PhonePe and ZestMoney have not completely parted ways yet, according to sources close to the situation. The Walmart-owned payments giant is said to be close to signing a commercial agreement with ZestMoney that will see it using the beleaguered lending startup’s technology stack. PhonePe is expected to waive off the $18 million credit line it offered to ZestMoney in exchange for the licensing transaction.
PhonePe initially wanted to acquire ZestMoney to gain a foothold in the lending business. However, by striking a licensing agreement instead, PhonePe gains access to ZestMoney’s technology stack, including its risk assessment engine, and absorbs around 150 of the startup’s employees to help build the vertical. This is all achieved in a cut-price transaction, after PhonePe was initially willing to pay $90 million to acquire ZestMoney.
ZestMoney is currently pivoting towards a new business model where it will offer its technology stack and other capabilities through a licensing agreement to aspiring digital lending companies, banks, or NBFCs. The company has made its platform compliant with the RBI’s latest lending guidelines, and its co-founders hope to offer this stack to other companies interested in quickly building lending capabilities.
ZestMoney has been going through a tough time lately, following a boom in the BNPL market globally that saw the company’s valuation increase significantly over the past two years. It remains to be seen whether ZestMoney’s pivot into a new business model will help it survive.
The commercial arrangement between PhonePe and ZestMoney is expected to provide PhonePe with the tools it needs to expand into the lending business. For ZestMoney, the licensing agreement could provide a new revenue stream and a way to weather the storm currently affecting the BNPL market.