Zomato revives lending ambitions, in talks with multiple NBFCs to give merchant loans

In February, the food aggregator also roped in Akshay Gautam from Indifi Technologies, its previous lending partner, as Assistant Vice President (AVP) to lead the initiative for Zomato, Moneycontrol has learnt.

An ex-entrepreneur, Gautam led the new anchor partnerships at the digital lending firm.

“Zomato started lending with partners back in 2021 during the pandemic, but paused because they wanted to give loans via their own NBFC license, but that still hangs fire. The company still waits for an approval, it has, however,  decided to restart this again under a partnership model,” he added.

Zomato declined to comment on the developments.

The waiting game 

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

The latter had taken a leap into lending back in 2017 with its “Capital Assist” programme in partnership with NBFCs like Indifi, Incred, FT Cash, PayU and IIFL, wherein restaurant owners could apply for term loans for expansion, renovation or to buy equipment via the Swiggy Owner app.

The arrangement still continues to be in place, as on October last year. Moneycontrol could not ascertain the update on the existing or new partnerships.

As of October 2023, Swiggy claims to have over 8,000 restaurants that have availed themselves of loans through the programme, with over Rs 450 crore being disbursed since inception in 2017.

The foodtech major continued to double down on its offering. It further extended the service to its delivery partners, offering them short-term unsecured personal loans for medical emergencies, vehicle breakdown and unforeseen expenses. That was in partnership with Betterplace and Refyne.

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

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

While it started with a partnership model, tying up with NBFCs like Neogrowth, InCred and Indifi, it was eventually hoping to take control of the entire financial chain, including lending and payments.

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

Two years on, Zomato continues to wait in line for its NBFC license.

It surrendered its PA/PG license, and even wrote down Rs 39 crore worth of investments in ZPPL during the March quarter, as reported by Moneycontrol earlier.

“At Zomato, we do not see ourselves having a significant competitive advantage against the incumbents in the payments space and hence we don’t foresee a business in payments space as commercially viable for us, at this stage,” the company had said in an exchange filing last month.

“For Zomato, selling its gateway to partners was a hard nut to crack,” a senior executive of a prominent payments firm explained, as restaurants were already integrated with the likes of Razorpay, Cashfree and other facilitators.

“Making them switch meant Zomato had to burn a lot of cash by providing incentives and rebates,” the executive added.

Still in queue for the license, Zomato had reportedly put a pause on its co-lending business, two of the people cited above told Moneycontrol. Swiggy, however, has been racing ahead with its plans.

While InCred declined to comment on its current status with the player, Neogrowth and Indifi confirmed that they do not hold any partnership with Zomato anymore.

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

“It (Zomato) has all imperative data of the partners that it needs, including their working capital requirements, credit limits, invoices, sales, cash flows and the like, as they already make settlements and complete payouts 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 of March 2024, the firm had 400,000 delivery partners, per the company data, growing at a CAGR of 21 percent.

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

The commissions/contract between the LSP, in this case Zomato and Swiggy, and the lender could vary depending on the size of the loan and the rate of interest. This typically ranges between 2-3 percent for unsecured loans which translates to Rs 15,000 per borrower on a loan of Rs 5 lakh.

The flow of money, especially the repayment structure, however, could differ in the case of food delivery apps.

Take for instance US-based Doordash, which started offering cash advances on its app to restaurants in partnership with Parafin in 2022.

The credit is determined based on the current or potential sales performance of the restaurants, eliminating the need for traditional credit checks or personal guarantee of the business, per Doordash’s terms and conditions. Instead of an interest rate, Doordash takes a one-time fee for the credit.

The lending partner automatically collects a percentage of restaurant’s daily sales from its bank account, keeping the its share of non-performing assets (NPAs) low, instead of collecting a fixed/monthly instalment.

This kind of arrangement, however, comes with a catch. Since there is no collateral involved or interest rate, the financier is out of luck in case a restaurant shuts shop.

All things considered, it remains to be seen how Zomato structures its credit lines for partner merchants, even as Swiggy continues to march ahead with a traditional LSP model.