ZestMoney Pivots To Lending SaaS As PhonePe Waives Off $18 Mn Loan

Following its decision to walk away from its agreement to acquire ZestMoney, PhonePe has reportedly waived off the $18 Mn loan it had extended to the cash-strapped buy-now-pay-later (BNPL) startup.

ZestMoney is also in discussions to raise separate equity from some of its existing investors, according to the people cited by ET.

Under the aforementioned commercial agreement, ZestMoney will transfer its tech stack and 150 of its employees to PhonePe, as the lending decacorn gears up to launch an in-house lending business, having already applied for a non-banking finance company (NBFC) licence.

Reportedly, PhonePe is paying ZestMoney an additional $8 Mn in a licencing agreement to use the latter’s tech stack. PhonePe’s move also comes as a short-term relief to ZestMoney, though the cash position at the BNPL startup remains uncertain, the ET report added.

With this, ZestMoney will pivot to a lending SaaS business model as it looks to raise equity capital to fund the business model switch. The decision came after the talks for a complete acquisition of the company fell through.

“They (ZestMoney) want to leverage the tech stack they have built as a credit aggregator and offer it as a white-labelled solution to other fintech lenders, NBFCs or banks which might use it to process their own credit business,” a person familiar with the developments at ZestMoney was cited as saying.

The business model switch to lending SaaS might see ZestMoney pick up some B2B customers. The Reserve Bank of India (RBI) has underlined strict digital lending guidelines and is rather unwilling to offer tech startups an NBFC licence. With the BNPL platform’s existing tech stack, compliant with the lending guidelines, many companies might be able to speed up their go-to-market and remain compliant with RBI’s norms.

Since the new business model would require a smaller team, a significant chunk of its workforce leaving for PhonePe would not hurt ZestMoney’s operations significantly.

The development comes weeks after the PhonePe-ZestMoney deal fell through, as the due diligence done by the Walmart-owned fintech decacorn raised some red flags. The move was followed by layoffs at ZestMoney, and some employees were also reported to have moved on to PhonePe at the time.

Founded by Lizzie Chapman, Priya Sharma and Ashish Anantharaman in 2015, Bengaluru-based ZestMoney offers BNPL services, allowing its users to pay their shopping bills in three instalments at a 0% interest rate.

The startup saw its loss widen 3X year-on-year (YoY) to INR 398.8 Cr in the financial year ending March 31, 2022, due to a sharp rise in its expenses. The fintech startup’s loss surged 216% from INR 125.8 Cr reported in FY21.