Following the breakdown of its talks with PhonePe for a sale, Goldman Sachs-backed ZestMoney has announced plans to lay off nearly 20 per cent of its workforce, equivalent to around 100 employees. This decision is part of the company’s business continuity and survival strategy.
On April 6, the founders and top leadership team of ZestMoney conducted a Townhall meeting to communicate the news of impending layoffs to the company's employees. With approximately 450 employees on its payroll, ZestMoney is preparing to implement layoffs across various departments, reported Moneycontrol.
"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," an employee told the publication on the condition of anonymity.
ZestMoney was facing the possibility of multiple layoffs following the collapse of its deal with PhonePe. In fact, Priya Sharma, co-founder of the BNPL platform, had sent out a message to a few startups seeking help for outplacing ZestMoney employees. However, ZestMoney did not comment on the development.
As per the same report, sources had also revealed that PhonePe was considering absorbing up to 200 employees from ZestMoney. "There were talks about hiring talent from ZestMoney by PhonePe, but no decisions have been made yet," stated a source familiar with the matter.
PhonePe's withdrawal from the acquisition deal with ZestMoney underscored the challenges faced by the Buy Now Pay Later (BNPL) sector, which was impacted by the regulatory actions of the Reserve Bank of India (RBI) in the form of a crackdown on digital lending last year.
The Reserve Bank of India (RBI) had issued a notification prohibiting non-bank institutions or fintech companies, including several 'buy now, pay later' services, from loading credit lines onto Prepaid Payment Instruments (PPI) such as wallets and prepaid cards.
Meanwhile, PhonePe's co-founder and CEO, Sameer Nigam, acknowledged that there were some lapses in due diligence regarding the deal.
"The due diligence conducted by PhonePe over a period of approximately six months, while evaluating the highly anticipated acquisition of ZestMoney, did not meet our standards," stated Sameer Nigam, co-founder, and CEO of PhonePe, a fintech decacorn, commenting on the deal for the first time on the record.
When questioned about the potential hiring of ZestMoney's employees, Nigam mentioned that there were ongoing discussions in the background, but declined to provide further details.
In November 2022, PhonePe was in negotiations to acquire ZestMoney, a lending platform, which would have marked the Unified Payments Interface (UPI) leader's entry into the digital lending space. Reports suggest that the deal was estimated to be worth approximately $200-$300 million.