Zest Money, a well-known buy now, pay later (BNPL) startup based in Bengaluru, is set to shut down after unsuccessful attempts to secure a buyer. The fintech company, which was once valued at approximately $450 million, had attracted investments from high-profile backers, including Goldman Sachs, PayU, Quona Capital, Zip, Omidyar Network, and Ribbit Capital.

Founded in 2015, ZestMoney aimed to provide financial inclusion by enabling first-time internet users to access small-ticket loans. The company leveraged alternative data points to build credit profiles for individuals who lacked traditional credit scores. This approach positioned ZestMoney as a key player in India’s growing digital lending sector, especially in a country where credit card penetration remains low.

Challenges Leading to the Shutdown

Despite its innovative business model, ZestMoney faced significant hurdles that ultimately led to its downfall. Earlier this year, the company’s acquisition talks with fintech giant PhonePe fell through, triggering an internal shakeup. In May 2023, ZestMoney’s founders stepped down, handing over control to a new leadership team. The incoming management attempted to stabilize the firm by raising additional funds from existing investors and seeking new acquisition opportunities. However, these efforts did not materialize into a viable solution, and the company ultimately decided to cease operations.

The leadership team informed employees about the decision to shut down on December 5, 2023. As per reports, ZestMoney will fully wind down operations by the end of the month. The closure affects approximately 150 employees, many of whom had been instrumental in the company’s rapid growth over the years.

The BNPL Market and Competitive Landscape

ZestMoney was among the few Indian startups pioneering BNPL services in a market dominated by established financial institutions like Bajaj Finance. The startup sought to bridge the gap for consumers who lacked credit history, making it easier for them to access loans for online purchases. However, India’s financial ecosystem posed challenges that made it difficult for BNPL providers to sustain long-term profitability.

Traditional banks in India remain hesitant to issue small loans due to low margins and high risks. This created an opportunity for startups like Zest Money, Lazy Pay, and Axio to offer innovative credit solutions. While BNPL services gained traction, regulatory scrutiny and increasing competition posed significant obstacles. The Reserve Bank of India (RBI) has been tightening regulations on digital lending, adding another layer of complexity for fintech firms operating in this space.

The Broader Impact on Investors and Startups

Zest Money’s closure is part of a broader trend affecting India’s startup ecosystem. Investors who had once placed big bets on fintech ventures are now witnessing a wave of challenges, from funding constraints to regulatory hurdles. Omidyar Network, one of Zest Money’s key investors, faced another setback this week with the sale of Doubt nut, an ed-tech startup that once secured over $50 million in funding but was ultimately sold for just $10 million.

The failure of high-profile startups like Zest Money raises questions about the sustainability of India’s BNPL sector. As the landscape evolves, fintech companies must navigate regulatory challenges, shifting consumer behavior, and investor sentiment to stay afloat.

Conclusion

ZestMoney’s journey from a promising fintech disruptor to an eventual shutdown highlights the difficulties of sustaining a BNPL business in India. While the company successfully enabled financial access for underserved consumers, it struggled with operational challenges, regulatory hurdles, and acquisition setbacks.

As the Indian fintech ecosystem continues to evolve, the rise and fall of Zest Money will serve as a case study for future startups aiming to navigate the complex world of digital lending.