ZestMoney is one of India’s leading Buy Now, Pay Later (BNPL) platforms, offering consumers the flexibility to purchase products and pay for them in installments, without the need for a credit card. Founded in 2015 by Lizzie Chapman, Priya Sharma, and Ashish Anantharaman, ZestMoney has emerged as a major player in India’s fintech market, providing affordable financing options to a large number of customers who may not have access to traditional credit.
As digital payments and e-commerce continue to grow in India, ZestMoney has positioned itself as a convenient solution for customers looking for easy financing. The company has partnered with e-commerce platforms, retail stores, and financial institutions to offer its BNPL service across a wide range of products and services. But how does ZestMoney earn profit, and what makes its business model successful in the competitive Indian market? Let’s explore the business model of ZestMoney and understand how the company generates revenue.
ZestMoney Business Model: Buy Now, Pay Later (BNPL)
ZestMoney operates on a Buy Now, Pay Later (BNPL) model, which allows customers to purchase goods and services immediately and repay the amount in installments over time. This model is particularly appealing to customers who do not have a credit card or access to traditional loans, as ZestMoney offers a seamless, paperless process with no-cost EMI options at select merchants.
Here are the key components of ZestMoney’s business model:
1. Interest-Free EMIs for Consumers: One of ZestMoney’s key offerings is interest-free EMIs (Equated Monthly Installments) for customers shopping on partner platforms. Consumers can buy products such as electronics, fashion, travel packages, healthcare services, and more, and pay for them in installments over a specified period (usually 3, 6, or 12 months).
ZestMoney allows customers to make purchases without needing a credit card. The application process is quick and paperless, and customers are approved for credit based on their spending patterns, bank history, and financial behavior.
2. Credit Risk Assessment Using Technology: ZestMoney relies heavily on technology and data analytics to assess the creditworthiness of its customers. Unlike traditional lenders, ZestMoney uses a range of non-traditional data points, such as mobile payments, digital transaction history, and social media activity, to create a credit profile for users. This allows the platform to serve customers who may not have a formal credit history but are still creditworthy.
By using machine learning algorithms and artificial intelligence (AI), ZestMoney can quickly evaluate loan applications and provide instant approvals for most customers, making the process fast and convenient.
3. Partnerships with Merchants and E-commerce Platforms: ZestMoney has partnered with a wide range of e-commerce websites, offline retailers, and financial institutions to offer its BNPL service. Some of its major partners include Amazon, Flipkart, Myntra, MakeMyTrip, Croma, and many others. By integrating ZestMoney as a payment option at checkout, these platforms allow customers to split their purchases into affordable monthly installments.
Merchants benefit from this partnership as well, as ZestMoney helps drive higher sales and larger transaction sizes by offering flexible payment options to customers.
4. No-Cost EMI and Cashback Offers: ZestMoney also offers no-cost EMI options at select merchants, which means customers can spread the cost of their purchase over several months without paying any interest. The interest cost is typically absorbed by the merchant or ZestMoney itself, making it an attractive financing option for customers.
In addition to no-cost EMIs, ZestMoney frequently runs cashback offers and promotions, encouraging customers to use the platform for purchases across various categories like electronics, travel, healthcare, and fashion.
5. Loan Repayment Flexibility: ZestMoney offers users flexible repayment options, allowing them to choose a repayment schedule that fits their budget. Customers can repay their loans in monthly installments, with tenure options ranging from 3 months to 12 months. If a customer wishes to repay the entire loan amount before the end of the loan tenure, they can do so without incurring any prepayment charges.
This flexibility enhances customer satisfaction, making ZestMoney a preferred choice for consumers looking for financing solutions.
How Does ZestMoney Earn Profit?
ZestMoney generates revenue through several key channels, primarily focused on interest income, merchant commissions, and processing fees. Let’s take a closer look at how ZestMoney earns profit:
1. Interest on Loans: A major source of revenue for ZestMoney comes from the interest charged on loans. While ZestMoney offers no-cost EMIs at select merchants, in most cases, customers who opt for installment payments are required to pay interest on the borrowed amount. The interest rate typically varies depending on the loan tenure and the customer’s credit profile.
ZestMoney’s interest income is a significant part of its revenue stream, as many customers prefer flexible installment payments even if it means paying interest.
2. Merchant Commissions: ZestMoney earns a commission from merchants for every transaction made using its BNPL service. Merchants benefit from higher sales and larger average order values when they offer ZestMoney as a payment option, and in return, they pay a percentage of the transaction value as a commission to ZestMoney.
This commission varies depending on the merchant and the type of product or service sold but typically ranges between 2% to 5% of the total transaction value.
3. Processing Fees and Charges: ZestMoney charges processing fees for each loan disbursed, which is typically a small percentage of the loan amount. This fee covers the cost of processing the loan application, credit assessment, and disbursement. Processing fees add to ZestMoney’s revenue while helping the platform cover its operational costs.
Additionally, ZestMoney may charge late payment fees or penalties if a customer misses an EMI payment. These fees help offset the risk of loan defaults and contribute to the company’s profitability.
4. Financial Institution Partnerships: ZestMoney partners with financial institutions and non-banking financial companies (NBFCs) to offer loans to its customers. These partnerships allow ZestMoney to access capital, which is then lent to consumers. In return, ZestMoney shares a portion of the interest income and processing fees with its lending partners.
These partnerships help ZestMoney manage its lending operations while ensuring a steady flow of revenue from the interest earned on loans.
5. Data Monetization and Cross-Selling: As ZestMoney collects a vast amount of data on customer spending patterns, credit behavior, and transaction history, it can use this data to offer personalized financial products to its users. By analyzing customer data, ZestMoney can cross-sell other financial products like insurance and investment options, earning commissions from these financial partners.
This data-driven approach allows ZestMoney to maximize the lifetime value of each customer by offering them tailored financial services beyond just BNPL.
Challenges and Opportunities for ZestMoney
While ZestMoney has grown rapidly, it faces several challenges and opportunities in the Indian market:
1. Competition from Other BNPL Providers: ZestMoney competes with other BNPL platforms like LazyPay, Simpl, and Amazon Pay Later, which offer similar services. To stay competitive, ZestMoney needs to continue innovating and expanding its merchant network while offering attractive interest rates and promotions to customers.
2. Growing Demand for Digital Financing: As digital payments and e-commerce continue to grow in India, the demand for digital financing solutions like BNPL is increasing. ZestMoney has the opportunity to expand its customer base by targeting new consumer segments and partnering with more merchants across different industries.
3. Regulatory Challenges: As the BNPL market grows, it may come under increased scrutiny from regulators in India. ZestMoney will need to ensure compliance with RBI guidelines and other regulatory requirements to avoid legal and operational challenges.
Conclusion
ZestMoney’s business model revolves around providing Buy Now, Pay Later financing solutions to consumers, enabling them to purchase products and services through flexible, interest-free EMIs or installment payments. The company earns profit through interest income, merchant commissions, processing fees, and partnerships with financial institutions. As the demand for digital credit and financing continues to grow in India, ZestMoney is well-positioned to expand its market share and profitability in the Indian fintech ecosystem.