ZestMoney revenue surges 2.7X to Rs 72 Cr in FY20, bad loans push losses to Rs 181 Cr

Goldman Sachs-backed retail financing or buy-now-pay-later (BNPL) platform ZestMoney had recently raised $50 million in its ongoing Series C round. The company didn’t disclose its valuation but according to Fintrackr estimates: it was valued at $435 million in the last funding round. 

The jump in ZestMoney’s valuation has come on the back of strong growth in its income in FY21 and the ongoing fiscal. While the company is yet to file annual financial statements for FY21, its operating revenue surged over 2.7X to Rs 72.4 crore in FY20 from Rs 26.7 crore in FY19, as per regulatory filings. 

Revenue from DSA fee surged 5.8X in FY20 

According to ZestMoney’s co-founder and chief executive Lizzie Chapman, the spike in revenue in FY20 was driven by collections from lenders (DSA) as well as the merchant. It’s worth noting that ZestMoney is a three-dimensional platform covering lender, merchant and consumer with multiple revenue streams from each.

Direct selling agency fees (DSA) comprises the amount collected by ZestMoney from its lending partners (NBFCs) for the provision of services such as lead generation, KYC, customer care and branding. DSA has emerged as the largest revenue stream for the company accounting for 45.5% of the revenues.

Such revenue grew a scorching 5.8X to Rs 32.94 crore during FY20. In effect, the firm spent Rs 2.14 for every rupee it earned from the DSA segment. 

ZestMoney also charges a “merchant commission” on a fixed rate on products and services purchased by the borrowers from the merchants. This income made up 31.1% of the revenue and grew by 2.3X to Rs 22.51 crore during FY20.

The company also collects arranger fees from the merchants which stood at Rs 12.81 crore while technology usage fees and other related incomes aggregated to Rs 4.14 crore in FY20. At present, it claims to have over 50,000 merchants on its platform

Delay in EMIs and bad loans cost Rs 71 Cr 

Service deficiency charges have emerged as the single largest cost for the BNPL firm, accounting for 27.6% of the total costs in FY20. These are the charges paid by ZestMoney to their lending (NBFCs) upon deficiency in contractual repayments and collection-related services due to bad loans.   

Such payments grew 2.5X to Rs 70.7 crore in FY20 from Rs 28.4 crore in FY19. In effect, with the growing scale of business, the company beefed up its employee base in the period before the pandemic and as a result its employee benefit expenses grew by 105% to Rs 41 crore during FY20. The growth of transactions on the platform is also attested by the increased transaction processing costs incurred by the company. This cost grew by 108.3% to Rs 25.2 crore during FY20.

ZestMoney spent significantly to advertise its product across social media and e-commerce platforms and spent Rs 66.4 crore on business promotion during FY20, 62.7% more than what it spent during FY19.

Information technology and communications costs grew by 131% to Rs 13.7 crore while legal and professional costs ballooned 200% to Rs 24.5 crore in FY20.  

Bottomline: Losses increased two-fold in FY20

ZestMoney saw its annual expenses surge 108.5% to Rs 256.5 crore during FY20 from Rs 123 crore spent in total in FY19. On a unit level, ZestMoney spent Rs 3.54 to earn a single rupee of operating revenue.

While EBITDA margins have improved from -342.2% in FY19 to -230.16% in FY20, annual losses have nearly doubled to Rs 181 crore in FY20 from Rs 95.4 crore lost in FY19.

The company is paying most of its revenues back to its lending partners as “Service Deficiency Charges” due to NPAs as collections remain a big problem for the whole BNPL sector. “This cost is declining as a percentage of revenues, especially as we tighten up the contractual terms, increase the proportion of lending on our own NBFC, ” said Chapman.  

Current BNPL (consumer-facing) landscape in India

On the lines of the US and other global markets, the BNPL space has been witnessing a lot of action in India. At present, there are more than two dozen companies that have been offering credit to individuals right from financing shopping, vacation and wedding among many others.

Some of the notable BNPL platforms in the consumer space include LazyPay, Slice KreditBee, Money Tap, Paytm Postpaid, Flipkart Pay Later and Amazon Pay Later while Bullet Money and BharatPe-owned PostPe are new entrants.

While all companies in the fintech domain have been moving to enable credit to make money, the space appears crowded to experts. According to experts tracking the BNPL market, only those will survive in the long haul which manages to improve the collection, reduce defaults, and operational cost.