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ZestMoney is laying off 100 employees, or about 20 per cent of its workforce, after fintech firm PhonePe recently decided to halt its proposed acquisition of the buy now, pay later (BNPL) platform.
Bengaluru-based ZestMoney, which is backed by Goldman Sachs and Xiaomi, has about 450 employees, all of whom were expected to be absorbed by PhonePe if the acquisition had proceeded.
ZestMoney’s founders held a town hall on March 30 evening and told employees about the layoffs across departments, sources said. PhonePe is in talks with ZestMoney to hire some of the staff.
“The company is working on business continuity or a survival plan and layoffs are part of it,” said a person familiar with the matter. “PhonePe management is also having conversations with ZestMoney to hire some portion of the 350 employees left at the firm and those discussions are still going on.”
ZestMoney didn’t respond when asked for a comment.
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The laid-off employees would get a severance package, which includes health insurance.
The deal with PhonePe, which was to fetch between $150 million and $300 million, collapsed over lapses in due diligence, disagreement over valuation, business sustainability, and ZestMoney’s shareholding structure, according to people cited above.
The deal’s collapse is also being attributed to a slowdown in the financial technology (fintech) sector amid a funding winter, a difficult regulatory environment, and macroeconomic uncertainty, said other sources.
The acquisition was expected to help Walmart-backed PhonePe strengthen its lending services and compete with Google Pay, Paytm, and Amazon Pay in India’s fintech sector, which is to be projected to be worth $350 billion by 2026.
PhonePe gave about $18 million as loan to ZestMoney when it was evaluating the acquisition.
When asked to comment about the perception that the acquisition’s collapse had left ZestMoney in distress , PhonePe founder and CEO Sameer Nigam said it would be “unfair to say that.”
“We pursued five acquisitions last year. We successfully completed the fourth. The fifth didn’t go through, unfortunately, due to a reason that I can’t reveal,” said Nigam. “I think it would be unfair to say that we abandoned anybody. Clearly, four out of five acquisitions is not bad.”
Founded by Lizzie Chapman, Priya Sharma, and Ashish Anantharaman in 2015, ZestMoney allows customers to pay for products over time, but use them right away. Increasing smartphone penetration, the cheapest data plans in the world, and a boom in online shopping have propelled the demand for pay-later offerings in the country.
ZestMoney has a registered user-base of 17 million and is live at 85,000 retail touchpoints across India.
“The company has enough money in the bank to run its operations, otherwise if it would have been cash-strapped around 60 per cent-80 per cent of the employees would have been laid off,” said a person familiar with the matter. “The board and investors are fully backing the firm to continue running the business.”
The company had a valuation of $470 million that it achieved in the last funding round. ZestMoney raised $50 million in September 2021, which the company had topped with an additional $20 million raise as part of its Series C round. The firm has raised a total of $140 million from investors such as Australia’s BNPL platform Zip, Goldman Sachs, Quona Capital, and Xiaomi.
ZestMoney’s loss in 2021-22 (FY22) surged 216 per cent to Rs 398 crore, from Rs 125.8 crore in the previous financial year, according to data accessed by business intelligence platform Tofler. Revenue grew 62 per cent to Rs 145 crore in FY22, from Rs 89.3 crore in 2020-21.
