Wrapping Up the Fintech Ball: Once Upon A Time There Was A ZestMoney!

Indian Buy Now Pay Later (BNPL) startup ZestMoney is shutting its shop culminating with the layoff of its remaining 130 employees. The move follows a failed attempt to revive the business under new management and persistent regulatory uncertainty. The shutdown announcement came during a town hall meeting on December 5, where the management conveyed the decision and outlined the company's closing procedures.

Unsuccessful Revival Efforts

ZestMoney faced a downturn after its founders, Lizzie Chapman, Priya Sharma, and Ashish Anantharaman, resigned, leaving the company in the hands of investors and a new management team. The attempt to implement a turnaround plan, labelled ZestMoney 2.0 or ZeMo 2.0, proved unsuccessful, leading to the decision to wind down operations.

Regulatory Challenges and RBI Norms

The Reserve Bank of India (RBI) had on June 20, 2022, issued a notification prohibiting non-bank institutions and fintech companies, including BNPL services, from loading credit lines onto Prepaid Payment Instruments (PPI) such as wallets and prepaid cards. This regulatory shift impacted several BNPL businesses in India, with ZestMoney actively seeking a buyer in the aftermath.

Founders' Exit and PhonePe Acquisition Fallout

The founders' departure occurred several weeks after PhonePe, a fintech giant, abandoned plans to acquire ZestMoney. The deal, valued at USD 200-300 million, fell apart in March, citing due diligence issues. Following the failed acquisition, ZestMoney implemented a business continuity plan, leading to layoffs and financial instability. PhonePe had also extended a crucial USD 18 million loan to ZestMoney, preventing the latter from bankruptcy.

Financial Struggles and Turnaround Attempt

ZestMoney, once valued at USD 470 million, faced financial challenges, with a loss of Rs 398 crore in FY22, a significant surge from Rs 125.8 crore in the previous financial year. Despite the injection of funds from existing investors in August, the promised turnaround with ZestMoney 2.0 did not materialize. The company's revenue grew by 62% to Rs 145 crore in FY22, reflecting the difficult financial landscape.

Employee Impact and Severance Plans

The shutdown will affect 130 employees, who will receive two months of severance pay and outplacement support. The remaining team will consist of a skeletal legal and finance group overseeing the shutdown process. Several ZestMoney employees have already updated their LinkedIn profiles with 'Open to Work' tags, signaling the uncertainty in their professional futures.

ZestMoney's journey from a promising BNPL startup to its current shutdown reflects the challenges faced by fintech companies in navigating regulatory shifts and financial uncertainties. The founders' exit, failed acquisition talks, and regulatory hurdles converged to create a scenario where ZestMoney's attempted revival fell short, ultimately leading to the decision to wind down operations.

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