Zomato revives lending ambitions, in talks with several NBFCs to offer merchant loans

After putting its lending ambitions on hold for a few years, food delivery major Zomato is trying to revive its service and is in talks with several non-banking financial companies (NBFCs) to offer working capital loans to its partner restaurants, said three people aware of the developments. Moneycontrol,

Under the deal, Zomato will also act as a loan service provider (LSP).

As an LSP, the company will source loans from its partners and disburse the amount to potential borrowers in exchange for a fee based on its arrangement with the lender. This could also mean that Zomato will be responsible for collections from end-users.

According to sources, the team has been discussing and working on this behind the scenes for quite some time, and might announce something in the next quarter.

In February, the food aggregator had onboarded Akshay Gautam from its previous lending partner Indifi Technologies as assistant vice president (AVP) to lead Zomato's initiatives. Moneycontrol Have you learnt.

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Gautam, a former entrepreneur, led new key partnerships at the digital lending company.

He said, “Zomato started lending with partners during the pandemic in 2021 but it was put on hold as they wanted to lend through their own NBFC license but it is still stuck. The company is still awaiting approval, however, it has decided to restart it under the partnership model.”

Zomato declined to comment on the development.

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The Waiting Game

The idea of ​​lending money is not new to Zomato or its arch rival Swiggy.

The latter had taken a leap into lending in 2017 with its “Capital Assist” programme in partnership with NBFCs such as Indifi, InCred, FT Cash, PayU and IIFL, under which restaurant owners could apply for term loans through the Swiggy Owner app to fund expansion, renovation or purchase equipment.

This arrangement is still continuing till October last year. Moneycontrol Updated information on existing or new partnerships could not be found.

As of October 2023, Swiggy claims to have over 8,000 restaurants that have taken loans through the programme, and have disbursed loans worth over Rs 450 crore since its inception in 2017.

The foodtech giant continued to double down on its offerings. It also extended its services to its delivery partners, offering them short-term unsecured personal loans for medical emergencies, vehicle breakdowns, and unexpected expenses. This was done in partnership with BetterPlace and Refine.

As per the latest available data, Swiggy claims to have disbursed loans worth Rs 102 crore in this category in the last 12 months.

Zomato, on the other hand, entered this business late and in 2020, during the pandemic, to help partner restaurants stay afloat during the lockdown.

Though it started with a partnership model, tying up with NBFCs such as NeoGrowth, InCred and Indifi, it eventually hopes to take control of the entire financial chain, including lending and payments.

Keeping this in mind, the company had also incorporated Zomato Payments Private Limited (ZPPL) in August 2021 to apply for payment aggregator (PA) authorisation, followed by registering a wholly-owned NBFC, Zomato Financial Services, in February 2022.

Even after two years, Zomato is still waiting for the NBFC license.

It surrendered its PA/PG licence and also wrote off Rs 39 crore investment in ZPPL during the March quarter, as per the report. Moneycontrol First.

“At Zomato, we do not see ourselves having any significant competitive advantage over existing competitors in the payments space and hence, we do not consider the business in payments space to be commercially viable for us at this stage,” the company had said in an exchange filing last month.

“For Zomato, it was a tough task to sell its gateway to partners,” said a senior executive at a leading payments firm, as restaurants were already integrated with Razorpay, Cashfree and other convenience providers.

“To convert them, Zomato had to spend a lot of cash in offering incentives and discounts,” the executive said.

Zomato, which is still in the queue for a licence, has reportedly put a halt on its co-lending business, said two of the people cited above. MoneycontrolHowever, Swiggy is moving ahead swiftly with its plans.

While InCred declined to comment on its current status with the company, Neogrowth and Indifi confirmed that they no longer have a partnership with Zomato.

“Swiggy had a clear mandate. It wanted to co-lend. It may or may not apply for an NBFC licence in the future. But Zomato was determined to lend through its own books and eventually control the entire chain and expand its reach to customers and delivery partners,” said a founder of an NBFC who works in the sector.

“It (Zomato) has all the necessary data of the partners, including their working capital requirements, credit limits, invoices, sales, cash flows and so on, as they have already completed settlements and payments for them.”

What the margins say

With over 18 million customers, Zomato has 2,47,000 average monthly active restaurant partners, growing at a CAGR of 17 percent. As per company data, by March 2024, the firm had 400,000 delivery partners, growing at a CAGR of 21 percent.

On the other hand, according to a recent note by BNP Paribas, Swiggy claimed to have 2,72,000 active restaurants by the end of FY23.

The commission/contract between the LSP, in this case Zomato and Swiggy, and the lender can vary depending on the size of the loan and the interest rate. It is usually between 2-3 per cent for unsecured loans, which equates to Rs 15,000 per borrower on a loan of Rs 5 lakh.

However, the flow of funds, especially the repayment structure, may vary in case of food delivery apps.

Take, for example, US-based DoorDash, which in 2022 began offering cash advances to restaurants on its app in partnership with Paraffin.

According to DoorDash's terms and conditions, credit is determined based on the restaurant's current or potential sales performance, eliminating the need for a traditional credit check or personal guarantee from the business. Instead of an interest rate, DoorDash charges a one-time fee for the credit.

Instead of charging a fixed/monthly instalment, the lending partner automatically deducts a percentage of the restaurant's daily sales from its bank account, thereby keeping its non-performing assets (NPA) share low.

However, there is a catch to such an arrangement. Since there is no collateral or interest rate involved, the financier has no option if the restaurant closes down.

All things considered, it remains to be seen how Zomato structures credit lines for its partner merchants while Swiggy continues to go ahead with the traditional LSP model.

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