ZestMoney Announces Layoffs After Failed Acquisition Deal with PhonePe

ZestMoney, a leading buy now pay later (BNPL) platform in India, has announced that it will lay off 20% of its staff, or about 100 employees, after its acquisition deal with PhonePe, a digital payments giant, collapsed last month. The company said that the layoffs are part of its business continuity and survival plan, and that it will provide severance pay, insurance and mental health assistance to the affected employees.

ZestMoney, which is backed by Goldman Sachs and other investors, had been in talks with PhonePe for a sale worth $200-$300 million since last year. However, the deal fell through after PhonePe reportedly found some issues with ZestMoney's business due diligence and decided to back out. PhonePe, which is owned by Walmart's Flipkart, is also a major player in the BNPL space, along with other rivals like LazyPay, Simpl and Slice.

ZestMoney was founded in 2015 by Lizzie Chapman, Priya Sharma and Ashish Anantharaman, and offers credit solutions to online and offline customers across various categories like e-commerce, travel, education and healthcare. The company claims to have a registered user base of 17 million and a network of over 10,000 online partners and 75,000 physical stores. ZestMoney uses artificial intelligence and machine learning to assess the creditworthiness of customers and provide them with flexible repayment options.

The BNPL segment has been growing rapidly in India, especially after the COVID-19 pandemic boosted online shopping and digital payments. According to a report by RedSeer Consulting, the BNPL market in India is expected to grow from $2.5 billion in 2020 to $16 billion in 2025, with a compound annual growth rate (CAGR) of 40%. The report also said that BNPL has the potential to increase the online shopper base in India by 50 million by 2025.

However, the BNPL sector also faces some challenges, such as regulatory uncertainty, high default rates, low awareness and trust among customers, and intense competition from traditional lenders and fintech players. ZestMoney's layoffs are a sign of the difficulties that BNPL startups may face in scaling up their businesses and finding profitable exits. ZestMoney is reportedly looking to raise funds from its existing investors to tide over the crisis and restructure its business to achieve profitability in the next few months.