4 Key Factors That Led Fintech Startup ZestMoney To Shut Down Over its lifetime, the fintech startup raised USD 140 million via investors such as Goldman Sachs, Xiaomi, Omidyar Network, and Quona Capital. Once valued at USD 450 million in 2021 with a 500+ strong workforce, ZestMoney's fall can be credited to several reasons

Fintech lending startup ZestMoney will be winding up its operations by month-end and letting go of remaining 130+ employees. In a town hall meeting on December 5, the management notified of the closure and shared that a small team will be retained to undertake the process.

A Buy Now Pay Later platform, ZestMoney was founded in 2015 by Lizzie Chapman, Priya Sharma, and Ashish Anantharaman. With three simple steps, Zest has been accepted in 10,000+ online and 75,000+ offline stores. It offered zero-cost 3/6 months EMI for large ticket size loans.

Over its lifetime, the fintech startup raised USD 140 million via investors such as Goldman Sachs, Xiaomi, Omidyar Network, and Quona Capital. Once valued at USD 450 million in 2021 with a 500+ strong workforce, ZestMoney's fall can be credited to several reasons.

Here are four reasons which led to the fall of the BNPL big gun.

1. Central bank's notification: For past two-three years, BNPL has been deemed a foolproof segment in the fintech space. However, in June 2022, the Reserve Bank of India (RBI) issued a notification prohibiting all non-bank prepaid instrument issuers from loading instruments with credit lines. This meant that fintech players, especially, BNPL players could no longer extend credit lines.

Until then, the BNPL players partnered with banks to offer self-branded cards to users for convenient usage. Post that, the notification on first loan default guarantee (FLDG) meant fintech companies could not compensate on behalf of defaulters.

2. Downturn with PhonePe: Talks of acquisition by Walmart-backed PhonePe began in November 2022. The deal was slated for USD 200-300 million. However, in March 2023, PhonePe announced calling off the deal due to diligence concerns. The sustainable business model and ZestMoney's diverse shareholding across India and Singapore was speculated to have been the roadblocks.

Zest's high delinquency loan rate and debt liabilities worth USD 35-40 million were also the problem points. ET reported that PhonePe was willing to offer USD 90 million in cash and entail the debt liabilities.

3. Founders take the exit route: When the deal with PhonePe fell apart; the founders took a grace decision of exiting the startup. "Over the last few weeks, we have done a lot of thinking and it has been hard for us to arrive at this conclusion. We have immense belief and faith in the potential that ZestMoney has. We will also ensure to provide full support to the incoming management team and do everything we can to support them for the next 4 months to ensure a smooth transition," the founders shared.

4. New Management fail to fly: Post the founders' exit, the trio of Abhishek Sharma, Mandar Satupte, and Mohit Chhajer assumed the role of leading the startup. They raised fresh capital from the outgoing investors such as Zip, Scarlet Capital, Quona Capital, Omidyar Network India to float the boat. The reported number was USD 5-7 million.

"This capital—combined with the unwavering commitment of our more than 150-strong team—enables us to successfully serve our consumers, merchants and lender partners, while continuing to keep non-payment rates at under 2.5% in the fastest-growing EMI market globally," said Abhishek Sharma at the time of appointment.

At the townhall, the three shared that the decision was taken keeping in mind the lack of business growth. The funding winter also played a role in its downfall.