PhonePe Acquiring ZestMoney; Deal Pegged At $200mn-$300mn

The deal amount is pegged at $200 million-$300 million, a third person added. “The deal is still being worked out and is 2-3 weeks away," he shared. 

ZestMoney raised its last funding round at $450 million valuation.

ZestMoney is planning an internal townhall today around this. “The townhall is about assuring ZestMoney employees that there is nothing to panic. It is about telling that ZestMoney is in talks with PhonePe and yes the deal is happening."

“The acquisition is done. ZestMoney will continue to operates as a separate entity with Zest brand," one of the two persons quoted above said.

“It is a slump sale," the other person added.

The Buy Now Pay Later (BNPL) startup has been looking for a buyer for at least six months now as it has struggled to raise funding. 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 a access to an NBFC (non-banking finance company) licence, which it has been looking to own since long. As the company is planning a public offering next year, it has been in the process of getting regulatory licences. PhonePe, which has already received licences for insurance broking, stock broking and account aggregator, had even applied for NBFC licence.

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

ZestMoney, however, was not lending much from its own NBFC.

If one of the persons is to be believed, then some six months ago before the Reserve Bank of India issued back-to-back guidelines around digital lending, ZestMoney was disbursing close to ₹600 crore a month. But after the guidelines, there was a huge drop and the book went to ₹280 crore to ₹300 crore. Last month, they did some ₹400 crore in loans.

Bangalore-based ZestMoney, that offers EMI financing at the online merchant checkout, had started powering big ticket purchases i.e. ₹20,000 ₹30,000. “However, post Covid the average ticket size came down to ₹13,000. The aggressive BNPL play has been backfiring globally. The problem with moving to smaller BNPL segment is the volume goes up but the profitability takes a massive hit," the person added.

ZestMoney, which was founded in 2015, has raised about $140 million till date from marquee investors, including PayU, Zip, Ribbit Capital, Quona Capital, Xiaomi, Omidyar Network, Goldman Sachs, others. During financial year 2022, ZestMoney saw its revenue rise to ₹145 crore from ₹89 crore in FY21, while losses jumped to ₹398.8 crore from ₹125.8 crore a year ago.

PhonePe and ZestMoney have declined to comment.

The development was first reported by ET.