Founded in 2015 with an initial seed funding of USD 2 million, ZestMoney quickly made a mark by utilizing artificial intelligence and machine learning for e-commerce consumer loans. Functioning as a digital distributor, it expanded from online to offline markets, challenging industry giant Bajaj Finserv and targeting new-to- credit users in India.

The USD440 million valuation that ZestMoney commanded in a large funding round in June 2022 represented a significant revenue multiple over its earnings.

But soon, it became challenging to justify this valuation. Within five months, in its deal talks with PhonePe, even a significantly lower valuation – an asking price of around USD300 million – cut no ice. Following its USD4 million emergency funding in July this year, ZestMoney’ valuation plummeted to just USD8 million.

Despite accumulating 17 million registered users, collaborating with over 10,000 online merchants, and forming partnerships with more than 20 financial institutions, ZestMoney found itself vulnerable to financial shock.

Multiple Factors at Play: Funding Slowdown, NPAs, and Regulatory Changes

Funding Slowdown: During August 2023 Zestmoney was in talks with phonepe to raise around 300 million Dollars which unfortunately for Zest didn’t materialize. Their future hinged on this money and since they didn’t had any backup plan the deal’s failure led to an immediate downturn in loan disbursements and a comprehensive overhaul of the lending strategy.

High Delinquency rate: ZestMoney was facing a critical challenge with high delinquency rates among its customers which led to a substantial liability owed to its NBFC partners under First Loss Default Guarantee (FLDG) agreements.

Theme Covered in the article

• Zest money rapid rise
• Valuation swings
• Factors that led to contraction
• Delinquency Challenges
• Regulatory Impact
• Unsecured lending pitfalls
• Impact on Fintech ecosystem
• Lessons for the Industry
• Future outlook for BNPL Sector