Why PhonePe’s Sameer Nigam Concluded That Due Diligence Did Not Meet Bar For ZestMoney Deal


PhonePe, the Indian fintech decacorn, first announced in November 2022 its plans to acquire ZestMoney. After six months of due diligence, the buy-now-pay-later (BNPL) platform could not meet PhonePe’s bar, according to Sameer Nigam, co-founder and CEO of PhonePe. Despite the lifeline provided by PhonePe of an $18 million loan last year, ZestMoney is now facing layoffs and financial distress.

PhonePe is India’s leading digital payment platform that enables millions of users to transfer money, recharge and manage their spending through a single app. It is a platform that provides a unified payments experience, and its launch of the ONDC-based e-commerce app, Pincode, has made accessing digital services ever easier.

Sameer Nigam is the co-founder and CEO of PhonePe and a veteran of the payments and banking industry. He has seen the digital payments revolution in India bloom over the last decade, and is committed to pushing digital payments to the forefront. After concluding the ZestMoney due diligence process, Nigam was frank with Moneycontrol over why it didn’t meet the company’s expectations.

The Reserve Bank of India’s (RBI) crackdown on digital lending, however, meant that ZestMoney was struggling to recover. According to Nigam, the RBi’s decision to forbid 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 had come as a major blow to ZestMoney.

As PhonePe and ZestMoney are aware of the current BNPL space situation, it is likely that another credit line will be extended to ZestMoney in the near future. Meanwhile, the former is making efforts to absorb as many as 200 employees from ZestMoney and is already in discussion with the BNPL platform.

Nigam, however, expressed his doubts on the future of BNPLs, saying that such services are now being used to extend credit to those who are not ‘creditworthy’. This raises serious questions on the underwriting standards being used by these services, he believes, and has led him to become increasingly wary of digital lending.

Restructuring the BNPL sector and improving the underwriting system to ensure that only the necessary and qualified candidates receive credit is key to reviving and sustaining the BNPL sector in the long run. Even though PhonePe’s acquisition of ZestMoney fell through, the endeavor has exposed the tensions in India’s digital services industry, and shone a light on the delicate situation of many of the companies vying for customers.