Welcome to The Rahman Effect,

Our First Newsletter has received a massive response from our readers. We received an open rate of 40% which is higher than the industry standards.

In This Edition, we explore the topic ‘The Fall of Zest Money’ Startup from the Buy Now Pay Later(BNPL) Sector.

Here we are inspecting 4 Contents :

 1. What is Zest money & How does it work?

2. The Trend of Zest Money among new-to-credit consumers.

3. The bad debt rate & the loophole in the business model

4. The RBI Guideline strike & the failed acquisition

 1. What is Zest Money & How does it work?

Zest Money is an Indian fin-tech BNPL that offers instant, no-cost EMI and loan services. Founded by Lizzie Chapman, Priya Sharma & Ashish Anantharaman in 2015.

It enables consumers to make purchases through its partner merchants like Amazon, Flipkart, Myntra, etc.. & pay for them in installments without the need for a credit card.

The platform utilizes digital banking channels, mobile technology, and artificial intelligence to support the credit needs of its customer base.

Follow this link to learn more about How Zest Money works.

 2. The Trend of Zest Money among New-to-Credit Consumers.

The Indian BNPL market has experienced significant growth during the pandemic, and Zest Money has played a crucial role in this regard by offering innovative payment solutions to its customers.

Zest Money’s entire business model was based on analyzing customer behavior and serving new-age customers. The company targeted an underserved customer base not through loans, but by enabling purchases through EMI options.

Those approaches eliminated the need for a credit card or a credit score. Moreover, Zest Money claimed that 50% of its customers make a second purchase within six months.

 3. The Bad Debt Rate & Loophole in the Business Model:

After the pandemic period, The company fell into a debt trap due to a loophole in the business model. Even though the fin-tech platform had systems, Somehow they failed to check the creditworthiness of the borrowers.

Customers took high loans and failed to pay. This led to a massive debt rate of above 13% against a healthy BNPL default rate of 2.5%.

To exemplify, Zest Money's financial statements in FY22 had a cost of ₹244 crores for bad loans, which is higher than its income of ₹143 crores.

 4. The RBI Guideline Strike and the failed acquisition.

A new set of rules was put in place by the Reserve Bank of India (RBI) under the leadership of Governor Shaktikanta Das to prevent fin-tech companies from engaging in manipulations such as high interest rates, hidden charges, and illegal access to personal data.

As a result, Zest Money's monthly loan disbursal fell by 75%. To address their debt, the company sought a buyer and was offered assistance from PhonePe, but the deal was called off due to concerns over Zest Money's business model and debt liability.

Following this, the company's key partners resigned and the startup announced that it would be shutting down operations and laying off its entire workforce by the end of December.

Follow these links to learn more:

Economic Times

Insider

Business Rule

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