Good Morning [%first_name |Dear Reader%],

A few weeks ago, Amazon spent a reported $200 million in cash to acquire a company called Axio. 

To many, this might have seemed like a celebratory exit, but for those who have followed the space, it marked the end of an era. Axio was formerly Capital Float, one of the original trailblazers of fintech lending in India, once valued at over $350 million.

This acquisition, along with the fates of its peers Zestmoney and Lendingkart, tells a larger story about ambition, risk, and the fundamental clash between venture capital’s growth-at-all-costs mandate and the cautious, regulated world of lending. 

In this week’s episode of Two by Two, we brought together two experts to dissect what really happened to these pioneers. We explore why the promise of using “fancy data” to upend traditional lending fell short, how misaligned incentives created a vicious cycle, and what lessons the ecosystem has learned from this expensive, decade-long experiment.

This episode’s guests are:

Arundhati Ramanathan: As The Ken’s deputy editor and lead fintech writer, Arundhati has been at the forefront of reporting on the seismic shifts in India’s financial technology sector for the past decade. It was her story on the Axio acquisition that served as the catalyst for this crucial conversation. Her deep and practitioner-led knowledge of the sector’s evolution provided the essential context for understanding the journey of these fallen giants.

Shivashish Chatterjee: As the co-founder and managing director of DMI Finance, Shivashish brings a practitioner’s invaluable perspective. DMI Finance is a significant player in the lending ecosystem, and in a unique turn of events, was also the company that acquired Zestmoney. His experience navigating the complexities of risk, regulation, and investor management offered a perspective into the realities of building a sustainable lending business in India.

Two By Two • EPISODE 61

What killed India’s first fintech lenders?

How the ‘buy now, pay later’ dream soured

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Arundhati set the stage by explaining why the $200 million sale of Axio (formerly Capital Float) wasn’t the resounding success it appeared to be. For a company that had raised nearly $160 million in venture capital and was once seen as a “golden child,” the exit was a tempered one.

Arundhati explained their original promise: 

This ambition, however, soon collided with the harsh realities of the lending business. Over the course of our conversation with Arundhati and Shivashish, we discovered that Capital Float, Zestmoney, and Lendingkart each chose slightly different paths, but ultimately faced similar headwinds. Zestmoney, a major player in the “buy now pay later” (BNPL) space, operated a model where it earned a commission for originating loans, which were funded by other lenders. Lendingkart, on the other hand, experimented with co-lending, where it would fund a portion of a loan (say, 20%) while a partner NBFC provided the rest.

It was all quite complicated, but luckily for us, Shivashish provided a crucial framework for understanding the core issue, distinguishing between balance sheet lenders (who lend their own money, like banks and NBFCs) and non-balance sheet or platform models. The early fintechs, he explained, were often structured to avoid the heavy regulatory requirements of being a balance sheet lender.

My co-host Rohin also observed how a complex web of incentives created a system destined for trouble. Venture capitalists demanded rapid growth, which pushed these fintechs to originate more and more loans. To do this, they often provided guarantees to their lending partners, effectively taking on the risk without having the robust balance sheets to back it up. Rohin described it as a “stone rolling down a hill, getting bigger and bigger and bigger, till it’s not rolling down hill”.

The ethos of venture capital—move fast, break things, and burn cash to achieve hyper-growth—is fundamentally at odds with the prudent, risk-averse nature of lending. Lenders must set aside capital for rainy days, a concept alien to the VC playbook. This mismatch created a system where founders were incentivised for short-term growth over long-term stability.

As fintech lenders raised larger funding rounds at soaring valuations, a perverse incentive structure emerged. The pressure to please investors and justify valuations led them to take on increasing risk. Simultaneously, successive funding rounds diluted the founders’ stakes to a point where their personal financial incentive was no longer aligned with the company’s long-term survival.

Shivashish explained this dynamic clearly: 

Perhaps the most startling takeaway was Rohin’s observation that this entire decade-long experiment resulted in a massive, unintentional transfer of wealth. Hundreds of millions of dollars from venture capitalists were effectively used to subsidise loans for Indian consumers and create risk-free business for the banks that provided the actual capital. The VCs and their portfolio companies absorbed the losses, while consumers accessed easier credit and banks collected profits without taking on the underlying risk.

Rohin framed it with a dose of irony: 

The episode is a lot of fun. 

You can listen to it here.

See you next week!

Regards,
Praveen Gopal Krishnan

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