ZestMoney is also said to be in talks with some of its existing investors to raise separate equity capital. However, these talks are still in the early stages, the report said.
PhonePe has also applied for a non-banking finance company (NBFC) licence, as it is working on expanding its credit business, they added.
PhonePe had backed out of its acquisition of ZestMoney after a six-month due diligence raised flags, dealing a significant blow to the buy-now-pay-later (BNPL) company.
As earlier reported, PhonePe was offering $90 million in cash for ZestMoney, as well as taking on ZestMoney’s debt and a $10 million founder payout.
ZestMoney has been in discussions with its current investors for additional funding. However, Naspers-owned PayU, which owns around 15 per cent of the company, is unlikely to participate in the round, the person familiar with the matter said.
Zip, an Australian BNPL player, invested $50 million in ZestMoney in September 2021. Since then, globally, BNPL as a segment has taken a massive hit, as a financial slowdown and rising interest rates have severely impacted markets around the world.
After the negotiations for a complete acquisition of the company fell through, the founders of ZestMoney decided to change its business model.
Since the country’s central bank issued digital lending guidelines, fintech lenders need to follow strict regulations governing the flow of funds and accounting of loans. With a platform like ZestMoney, which is compliant with the latest lending guidelines, they may be able to speed up their go-to-market while remaining compliant.
PhonePe has also hired up to 150 of ZestMoney’s employees to work on its own lending platform. ZestMoney had around 580 people on its payroll.
Unlike in credit, where interest margins provide a significant revenue opportunity, if Zestmoney manages to transition to a software service model, revenue will be generated solely through fee income, he added.