ZestMoney Business Model: How Does ZestMoney Earn Money?

ZestMoney, established in 2015 by Lizzie Chapman, Priya Sharma, and Ashish Anantharaman, emerged as a prominent player in India’s fintech landscape, specializing in Buy Now, Pay Later (BNPL) services. The company aimed to democratize access to credit by offering consumers the ability to make purchases and pay in installments without the need for a credit card. However, despite its innovative approach, ZestMoney faced significant challenges that ultimately led to its acquisition by DMI Group in January 2024.

Core Business Model

ZestMoney’s primary offering was its BNPL platform, which allowed consumers to divide their purchases into manageable installments. By partnering with various merchants across online and offline channels, ZestMoney integrated its services at the point of sale, enabling customers to opt for installment payments directly during the purchase process. This model was particularly beneficial in a market like India, where credit card penetration is relatively low, providing an alternative credit solution to a broader consumer base.

Revenue Streams

ZestMoney’s revenue model was multifaceted, encompassing several key channels:

1. Interest Income: A significant portion of ZestMoney’s revenue was derived from the interest charged on the loans facilitated through its platform. While some merchants offered no-cost EMI options, in many cases, customers were required to pay interest on their installment plans. The interest rates varied based on factors such as loan tenure and the customer’s credit profile.
2. Merchant Commissions: ZestMoney partnered with merchants who benefited from increased sales and higher average order values by offering BNPL options. In return, these merchants paid a commission to ZestMoney, typically ranging between 2% to 5% of the transaction value. This commission served as an incentive for ZestMoney to onboard more merchants and promote its BNPL services.
3. Processing Fees: For each loan disbursed, ZestMoney charged a processing fee, which was a small percentage of the loan amount. This fee covered the costs associated with loan application processing, credit assessment, and disbursement, contributing to the company’s revenue while offsetting operational expenses.
4. Technology Usage Charges: In addition to its core services, ZestMoney generated income from technology usage charges. For instance, in April 2023, the company entered into an agreement with PhonePe, allowing the UPI app to utilize ZestMoney’s technology stack to provide lending Software as a Service (SaaS) to Non-Banking Financial Companies (NBFCs). This partnership contributed significantly to ZestMoney’s revenue during that period.

Financial Performance

In the fiscal year 2022-2023 (FY23), ZestMoney reported a substantial increase in operating revenues, which grew by 72.3% to reach ₹249.82 crore. This growth was primarily driven by a 2.8x increase in merchant commissions, totaling ₹26 crore, and a 3.3x rise in income from technology usage charges, amounting to ₹43 crore. Despite this revenue growth, the company faced escalating expenses, which rose by 21% year-on-year to ₹662.27 crore. A significant contributor to this increase was a 2.7x surge in bad debts, which reached ₹438 crore in FY23. Consequently, ZestMoney reported a net loss of ₹412.44 crore for the year, a marginal increase from the ₹398.82 crore loss recorded in the previous fiscal year.

Challenges and Acquisition

ZestMoney’s business model faced several challenges that impacted its sustainability. In June 2022, the Reserve Bank of India (RBI) prohibited non-bank prepaid instrument issuers from loading instruments with credit lines, a move that significantly affected BNPL providers like ZestMoney. This regulatory change, coupled with a failed acquisition deal with PhonePe in early 2023, exacerbated the company’s financial difficulties. Subsequently, in January 2024, DMI Group acquired ZestMoney in a fire sale for an undisclosed sum, marking the end of ZestMoney’s independent operations.

Conclusion

ZestMoney’s innovative BNPL model aimed to bridge the credit gap in India by offering flexible payment solutions to consumers lacking traditional credit access. The company’s revenue streams were diversified across interest income, merchant commissions, processing fees, and technology partnerships. However, regulatory challenges and financial sustainability issues ultimately led to its acquisition by DMI Group, underscoring the complexities and risks inherent in the BNPL sector.