The deal, which was poised to fetch anywhere between USD 150-USD 200 million and USD 300 million, has hit a snag over lapses in due diligence, disagreements over valuation, sustainability of the business, and shareholding structure of ZestMoney, according to sources cited by business-standard.com.

The collapse of the deal is also being attributed to a slowdown in the financial technology (fintech) sector in the midst of a funding winter, difficult regulatory environment, and macroeconomic uncertainty, informed other sources.

The acquisition was expected to help PhonePe strengthen its lending services and compete with Google Pay, Paytm, and Amazon Pay in Indian fintech, expected to be purportedly worth USD 350 billion by 2026.

Founded 2015, ZestMoney allows customers to pay for products over time, but use them now. Increasing smartphone penetration, chea data plans, and a boom in online shopping have propelled the demand for pay-later offerings in India.

The fintech start-up has about 400 employees. All of them were expected to be absorbed by PhonePe if the acquisition had matured.

Industry sources said ZestMoney was a good acquisition target for PhonePe as it is one of the very few firms that are fully compliant with the lending guidelines of the Reserve Bank of India. It disburses USD 4,866,624 in lending per month. The platform has onboarded 27 lending partners, 10,000 online brands, and 75,000 offline stores.

ZestMoney has a registered user-base of 17 million and is live at 85,000 retail touchpoints across India.

ZestMoney raised USD 50 million in September 2021, which the company had topped with an additional USD 20 million raise as part of its Series C round. The firm has raised a total of USD 140 million from investors such as Australia’s BNPL platform Zip, Goldman Sachs, Quona Capital, and Xiaomi.

PhonePe, one of India’s largest fintech platforms, recently raised an additional USD 200 million in primary capital from its parent Walmart, at a pre-money valuation of USD 12 billion. This new funding comes as part of PhonePe’s ongoing fundraise of up to USD 1 billion in capital, following its domicile shift to India in 2022. With this tranche, the company has raised USD 650 million from several global investors.

PhonePe plans to employ these funds to build and scale new businesses like insurance, wealth management, lending, stockbroking, and Open Network for Digital Commerce-based shopping and account aggregators. The fundraise will also help PhonePe charge the next wave of growth for Unified Payments Interface (UPI) payments in India, including UPI Lite and Credit Card on UPI