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PhonePe's Abandoned Acquisition of ZestMoney Raises Questions About Risk Management in Fintech Startups

PhonePe cancels ZestMoney deal over due diligence concerns, putting focus on risk management in fintech startups.

30 March 2023


Abhisek Dash

India produced 3X more unicorns than China in 2022.png
  • PhonePe cancels acquisition of ZestMoney due to risk management concerns.

  • ZestMoney remains committed to providing affordable credit to underserved consumers.

  • Failed acquisition highlights the importance of thorough due diligence in fintech deals.

PhonePe, the digital payments platform backed by Walmart, has decided to call off its plans to acquire ZestMoney, a leading fintech startup that specializes in providing EMI financing solutions to online shoppers. The unexpected move comes amid concerns over due diligence and risk management practices that were uncovered during the acquisition process.

The potential deal had been in the works for several months and was poised to revolutionize the Indian fintech space by combining PhonePe's large user base with ZestMoney's cutting-edge technology and lending expertise. However, during the due diligence process, PhonePe's management team became increasingly worried about certain aspects of ZestMoney's business model and financial performance.

While the specifics of the concerns have not been disclosed, it is believed that ZestMoney's exposure to bad loans and their ability to manage credit risk effectively may have been a key factor. With the Indian economy still reeling from the COVID-19 pandemic, concerns over credit risk and the regulatory environment for digital lending platforms have recently been heightened.

This news has sent shockwaves throughout the Indian startup ecosystem, as ZestMoney has been one of the most promising fintech startups in the country, with more than $100 million in funding from renowned investors such as Ribbit Capital, Matrix Partners, and PayU.

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Despite the disappointment of the failed acquisition, Lizzie Chapman, ZestMoney's CEO, remains resolute in their commitment to democratizing access to credit in India. She has stated that they will continue to focus on their mission of providing affordable credit to underserved consumers in the country, even though the PhonePe deal did not materialize.

PhonePe has also released a statement regarding the termination of the deal, reaffirming their commitment to making digital payments accessible to all Indians. They have recently announced several new initiatives and partnerships aimed at enhancing their user experiences, such as their partnership with SBI Mutual Fund to offer investment products on their platform and their collaboration with ICICI Bank to launch a co-branded credit card.

The failure of the acquisition is a reminder that even in the fast-paced world of startup deals, thorough due diligence and a cautious approach can sometimes be the best course of action. While this may have an impact on the Indian fintech industry, it is also an opportunity for startups to review and strengthen their risk management practices to build sustainable businesses that benefit all stakeholders.

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