Indian digital payments firm PhonePe is in talks to purchase buy-now-pay-later (BNPL) fintech company ZestMoney in a bid to enter the digital lending sector.

The potential deal could be valued at around $200m to $300m.

Established in 2015, ZestMoney has so far garnered nearly $140m from multiple investors, such as PayU, Zip, Ribbit Capital, Xiaomi, Goldman Sachs, among others.

The Bangalore-based startup’s valuation reached $450m in its last funding round.

One of the sources was quoted by Mint as saying: “ZestMoney will continue to operate as a separate entity with Zest brand.”

Another source told the publication: “The deal is still being worked out and is two-three weeks away.”

The development comes shortly after a report that said that PhonePe would roll out its own payment gateway. 

ZestMoney has been searching for a buyer for approximately six months amid attempts to raise investments.

Previously, the BNPL firm was having discussions with Pine Labs and BharatPe for selling its business. However, the deals did not materialise.

If the latest negotiation goes as planned, PhonePe will receive a licence to operate as a non-banking finance company (NBFC).   

The firm, backed by Walmart, is preparing to issue a public offering next year after it receives regulatory licences.

In 2019, ZestMoney bought NBFC Nahar Credits for INR170m. The acquired entity was previously owned by British payday loan provider Wonga Group.

Meanwhile, PhonePe is having negotiations to secure an investment of $450m-500m in a funding round that could be led by General Atlantic, reported moneycontrol.