ZestMoney Mulling For Layoffs Just After The Cancellation Of PhonePe Deal.

ZestMoney Mulling For Layoffs Just After The Cancellation Of PhonePe Deal.

ZestMoney thinking of several layoffs a day after Fintech company PhonePe decided to abandon the buy-now-pay-later (BNPL) platform, leaving the company in crisis, sources told and that its founders are looking for outplacements for the affected staff.

According to the sources, founders of the Goldman Sachs-backed ZestMoney, which employs roughly 450 people, attended a town hall and told staff of departmental layoffs. Early in the day, the contract between PhonePe and the company fell through.

In November 2022, final talks were going for PhonePe to acquire the BNPL player ZestMoney for $200 million to $300 million. A move that would have signaled the leaders of the Unified Payments Interface (UPI) for digital lending.

But that acquisition could not be executed because of due diligence, and that led ZestMoney to mull laying off their staff under financial crisis.

Layoffs will be a part of the company’s business continuity strategy or survival plan, which is now being developed. This will have an impact on all organization-wide staff. But it is not yet obvious how much of an impact there will be, under the condition of anonymity, one of the sources stated.

Co-founder of the BNPL platform Priya Sharma contacted a few companies to ask for assistance in replacing ZestMoney personnel.

When ZestMoney was considering the acquisition, PhonePe provided a Loan to the company in the amount of around $18 million. One of the sources claims that PhonePe might give the BNPL platform a similar Loan to help the business get through its current Liquidity Difficulties.

ZestMoney and PhonePe declined to comment on this matter.

RBI guidelines for digital lending

According to the RBI, in the case that a loan becomes late, the lender must provide the borrower with the contact information for the recovery agent before the agent visits.

If the Loan becomes late and the borrower has been allocated a recovery agent, the RBI FAQ states that the details of such recovery agent assigned must be revealed to the borrower through email/SMS before the recovery agent contacts the borrower for recovery.

In addition, when granting the loan, the lender must give the borrower the names and contact information of appointed agents. The paper said that only those agents are permitted to get in touch with the borrowers in the event of a loan default.

The Guidelines on Digital Lending do not apply to EMI programs on credit cards, according to the rules.

The statement noted that when a Loan becomes delinquent, recovery/servicing work may be done by a recovery agency that collects money from borrowers. When absolutely needed, REs can use a physical interface to collect outstanding loans in cash, it was added.

Since the Reserve Bank of India (RBI) issued guidelines regarding digital lending, which essentially made it difficult for fintech startups to extend personal credit lines via a card, BNPL businesses like ZestMoney and its rivals LazyPay, Uni Cards, Slice, etc., have dealt with a great deal of uncertainty. Even though ZestMoney has been lending at checkout points without a card, the industry has been hampered by rigorous rules.

The Reserve Bank of India’s notification in 2022 banning the loading of credit lines onto Prepaid Payment Instruments (PPI), like wallets and prepaid cards, by operating non-bank institutions or Fintech companies, including many of the “buy now, pay later” businesses. This resulted in regulatory obstacles for the buy now pay later sector.

Large BNPL players LazyPay and others briefly withdrew support for its BNPL payment system LazyPlus UPI.

Sezzle, a US-based BNPL company, closed its operations in India as of April 9 as part of a restructuring effort coordinated with its parent company.

According to insiders, ZestMoney has been searching for a buyer for more than eight months as it struggles to raise money.

Why PhonePe canceled the deal with ZestMoney?

After months of talks with the BNPL company, the digital payments platform, PhonePe has reportedly canceled the contract with ZestMoney due to due diligence issues.

The Deal is reportedly off, and the company’s board and investors have been informed of this change during the past few days, according to the article.

The acquisition would have provided the Walmart-owned company with access to an NBFC license, something it has long sought after.

The decision was a setback for ZestMoney, which is struggling to raise money in a market where Venture Capitalists and investors are becoming extra cautious when writing large cheques.

At a valuation of $450 million, ZestMoney raised its most recent round of funding.

In order to raise money, the buy-now-pay-later website has been searching for a buyer. Prior to the transactions falling through, ZestMoney reportedly had purchase discussions with Pine Labs and BharatPe.

ZestMoney saw revenue rise but widened loss in the fiscal year 2022.

Since its launch in 2015, ZestMoney has attracted roughly $140 million from renowned investors, including PayU, Zip, Ribbit Capital, Quona Capital, Xiaomi, Omidyar Network, Goldman Sachs, and others.

ZestMoney works in collaboration with NBFCs to offer its services to retail customers and business owners. Its integration with merchants in both offline and online channels generated most of its revenue. The startup serves as both a payment partner and an affiliate partner for them.

ZestMoney’s revenue increased to 145 crores in the fiscal year 2022 from 89 crores the previous year, while losses increased to 398.8 crores from 125.8 crores.

When compared to FY21, the financial startup’s expenses increased by 2.5X to INR 543.8 Cr in FY22. This indicates that throughout the reviewed year, the startup spent INR 3.9 to make INR 1.

Increased service deficiency charges were the main cause of the overall cost increase. Service deficiency charges for the launch increased 3X to INR 233.4 Cr from INR 63.3 Cr in FY21. The price of poor loans is shown by service deficiency charges.

Employee benefit costs at ZestMoney increased 89% to INR 93.3 Cr from INR 49.1 Cr in the previous fiscal year.

Salaries, PF contributions, gratuities, and other employee welfare perks typically make up employee benefit spending. Increased employee benefit costs are a sign that the startup hired more staff in 2022 than it did the year before.

ZestMoney’s marketing and advertising costs climbed 2.3X to INR 97.8 Cr in the reviewed year from INR 41.3 Cr in the preceding fiscal year. From -143.86% in FY21, its EBITDA margin further declined to -278.98%.

Edited by Prakriti Arora