ZestMoney Business Model: How Does ZestMoney Earn Money?

ZestMoney, founded in 2015 by Lizzie Chapman, Priya Sharma, and Ashish Anantharaman, has become one of India’s leading digital lending platforms. Positioned as a Buy Now, Pay Later (BNPL) service, ZestMoney focuses on providing credit to consumers who lack access to traditional credit systems. By leveraging technology and data-driven solutions, the company aims to democratize credit and make financial inclusion a reality for millions of underserved customers in India. This article explores ZestMoney’s business model and explains how it generates revenue.

Overview of ZestMoney’s Business Model

ZestMoney operates on a B2C (Business-to-Consumer) and B2B2C (Business-to-Business-to-Consumer) model. It acts as a facilitator between consumers, merchants, and financial institutions. Its business model revolves around:

1. Buy Now, Pay Later (BNPL): Allowing customers to purchase products immediately and pay in EMIs (Equated Monthly Installments) with minimal documentation.
2. Merchant Integration: Partnering with e-commerce platforms, offline stores, and service providers to offer flexible financing options at the point of sale.
3. Consumer Credit: Extending small-ticket loans to individuals for purchases like electronics, travel, education, healthcare, and more.
4. Technology-Driven Credit Assessment: Leveraging AI and machine learning to analyze customer data and assess creditworthiness.

By offering a seamless digital experience and flexible repayment options, ZestMoney addresses the credit gap in India’s middle-class and emerging affluent population.

Revenue Streams

ZestMoney generates revenue through multiple streams, primarily leveraging its role as a credit facilitator between consumers, merchants, and financial institutions.

a) Merchant Discount Rate (MDR)

ZestMoney earns a significant portion of its revenue from merchants who use its BNPL services. Merchants pay ZestMoney a fee, called the Merchant Discount Rate (MDR), for enabling credit-based purchases on their platform.

Revenue Model:

• The MDR typically ranges between 2% and 5% of the transaction value.
• Merchants benefit by increasing their sales, as BNPL services encourage larger transactions and higher conversion rates.

b) Interest Income

ZestMoney collaborates with financial institutions, such as NBFCs and banks, to provide credit. While ZestMoney itself doesn’t disburse loans, it earns a share of the interest income collected by the lending partners.

Revenue Model:

• Borrowers pay interest on their EMIs, and ZestMoney earns a commission from this interest as part of its agreement with lenders.
• Interest rates vary based on the borrower’s credit profile, ranging from 0% (for no-cost EMI) to 24% annually.

c) Late Payment Penalties

ZestMoney charges late payment fees to borrowers who fail to make timely EMI payments. This serves as both a revenue stream and a deterrent to ensure borrowers stick to their repayment schedules.

Revenue Model:

• Late payment penalties are predefined in the loan agreement and vary depending on the overdue amount and delay duration.

d) Subscription Fees

ZestMoney offers subscription-based plans that provide users with added benefits, such as higher credit limits, exclusive merchant offers, and zero-cost EMI options.

Revenue Model:

• Customers pay a monthly or annual subscription fee for premium services and benefits.

e) Marketing and Advertising

ZestMoney collaborates with merchants and brands to promote their products through targeted campaigns on its platform. By highlighting offers like no-cost EMI or extended repayment periods, ZestMoney drives sales for these partners.

Revenue Model:

• Merchants pay for sponsored listings and advertising slots on ZestMoney’s app or website.
• Brands also pay for co-branded marketing campaigns to drive customer acquisition.

f) Financial Product Cross-Selling

ZestMoney offers additional financial products to its users, such as:

• Credit cards.
• Insurance plans.
• Extended warranties.

Revenue Model:

• Commissions from financial service providers for selling their products through ZestMoney’s platform.

g) Data Analytics and Credit Scoring Services

ZestMoney’s proprietary AI-driven credit scoring system assesses the creditworthiness of users based on alternative data, such as payment history, transaction patterns, and socio-economic factors.

Revenue Model:

• Financial institutions pay ZestMoney for access to its credit scoring tools and analytics to reduce default risks.

ZestMoney Cost Structure

Operating a digital lending platform like ZestMoney involves significant costs:

a) Technology and Platform Maintenance

• Investments in AI, machine learning, and big data analytics for real-time credit assessment and fraud detection.
• Regular updates to enhance the app and website’s user experience.

b) Customer Acquisition

• Spending on digital marketing campaigns, influencer partnerships, and merchant collaborations to attract both users and merchants.
• Referral programs and cashback offers to retain customers.

c) Loan Default Risk

• Although ZestMoney works with lending partners, defaults by borrowers can impact its revenue-sharing agreements.

d) Regulatory Compliance

• Costs associated with adhering to RBI guidelines and ensuring compliance with lending norms.

e) Merchant Support

• Providing onboarding assistance, training, and technical support to merchants integrating ZestMoney’s services.

Unique Features Driving Revenue Growth

ZestMoney employs several innovative strategies to sustain growth and expand its revenue streams:

a) No-Cost EMI

ZestMoney’s partnerships with merchants allow it to offer 0% interest EMI options, attracting more customers and driving higher sales.

b) Flexible Repayment Options

Borrowers can choose repayment tenures ranging from 3 to 24 months, making ZestMoney an appealing choice for consumers with varying financial needs.

c) Inclusive Credit Scoring

By analyzing non-traditional data points like mobile payments, utility bills, and e-commerce transactions, ZestMoney extends credit to users who lack a formal credit history.

d) Merchant Integration

With over 85,000 merchants, including Flipkart, Amazon, MakeMyTrip, and Croma, ZestMoney has a strong network that drives consistent transactions.

e) Focus on Financial Inclusion

ZestMoney targets Tier 2 and Tier 3 cities, catering to underserved customers who don’t have access to traditional banking and credit facilities.

Challenges and Opportunities

Challenges

1. High Competition: Competing with other BNPL providers like Simpl, LazyPay, and traditional credit cards.
2. Credit Risk: Managing loan defaults and maintaining relationships with lending partners.
3. Regulatory Oversight: Adapting to RBI guidelines and ensuring compliance with digital lending norms.

Opportunities

1. Rural and Semi-Urban Markets: Expanding into smaller towns with growing digital adoption.
2. New Financial Products: Introducing personal loans, savings tools, and investment products.
3. Cross-Border Expansion: Entering international markets with similar credit challenges.
4. Partnerships with E-Commerce Giants: Strengthening collaborations with online and offline retailers.

Financial Overview

ZestMoney has raised funding from prominent investors, including Goldman Sachs, Quona Capital, and Xiaomi, reflecting its strong growth potential. While profitability remains a challenge for most fintech companies, ZestMoney’s focus on diversifying revenue streams and targeting underserved markets positions it for sustained growth.

In conclusion, ZestMoney’s business model demonstrates its commitment to democratizing access to credit in India. By focusing on flexible repayment options, merchant partnerships, and inclusive credit assessment, the platform has carved a niche in the competitive BNPL market. With opportunities to expand into new markets and financial products, ZestMoney is poised to continue driving financial inclusion and scaling its operations in India’s growing digital economy.