ZestMoney is shutting down

ZestMoney, a big player in digital lending, is shutting down.

In a recent town hall meeting, ZestMoney's management dropped a bombshell – they're shutting down. Yep, you heard it right. The company is winding down operations, and employees were advised to start job hunting because the company can only pay their salaries until December 31.

So, what led to this sudden decision?

The problem lies in ZestMoney's business model.

If you used ZestMoney for a purchase, they covered the bill, and you could pay them back in installments without any interest. 

Sounds cool, right? 

The startup even raised $140 million from the investors to do that, But here's the catch.

ZestMoney made money in three ways:

1. They got a fee from their lending partners for sending them a customer and handling all the necessary checks.

2. They paid the merchant right away but cut small service fees.

3. They charged late payment fees from customers.

Sounds like a decent plan, but here's where it went wrong:

1. The payment default rate was way higher than it should be – 13% instead of the ideal 2.5%.

In FY22, they paid a whopping ₹244 crore in bad loans.

2. RBI tightened regulations & laid down guidelines on digital lending, resulting in a 75% drop in ZestMoney's monthly loan spending.

3. The company spent ₹1000 to acquire one customer but needed each customer to opt for four BNPL loans per year to be profitable. On average, customers chose only two loans.

Now, the plot thickens. ZestMoney was all set to be acquired by PhonePe, but PhonePe backed away, leaving ZestMoney in a tough spot.

With all these roadblocks, ZestMoney's founders stepped down in May, and a new team took over. 

ZestMoney was working with Aditya Birla Finance and Hero Fincorp as its lending partners. Things got worse when the struggling startup lost its partnership with Aditya Birla Finance.

With no hope left, the management decided to shut the business down. They informed employees to start looking for another job as they won't be able to pay their salaries after 31st December. 

We hope the employees find new jobs soon.

Until then...

Make sure to Check out today's article sponsor Shree Sarang, who delivers the best artificial jewelry for all types of outfits to enhance your beauty at the most affordable price.