Goldman Sachs-backed ZestMoney will lay off 100 employees or about 20 per cent of its workforce, after its talks fintech firm PhonePe for a sale fell through, according to news reports. The founders and top leadership team of ZestMoney held a Townhall on April 6 (Thursday) to inform the layoffs to employees. The company is planning to lay off across departments.
Bengaluru-based ZestMoney, which has nearly 450 employees, all of whom were expected to be absorbed by PhonePe if the acquisition had proceeded.
An employee on the condition of anonymity said, “As part of its business continuity plan, the company is laying off 100 people. The company has promised to pay a month’s salary as severance and other benefits like insurance and mental health assistance.” However, ZestMoney didn’t respond when asked for a comment by several media platforms. PhonePe is looking to absorb as many as 200 employees from ZestMoney.
PhonePe’s decision to pull out from the ZestMoney acquisition deal highlighted the stress in the BNPL sector that was hit by the Reserve Bank of India (RBI)’s crackdown on digital lending last year.
The central bank issued a notification forbidding operating non-bank institutions or fintech companies, including many of the ‘buy now, pay later’ services, from loading credit lines onto Prepaid Payment Instruments (PPI) such as wallets and prepaid cards.
However, Walmart-backed PhonePe’s co-founder and CEO Sameer Nigam said that there were a few due diligence lapses in the deal. “The due diligence that PhonePe carried for nearly six months while evaluating the much-anticipated acquisition of ZestMoney did not meet its bar”, said Nigam, commenting on the deal for the first time on record.
When asked if PhonePe was looking to hire any of ZestMoney’s employees, Nigam said, “There are discussions happening in the background,” declining to comment on it in more detail.
The acquisition was expected to help PhonePe strengthen its lending services and compete with Google Pay, Paytm, and Amazon Pay in India’s fintech sector, which is to be projected to be worth $350 billion by 2026.
PhonePe gave about $18 million as loan to ZestMoney when it was evaluating the acquisition.
In November 2022, PhonePe was in talks to acquire lending platform ZestMoney, a move that would have marked the Unified Payments Interface (UPI) leader’s foray into digital lending. As per reports, the deal size was pegged at around $200-$300 million.