Indian fintech startup ZestMoney, a point-of-sale consumer lending platform, is winding down operations by month-end after failing to finalize an acquisition deal with PhonePe earlier this year. The shutdown will impact 150 remaining employees and have ripple effects across digital finance.
Analysis for a Layman:
ZestMoney is a fintech company that enabled easier approvals and disbursal of credit to customers making purchases from online merchants. This “buy now pay later” model was meant to boost sales for e-commerce sites by extending small loans at checkout.
However, ZestMoney struggled with growth and managing risks amid tightening credit environment. Its attempts to sell itself to large player PhonePe fell through. Now with funding drying up, the startup has no choice but to shut down completely. Around 150 staffers will lose jobs as a result by end of December.
ZestMoney’s abrupt shutdown after 7 years in business highlights persistent challenges for India’s consumer fintech and insurtech sectors. Conversion of urban digital natives to paying customers failed to match hockey stick projections. As funding froze amid global volatility in 2022, risky credit models reliant on third party distribution faced major stumbles.
However, the demise of this standalone BNPL startup conversely cements strength of diversified payments apps like PhonePe, Google Pay, Paytm that kept lending ancillary. Their scale and stickiness around payments, recharges, wealth management provide a wider funnel with cross-sell opportunity – but far less reliance on lending revenues alone. Fintech models staying narrowly focused on credit still seem prone to collapse in the current climate.
Impact on Retail Investors:
For retail investors, while shining Indian unicorns like Zerodha or Pine Labs uplift markets, the downfall of ZestMoney is a sobering reminder on risks of betting early on loss-making startups before proven business viability. However, digital payments and lending enables immense formalization of India’s massive consumer economy over time. Cautious bets on diversified, scaled winners like HDFC Bank amongst lenders, or Paytm through insurance and financial services distribution seem prudent.
Impact on Industries:
ZestMoney’s shutdown may lead to industry-wide tightening on capital for subscale, niche consumer lending models seen as higher risk bets now. However, lending embedded within payments flows seems firmly entrenched with upside at scaled players. Ecommerce partners reliant on easy financing options will have to forge new distribution partnerships for point of sale loans fast. Regulators may get stricter on reporting compliance and consumer recovery practices they deem aggressive or predatory as players scramble for revenues.
While ZestMoney’s shutdown highlights fintech sector’s ongoing turbulence, digital finance remains an irreversible mega-trend in India. Retail investors can still reasonably bet on emergent winners with right diligence – backing diversified models embedding credit judiciously rather than overly relying upon it.
ET Bureau. “Zest Money to Shut Down Ops by Month-End” Economic Times.