ZestMoney – Business Details & In-Depth Analysis

Business Model & Proposition

ZestMoney was built around the Buy Now, Pay Later (BNPL) model, offering customers the ability to split payments into affordable EMIs without needing a credit card. Its core proposition was financial inclusion: targeting India’s vast middle-class and Tier-2/Tier-3 consumers who were underserved by banks.

• Customers: Could instantly access credit at checkout through ZestMoney’s AI-driven approval process.
• Merchants: Integrated ZestMoney to boost sales and average ticket size, paying the platform a commission.
• Lenders/NBFCs: Provided the underlying loan capital. ZestMoney also acquired Nahar Credits (2019) to originate credit directly.

The platform positioned itself as a bridge between consumers who lacked credit history and financial institutions that hesitated to lend to them.

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Revenue Streams

ZestMoney generated income from multiple sources:

1. Merchant commissions – Fees paid by merchants for offering BNPL at checkout.
2. Service & partnership fees – Fees collected from NBFCs for customer sourcing, KYC, and loan servicing.
3. Interest & processing charges – Some loans carried customer interest or upfront processing fees.
4. Penalties & late fees – Revenue from overdue accounts, though often overshadowed by defaults.

This mix of revenues allowed the company to diversify beyond just lending margins.

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Financial Performance

Despite rising revenues, ZestMoney’s losses ballooned due to high credit defaults and operating costs.

Year	Revenue	Expenses	Net Loss
FY21	~₹89 crore	~₹214 crore	~₹126 crore
FY22	~₹138.4 crore	~₹543.8 crore	~₹398.8 crore
FY23	~₹243.7 crore	~₹662.2 crore	~₹412.4 crore

Key Drivers of Losses:

• Service Deficiency Charges: Payments to NBFCs for loan defaults (~₹175–233 crore annually).
• Marketing & Acquisition: Extremely high spends to acquire and retain customers.
• Operating Costs: Employee, tech, and compliance overheads.

In simple terms, ZestMoney was spending ₹2.70 to earn ₹1, making scale unsustainable.

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Market Reach & Scale

• User Base: Peaked at ~17 million registered customers.
• Merchant Network: 3,000+ online platforms and 75,000–85,000 offline stores.
• Loan Disbursement: At peak, disbursed ~₹400 crore per month.
• Funding: Raised ~US$ 125–140 million from global investors including Goldman Sachs, Xiaomi, Omidyar Network, and PayU.

This scale demonstrated strong demand, but the economics behind it were fragile.

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Challenges & Risks

1. High Credit Risk – Serving thin-file customers led to double-digit default rates.
2. Regulatory Shock – RBI’s 2022 clampdown on prepaid credit lines and FLDG agreements disrupted BNPL models.
3. Dependence on NBFCs – Heavy reliance on lending partners increased costs and exposure.
4. Funding Winter – With rising global interest rates and investor caution, raising fresh capital became nearly impossible.
5. Leadership Changes – Founders stepping down during a crisis further eroded stability.
6. Failed Acquisition – PhonePe’s decision to back out of a $200M+ deal (due to credit quality concerns) left ZestMoney without a lifeline.

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Strategic Analysis

Strengths

• Large untapped market and genuine product-market fit.
• Technology-driven onboarding and AI-based credit assessment.
• First-mover advantage with strong brand recognition.
• Diversified merchant and lender partnerships.

Weaknesses

• Unsustainable unit economics (burn > earnings).
• Poor portfolio quality and high NPAs.
• Over-reliance on external lenders and subsidies.
• Vulnerable to regulatory changes.

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Lessons & Takeaways

ZestMoney’s journey highlights critical lessons for fintechs in emerging markets:

• Scale without profitability is dangerous in credit businesses.
• Credit risk management must outweigh growth metrics like user base or disbursements.
• Regulatory foresight is vital — RBI’s evolving stance can change business viability overnight.
• Diversified capital sources and risk sharing are necessary to survive shocks.
• Leadership stability matters in navigating crises.

Ultimately, ZestMoney demonstrated the potential of BNPL in India, but also exposed the pitfalls of chasing growth without sustainable economics. Its eventual acquisition by DMI Finance in January 2024 marked both the end of one chapter and a new direction for the brand.