In a sudden turn of events, Indian buy now pay later (BNPL) startup ZestMoney has announced its decision to shut down operations. This move, communicated to the remaining 150 employees in a town hall on December 5, follows months of regulatory uncertainty and unsuccessful attempts to revive the business under new management. ZestMoney, once valued at $450 million, faced setbacks after the collapse of acquisition talks with PhonePe and the failure of its turnaround plan, ZestMoney 2.0 or ZeMo 2.0.
Regulatory Headwinds and RBI’s Impact
The regulatory landscape played a pivotal role in ZestMoney’s downfall. The Reserve Bank of India (RBI) issued a notification on June 20, 2022, restricting non-bank institutions and fintech companies, including BNPL services, from loading credit lines onto Prepaid Payment Instruments (PPI). This directive had a ripple effect across the industry, impacting several BNPL businesses in India, including ZestMoney. US-based BNPL startup Sezzle also shuttered its India operations in response to these regulatory challenges.
ZestMoney: Failed Acquisition Talks with PhonePe
ZestMoney’s troubles escalated when talks with PhonePe for a potential acquisition fell through in November 2022. The deal, estimated at $200-$300 million, could have marked PhonePe’s entry into digital lending. However, in March, the Walmart-backed fintech decacorn backed out, citing due diligence issues. This setback prompted ZestMoney to initiate a business continuity plan, resulting in the layoff of around 20% of its workforce, approximately 100 employees.
ZestMoney Founders’ Resignation and Turnaround Efforts
Following the founders’ resignation in May, ZestMoney introduced a revival strategy, ZestMoney 2.0, promising employees variable pay and salary hikes. The new leadership team, comprising Abhishek Sharma, Mandar Satupte, and Mohit Chhajer, took charge to steer the company in a new direction. Despite securing additional funding of nearly $5 million from existing investors in August, the turnaround plan failed to materialize.
Impact on Employees and Industry
The closure announcement has left ZestMoney employees in uncertainty, with many actively seeking new opportunities. The company has committed to providing two months of severance payment and outplacement support to affected employees. The broader implications of ZestMoney’s shutdown underscore the challenges faced by BNPL startups in navigating regulatory hurdles, especially in the wake of the RBI’s directive affecting the industry landscape.
Founded in 2016 by Lizzie Chapman, Priya Sharma, and Ashish Anantharaman, ZestMoney had amassed a significant customer base of 17 million and facilitated monthly loan disbursals amounting to Rs 400 crore. With 27 lending partners and collaborations with 10,000 online brands and 75,000 offline stores, the startup seemed poised for success. However, the collapse of acquisition talks, regulatory obstacles, and internal challenges led to its ultimate demise.
ZestMoney’s downfall serves as a cautionary tale for other BNPL startups navigating the complex regulatory environment. The industry must reassess strategies and adapt to evolving regulatory frameworks to ensure sustained growth. As the BNPL landscape in India undergoes transformations, stakeholders will closely watch how other players respond to regulatory challenges and the fate of startups navigating this dynamic ecosystem.
In conclusion, ZestMoney’s journey from a promising BNPL player to shutting down operations highlights the fragility of startups in the fintech space, where regulatory changes can have profound and sometimes insurmountable effects. The aftermath of ZestMoney’s closure will undoubtedly prompt reflections on regulatory compliance, business resilience, and the broader implications for the BNPL sector in India.
