PhonePe set to acquire fintech start-up ZestMoney for about $300 mn

Deal expected to be closed in two-four weeks, says source

Digital payments firm PhonePe is set to acquire fintech start-up ZestMoney for $200-300 million, according to sources.

The acquisition would help Walmart-owned PhonePe to strengthen its lending services and compete with Google Pay, Paytm, and Amazon Pay in Indian fintech, which is expected to be worth $350 billion by 2026.

“The talks are still going on and the deal is expected to be closed in 2-4 weeks,” said a person familiar with the matter.

ZestMoney, which was founded in 2015, allows customers to pay for products over time. Increasing smartphone use, cheap data plans and online shopping have helped pay-later offerings in the country. The Bengaluru-based company has about 400 employees. All of them would be absorbed by PhonePe, according to the sources.

PhonePe and ZestMoney didn’t respond when asked to comment about the acquisition.

Sources said that it makes sense for PhonePe to make the acquisition as ZestMoney is compliant with the Reserve Bank of India’s lending guidelines. ZestMoney disburses Rs 400 crore in lending per month.

The company is being acquired for a price less than the $470 million valuation it achieved in the last funding round. This is due to the macro-economic uncertainty, slowdown in the fintech sector and falling valuations amid a funding winter, according to sources.

ZestMoney raised $50 million in September 2021, which it topped with an additional $20 million raise. The firm has raised a total of $140 million from investors such as Australia's Zip, Goldman Sachs, Quona Capital, and Xiaomi.

ZestMoney's loss in FY22 surged 216 per cent to Rs 398 crore from Rs 125.8 crore in the previous fiscal year, according to data accessed by the business intelligence platform, Tofler. Revenue grew by 62 per cent to Rs 145 crore in FY22 from Rs 89.3 crore in FY21.

“However the company has drastically reduced burn rate and is about to turn profitable by the end of this year,” said a source.

PhonePe is making the acquisition when it is in talks with Walmart, General Atlantic, and other existing investors to raise about $700 million, sources said.

The round is expected to more than double PhonePe’s valuation to around $12 billion and make it India’s most-valued financial technology firm ahead of Razorpay, which is valued at $7.5 billion. The firm recently moved its domicile to India, after it moved its businesses, including insurance and wealth broking, and subsidiaries of PhonePe Singapore to PhonePe India.