Digital payments and financial services leader PhonePe is in talks to acquire lending platform ZestMoney, sources told, a move that will mark the Unified Payments Interface (UPI) leader's foray into digital lending ahead of its mega fundraise plans.
ZestMoney facilitates Buy Now Pay Later (BNPL) loans by disbursing the purchase amount from the lending partner directly to the merchant, allowing the customer to repay the lender in installments.
PhonePe has already gotten into mutual fund distribution, insurance, and the sale of digital gold and silver, but the company hasn't yet started lending on its system. Since there are already many participants, lending has long been seen as the main product that fintechs offer.
PhonePe's rivals Paytm and BharatPe have been in the lending space through both, merchant and consumer lending. In October, Paytm said that it posted an increase of nearly five times or 387 percent in loan disbursements in October to Rs 3,056 crore from the year ago period. The number of loans distributed by Paytm grew nearly three times or 161 percent to 3.4 million.
Backed by investors like Australia's Zip, Goldman Sachs, Quona Capital, Xiaomi and Alteria Capital, ZestMoney had last raised $50 million in September 2021, which the company had topped with an additional $20 million raise as part of its Series C round. The round valued the company at $470 million.
Founded in 2016 by Lizzie Chapman, Priya Sharma and Ashish Anantharaman, ZestMoney has a total customer base of 17 million and enables loan disbursals of Rs 400 crore per month. The company has 27 lending partners and merchant partnerships with 10,000 online brands and 75,000 offline stores.
Amidst the funding winter which has seen valuations dwindling as investors reassessed investments, the amount at which the deal will be closed is yet to be ascertained.
In the past year, PhonePe acquired GigIndia, WealthDesk, OpenQ and closed the long pending acquisition of IndusOS.
As per filings accessed through Tofler, ZestMoney's loss in FY22 surged 216 percent to Rs 398 crore from Rs 125.8 crore in previous fiscal year. Revenues grew by 62 percent from Rs 89.3 crore in FY21 to Rs 145 crore in FY22.
Walmart-backed PhonePe, on the other hand, is in talks to raise $450-500 million at a valuation of $12 billion. Moneycontrol had reported on October 21 that General Atlantic is likely to lead the mega round.
If the round goes through, PhonePe will become a decacorn or a startup valued at over $10 billion, joining the likes of Flipkart, which was acquired by Walmart, Paytm (which went public last year), Byju’s and Swiggy. PhonePe’s valuation will also surpass that of digital payments and neobanking unicorn Razorpay, which was last valued at about $7.5 billion.