ZestMoney Acquired by DMI Group in Strategic Move

In a surprising turn of events, the DMI Group, a pan-India financial services platform, announced the acquisition of ZestMoney, a leading buy now pay later (BNPL) startup, on January 17, 2024. The deal is said to be a fire sale, as ZestMoney had shut down its operations in December 2023 due to funding crunch and regulatory hurdles.

What is ZestMoney?

ZestMoney was founded in 2015 by Lizzie Chapman, Priya Sharma and Ashish Anantharaman, with the vision of providing affordable and accessible credit to millions of Indians who lack formal credit history or score. ZestMoney offered a fully automated digital customer onboarding and servicing system, enabling customers to apply for and receive digital credit instantly at the point of sale. It partnered with more than 80,000 merchants across India, including e-commerce giants like Amazon, Flipkart, Myntra and MakeMyTrip, as well as offline retailers like Samsung, Apple, Vivo, Croma and Reliance Digital.

ZestMoney had raised over $100 million from investors like Goldman Sachs, Quona Capital, Ribbit Capital and Naspers. It was valued at $450 million in its last funding round in August 2021. It claimed to have over 10 million registered users and a loan book of over Rs 2,000 crore.

Why did ZestMoney shut down?

ZestMoney faced multiple challenges in its journey, which ultimately led to its downfall. Some of the key reasons are:

• Regulatory uncertainty: The Reserve Bank of India (RBI) issued draft guidelines for regulating the BNPL sector in November 2021, which proposed stringent norms for customer protection, data privacy, fair practices and grievance redressal. The guidelines also required BNPL players to obtain NBFC licenses and adhere to minimum capital requirements and prudential norms. These regulations posed a significant threat to ZestMoney’s business model, which relied on partnering with NBFCs for lending.
• Funding crunch: ZestMoney was unable to raise fresh capital from investors after the RBI guidelines were announced, as the BNPL sector became less attractive and risky. ZestMoney also faced increased competition from other players like LazyPay, Simpl and Slice, as well as banks and fintechs that entered the BNPL space. ZestMoney’s revenue and profitability were also impacted by the covid-19 pandemic, which affected consumer spending and increased defaults.
• Management issues: ZestMoney faced several internal issues related to its leadership and culture. According to media reports, there were disagreements between the co-founders over the direction and strategy of the company. There were also allegations of harassment and discrimination against some senior executives. Several employees left the company in the past few months due to low morale and uncertainty.

What does the acquisition mean for DMI Group?

The DMI Group is a diversified financial services platform that was founded in 2008 by Shivashish Chatterjee and Yuvraj Singh. It has core businesses in digital finance, housing finance and asset management. It has raised over $1.5 billion of equity investment from global institutional investors, strategic family offices and leading international banks.

The DMI Group has been a long-term partner of ZestMoney, having invested in its seed round in 2016 and providing debt funding to its NBFC partners. Through this acquisition, DMI will have the exclusive right to use all ZestMoney brands. DMI Finance, the NBFC arm of DMI, will be a preferred lender on the Zest platform.

The acquisition will enable DMI to widen its engagement with current and potential customers by adding the ZestMoney checkout financing platform to its product suite. DMI will also leverage its customer base, balance-sheet strength and risk-management experience to drive growth across Zest’s online and offline merchant network.

Shivashish Chatterjee, co-founder and joint managing director of DMI, said: “ZestMoney has been a pioneering provider of checkout finance in India. We are always looking for best-in-class solutions to enhance both the engagement with – and the experience of – our customer and merchant base. We have been partnered with ZestMoney for over 8 years in various capacities. We firmly believe that this acquisition will be an important step in our journey to provide digital financial inclusion at scale across India.”

Mandar Satpute, chief operating officer of ZestMoney, said: “DMI has been at the forefront of digital lending in India. They bring strong capital support and deep expertise. DMI has been an early supporter of ZestMoney and we are very excited to take our partnership to a whole new level.”

What does the acquisition mean for ZestMoney’s customers and merchants?

The acquisition is expected to have a positive impact on ZestMoney’s customers and merchants, as they will continue to enjoy the benefits of the platform with enhanced features and services. DMI has assured that it will honour all the existing commitments and obligations of ZestMoney and its NBFC partners. DMI will also work closely with ZestMoney’s team to ensure a smooth transition and integration.

According to the press release, DMI will offer “a range of innovative products and solutions to ZestMoney’s customers and merchants, including instant credit approval, flexible repayment options, attractive interest rates, loyalty rewards, cashbacks, discounts and more.”

DMI will also leverage its technology and analytics capabilities to improve the customer experience and satisfaction, as well as the risk management and fraud prevention systems. DMI will also expand the reach and scale of the Zest platform by adding more merchants and categories, especially in the tier 2 and tier 3 markets.

Conclusion

The acquisition of ZestMoney by DMI Group is a significant development in the Indian fintech space, as it marks the end of one of the most promising BNPL startups and the beginning of a new chapter for one of the most established financial services platforms. The deal also reflects the changing dynamics and challenges of the BNPL sector, which is