PhonePe may buy BNPL startup ZestMoney in big consolidation move

In a major consolidation move, PhonePe, one of India’s largest digital payments platforms has reportedly entered into advanced talks to acquire ZestMoney, the leading BNPL startup in India. PhonePe, Walmart’s online payment subsidiary, may soon acquire ZestMoney. Recently, ZestMoney has been seeking a buyer to provide additional funding.

The acquisition of ZestMoney by PhonePe would be the biggest consolidation move in the new-age lending sector if completed. This has been a lookout for the BNPL platform as it raised fresh funds from tech investors, people shared with Economic Times.

Additionally, the BNPL industry has come under close regulatory scrutiny in recent months, as the Reserve Bank of India introduced a set of rules affecting these businesses.

According to people knowledgeable of the situation, while the size of the PhonePe-ZestMoney deal couldn’t be determined, it is probably a “distress sale”.

ZestMoney’s potential value from this sale is significantly lower than what it was last year during its previous financing round, where it was valued at $400 million.

After learning of the potential buy, a ZestMoney spokesperson told ET that the “story is entirely speculative”.

Another individual close to the developments stated that the talks are getting more serious and might close within a few weeks. He further added-

“Negotiations are on about the price, keeping in mind the extremely cautious state of the markets, especially in the fintech space.”

According to an individual with PhonePe-ZestMoney inside knowledge, the BNPL platform is most likely going to function as a separate entity once the acquisition has been completed.

ZestMoney, based in Bengaluru, was founded by Lizzie Chapman, Priya Sharma and Ashish Anantharaman in 2015. In September 2019 it received $50 million from Prosus-owned PayU and Australian fintech Zip Co.

In total, ZestMoney has gotten around $142 million in equity funding from various investors, including Goldman Sachs, Ribbit Capital and Xiaomi. Rather than emphasizing BNPL services for smaller everyday purchases like Simpl and PayU’s LazyPay do, both Zest and Axio have chosen to focus on more expensive items instead.

It remains to be seen if this merger between Phonepe and ZestMoney will go through, and what effects it may have on the fintech industry. If it does, this will be one of the biggest consolidation moves in India’s new-age lending sector.

Stay tuned to this space for more updates!

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