PhonePe calls off deal with Zest Money over due diligence concerns

In January, PhonePe announced its mega fundraise of $1 billion and said that the company would be soon launching digital lending on its platform. (Representative Image)

Walmart-backed PhonePe has called off its deal with Zest Money over due diligence concerns, in what will be a huge setback for the buy-now-pay-later platform, which counts Goldman Sachs, PayU and Xiaomi, among others as its backers.

"The deal has been called off. There are some issues over due diligence and as of now, PhonePe is not going ahead with it," a person with direct knowledge of the matter told Moneycontrol.

PhonePe declined to comment on the development. ZestMoney was not immediately available for comment. Newspaper  Economic Times first reported the development.

ZestMoney facilitates Buy Now Pay Later (BNPL) loans by disbursing the purchase amount from the lending partner directly to the merchant, allowing the customer to repay the lender in installments.

PhonePe initiated talks to acquire ZestMoney in November to bolster its digital lending forays. To be sure, PhonePe currently does not have digital lending on its platform but has other financial services like insurance, mutual fund distribution, and digital gold, and silver, among others. In January, PhonePe announced its mega fundraise of $1 billion and said that the company would be soon launching digital lending on its platform.

PhonePe had initiated talks to buy ZestMoney a few months after BNPL companies were hit by the Reserve Bank of India's (RBI) guidelines on digital lending, which made it difficult for fintech startups to extend personal credit lines via card.

Sources said that ZestMoney had been looking for a buyer for at least a year now as it has struggled to raise funding. According to media reports, PhonePe would have paid $200-300 million for ZestMoney, much less than ZestMoney's last valuation of $470 million.

Founded in 2016 by Lizzie Chapman, Priya Sharma and Ashish Anantharaman, ZestMoney has a total customer base of 17 million and enables loan disbursals of Rs 400 crore per month. The company has 27 lending partners and merchant partnerships with 10,000 online brands and 75,000 offline stores.

ZestMoney in September 22 had raised $50 million from Australian BNPL fintech Zip Co. This is a part of a larger Series C fundraise which will see participation from existing investors like Goldman Sachs, Quona Capital, Xiaomi and Alteria Capital among others.

As per RoC (Registrar of Companies) filings, ZestMoney's losses have widened 3X year-on-year (YoY) to Rs 398.8 crore during the financial year ending March 31, 2022. The firm's loss was up 216 percent from Rs 125.8 crore reported in the financial year 2020-21 (FY21).