Fintech startup ZestMoney to shut down, to lay off remaining 130 employees

The management told the employees that they had to take such a tough decision as the business has not been able to grow, according to the sources.

Buy now pay later (BNPL) firm ZestMoney will be shutting down amid an unsuccessful attempt to revive its business under new management and regulatory uncertainty.

In a town hall meeting on December 5, the management told employees that the firm is winding down and laying off the remaining 130 employees. A very small team has been retained to undertake the company closing down process.

“The management told the employees that they had to take such a tough decision as the business has not been able to grow,” said a person familiar with the development. “They were told that they would be given the salary for December and be provided support to find new jobs.”

 

In May, after three co-founders of ZestMoney stepped down, the Goldman Sachs-backed fintech startup created a new leadership team to lead the firm. Abhishek Sharma, head of growth; Mandar Satupte, chief banking officer; and Mohit Chhajer, vice-president of finance and financial operations (FinOps) assumed responsibility for leading ZestMoney.

ZestMoney’s founders resigned, several weeks after fintech giant PhonePe decided to halt its proposed acquisition of the company.Lizzie Chapman, Priya Sharma and Ashish Anantharaman, the founders of ZestMoney, informed employees about their decision. This  put the employees at the Bengaluru-based firm in an uncertain future. The firm had been finding it challenging to raise fresh capital amid a funding winter, according to the sources.

In March this year, PhonePe called off deal to acquire ZestMoney. In April, ZestMoney laid off 100 employees, or about 20 per cent of its workforce. 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 was 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.

PhonePe gave about $18 million as a loan to ZestMoney when it was evaluating the acquisition. ZestMoney, which is backed by Goldman Sachs and Xiaomi, had about 450 employees, all of whom were expected to be absorbed by PhonePe if the acquisition proceeded. The company was then left with over 100 people.

Founded by Lizzie Chapman, Priya Sharma, and Ashish Anantharaman in 2015, ZestMoney allowed 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 propelled the demand for pay-later offerings in the country. At its peak ZestMoney had a registered user base of 17 million and is live at 85,000 retail touchpoints across India.

“However many lenders or Non-Banking Financial Corporations (NBFC) who worked with ZestMoney started slowly stopped their engagement with the company after RBI tightened rules for digital lending and norms for personal loan,” said a person aware of the matter.

On Monday, 20 June, the Reserve Bank of India issued a notification forbidding operating non-bank institutions or fintech companies, including many of the BNPL services, from loading credit lines onto Prepaid Payment Instruments (PPI) such as wallets and prepaid cards. This had an impact on BNPL players.  This included US-based startup Sezzle, which informed its merchants in India about shutting down operations in the country from April 9. PayU India also shut down its LazyCard, a prepaid payment instrument backed by a credit line.

“After PhonePe decided to halt its proposed acquisition of the company, ZestMoney was in touch with some small banks to get acquired, but that didn’t mature,” said a person familiar with the matter.

At its peak, ZestMoney 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 had 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.