round at a $450 million valuation.

Zestmoney today plans an internal townhall around it. “The townhall is about reassuring Zestmoney employees that there is nothing to panic. This is to inform that ZestMoney is in talks with PhonePe and yes the deal is happening.”

“The acquisition is done. ZestMoney will continue to operate as a separate entity with the Zest brand,” said one of the two people cited above.

“It’s a bearish selloff,” said the other person.

The Buy Now Pay Later (BNPL) startup has been looking for a buyer for at least six months as it struggles to raise funds. According to people aware of the matter, Zestmoney was earlier in acquisition talks with Pine Labs and BharatPe, but the deals fell through.

The buyout gives Walmart-owned PhonePe access to an NBFC (non-banking finance company) license, which it had wanted to own for a long time. As the company is planning a public offering next year, it is in the process of obtaining regulatory licenses. PhonePe, which has already got licenses for insurance broking, stock broking and account aggregator, had also applied for an NBFC license.

In 2019, ZestMoney acquired NBFC Nahar Credits 17 crore, which was previously owned by UK-based payday loan company Wonga Group. Zestmoney co-founders Lizzie Chapman, Priya Sharma, Ashish Anantharaman were earlier part of Wonga’s India operations.

However, ZestMoney was not lending more than its own NBFCs.

If a person is to be believed, about six months before the Reserve Bank of India issued back-to-back guidelines for digital lending, ZestMoney was delivering almost 600 crores in a month. But after the guidelines there was a huge decline and the book went from 280 crores 300 million. last month, he did something 400 crores in debt.

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Bangalore-based Zestmoney, which offers EMI financing on online merchant checkout, has launched a new offering for big ticket purchases i.e. 20,000 30,000. “However, post Covid average ticket size came down 13,000. BNPL’s aggressive play is backfired globally. The problem with going into the smaller BNPL segment is that volumes go up, but profitability takes a huge hit,” the person said.

ZestMoney, which was founded in 2015, has so far raised around $140 million from key investors including PayU, Zip, Ribbit Capital, Quona Capital, Xiaomi, Omidyar Network, Goldman Sachs, among others. During FY 2022, ZestMoney sees its revenue increase to 145 crores 89 crore in FY21, while the loss jumped from 398.8 crores 125.8 crores a year ago.

PhonePe and ZestMoney have declined to comment.

The development was first reported by ET.

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