Founded in 2015, ZestMoney was seen as a game-changer in India’s Buy Now, Pay Later (BNPL) sector. Established by Lizzie Chapman, Priya Sharma, and Ashish Anantharaman, the fintech platform aimed to revolutionize consumer financing by allowing users to make purchases and pay in installments without the need for traditional credit cards. For years, ZestMoney experienced exponential growth and attracted significant investment, reaching a valuation of $445 million by 2022. However, a series of regulatory challenges, failed acquisitions, and internal financial strain ultimately led to the company’s closure by the end of 2023, leaving behind questions about the viability of BNPL models in emerging markets.
The Rise of ZestMoney: Early Success and Valuation Surge
ZestMoney’s journey began with promise. By 2022, the platform had raised over $130 million from investors and boasted a nearly half-billion-dollar valuation. The appeal of ZestMoney lay in its ability to provide an accessible, flexible alternative to credit cards in India, a country where many consumers are either unbanked or have limited access to credit. ZestMoney’s model catered to this demographic, allowing people to make high-value purchases without needing extensive financial histories or collateral.
The platform’s growth coincided with the global BNPL boom, where companies such as Afterpay, Klarna, and Affirm reshaped consumer purchasing behaviors by offering installment-based payment options. As ZestMoney surged forward, investors anticipated that it would become one of India’s leading fintech players, tapping into a consumer base that was eager for flexible financing options. However, this success was short-lived as India’s regulatory landscape took an unexpected turn, posing new obstacles to ZestMoney’s operations and, ultimately, its survival.
Regulatory Challenges: RBI’s Crackdown on BNPL Models
In June 2022, the Reserve Bank of India (RBI) imposed a sweeping change that dramatically altered the BNPL ecosystem. The RBI’s notification prohibited non-banking financial companies, including BNPL providers, from loading credit lines onto Prepaid Payment Instruments (PPIs), such as digital wallets and prepaid cards. This move was aimed at enhancing consumer protection and ensuring financial stability in a sector that the RBI considered under-regulated.
The RBI’s intervention dealt a severe blow to ZestMoney and its peers, disrupting their operational model and reducing their ability to deliver seamless consumer financing options. With its core functionality disrupted, ZestMoney found itself in a position of financial vulnerability, prompting the founders to seek potential buyers to ensure the company’s continued existence. The BNPL sector, once heralded as an accessible credit solution, began to reveal its fragility as other players struggled with similar regulatory constraints.
Failed Acquisition and Mounting Financial Strains
In early 2023, it seemed that a lifeline was on the horizon when Indian fintech giant PhonePe entered discussions to acquire ZestMoney. The deal, reportedly valued between $200 million and $300 million, promised to provide ZestMoney with the backing it needed to stabilize its operations amidst regulatory pressures. However, the acquisition collapsed during the due diligence phase. PhonePe raised concerns regarding ZestMoney’s high default rates and debt liabilities, which were estimated to be between $35 and $40 million. Moreover, PhonePe questioned the synergy and scalability of integrating ZestMoney’s operations within its own ecosystem.
The failure of the PhonePe acquisition proved to be a significant setback for ZestMoney. By mid-2023, the company’s financial position had deteriorated further, and with limited funds remaining, ZestMoney was forced to cut approximately 20% of its workforce, amounting to 100 employees. The company’s three founders announced their departure soon after, marking a turning point as new management attempted to salvage the struggling business. Despite these efforts, ZestMoney’s financial strain and operational limitations persisted, culminating in the platform’s official shutdown in December 2023.
Why BNPL Models are Struggling in Emerging Markets?
ZestMoney’s rise and fall underscore the challenges faced by BNPL companies in emerging markets, where regulatory environments can shift rapidly, and consumer credit behaviors differ from those in more mature economies. The BNPL model, designed to make purchasing more accessible, relies on the assumption that consumers will repay their debts in installments. However, in countries like India, where financial literacy and credit management practices are evolving, default rates tend to be higher, creating a significant risk for BNPL providers.
Additionally, the regulatory environment in India highlighted the limitations of non-bank entities in offering credit solutions without adequate oversight. The RBI’s crackdown underscored concerns about transparency and consumer protection in digital lending, signaling that regulatory bodies in emerging markets may take a cautious approach to consumer financing. For ZestMoney, the lack of a stable regulatory framework translated into operational uncertainty, impeding the company’s ability to pivot effectively.
Furthermore, as BNPL services expanded globally, it became apparent that the model was more viable in regions with well-established consumer credit systems. In contrast, emerging markets present unique challenges, such as a limited credit history infrastructure, varying consumer repayment behavior, and heightened regulatory scrutiny. As ZestMoney’s story illustrates, BNPL companies may struggle to adapt their models to these markets without significant adjustments and safeguards.
A Cautionary Tale for the BNPL Sector- ZestMoney’s Closure
The closure of ZestMoney serves as a cautionary tale for BNPL providers globally. As financial authorities around the world begin to scrutinize the rapid expansion of digital lending, companies must navigate these regulatory landscapes while balancing financial stability and consumer accessibility. ZestMoney’s journey reveals that the BNPL model, while attractive in theory, can falter when faced with high default rates, regulatory restrictions, and operational challenges that impact scalability.
As the BNPL sector continues to evolve, companies will likely need to explore more sustainable, regulated approaches that prioritize both consumer protection and financial resilience. For now, ZestMoney’s demise reflects both the potential and the risks of BNPL in emerging markets, illustrating that rapid growth without regulatory alignment can lead to an equally swift decline.