Non-banking finance companies DMI Finance and Aditya Birla Finance are trying to scoop up fintech lending startup ZestMoney in a firesale, two people in the know of the matter told ET.
The talks are still going on but the deal could get signed soon, they added.
The beleaguered startup, which was offering buy-now-pay-later (BNPL) loans to customers at ecommerce and offline checkout points, had around December 5 informed its employees about its plans to shut down by the end of this month. ET wrote on December 7 the company shut down mostly after its lending partners withdrew debt lines to the startup.
And now, its existing investors have decided to sell off the remaining assets the company has.
Both Aditya Birla Finance and DMI Finance have been partners of ZestMoney and ET understands that they have both evaluated the books of the startup.
“The lenders are looking to acquire the technology platform of ZestMoney and also looking to take over the loan book, which the startup had sourced for its partners,” one of the persons cited above said.
ZestMoney currently has an outstanding loan book of around Rs 400 crore, which it has sourced for its lending partners, the person said. The startup mostly operated as a sourcing platform for its partner NBFCs and did not build its own loan book.
Both Aditya Birla Finance and DMI Finance have a strong partnership model with fintech startups and have built a large book around consumer loans.
For both, it is important to collect the outstanding dues from Zest customers.
In a scenario where the Bengaluru-based fintech shuts down, its loan customers may stop paying the dues, industry insiders said.
“In many cases, even the repayment mandates are taken in the name of the fintech… Once that (the fintech) goes down, the actual lenders need to take over the mandates, which is a challenging task,” said a senior fintech industry executive in the know.
Emailed queries to Mandar Satpute, chief banking officer of ZestMoney, DMI Finance, and Aditya Birla Finance, went unanswered as of press time Thursday.
After the Reserve Bank of India released the digital lending guidelines in 2022, ZestMoney had built a colending platform where fintechs and banks could participate.
Aditya Birla Finance and DMI Finance are looking to grab that piece of technology through the slump sale.
“There is a large customer base (at ZestMoney) on whom credit underwriting has been done, there is also the technology platform which can be useful for a traditional NBFC, which has made both the companies interested,” said the other person ET spoke to.
ZestMoney, which started around 2015, had built a base of around 17 million registered users and it was accepted across 10,000 online stores, and 75,000 retail stores.
ET could not ascertain the exact value at which the deal could be closed. But over the last one year, ZestMoney has seen its value getting eroded massively.
In 2021, during the heydays of the BNPL boom, ZestMoney had raised $50 million from Australian BNPL startup Zip at a valuation of $340 million.
Early this year, negotiations for proposed acquisition of the company by Walmart-owned PhonePe fell through, reportedly due to concerns raised around the asset quality of loans sourced by Zest.
Later in the year, PayU, one of the other major investors in ZestMoney, wrote off its investment in the company. In 2022, the value of its investment was around $38 million.
In July 2023, ZestMoney got an equity infusion of around $5 million to $7 million from its existing backers.
But that was apparently not enough for the Bengaluru-based lending platform to overcome various challenges including a slowdown in business, regulatory uncertainty, and a change in management.
“The tightening macro led to its lending partners tightening the fund flow, which eventually was the final hit on the lending startup,” said one of the persons quoted above. “Also, with the founders gone and most of its employees gone, turnaround was looking bleak.”
ET had reported on December 7 that the drying up of fund support from its lending partners was the final nail in the coffin.
BharatPe, in a release, said its financial performance for the fiscal year 2023, showcased substantial growth and strategic advancements across key business segments.
