Zomato, one of India’s leading food delivery platforms, is looking to revive its merchant lending services after a brief pause. Engaging with multiple non-banking financial companies (NBFCs), Zomato aims to offer working capital loans to its partner restaurants. According to a report by Moneycontrol, this move signifies Zomato’s commitment to supporting its partners in the highly competitive food delivery market.
Zomato’s Role as a Loan Service Provider
As part of the new strategy, Zomato will operate as a Loan Service Provider (LSP). This role entails sourcing loans from its partners and disbursing the amounts to potential borrowers. In return, Zomato will earn a fee based on its arrangement with the lenders. This structure also implies that Zomato could be responsible for collecting repayments from end-users.
- Sourcing Loans: Collaborating with NBFCs to provide capital.
- Disbursement: Ensuring timely delivery of funds to restaurant partners.
- Collection: Managing repayments, potentially enhancing Zomato’s revenue through service fees.
Leadership and Strategic Moves
In a bid to strengthen this initiative, Zomato has appointed Akshay Gautam from Indifi Technologies as Assistant Vice President (AVP). Gautam, who led new anchor partnerships at Indifi, brings valuable experience to Zomato’s lending ambitions.
Historical Context and Market Comparisons
Zomato’s interest in lending is not new. The company initially ventured into this space in 2020 to support restaurants during the pandemic. However, regulatory hurdles delayed its plans to obtain an NBFC license. Meanwhile, its competitor Swiggy had launched its “Capital Assist” program in 2017, offering term loans in partnership with various NBFCs.
Swiggy’s established lending program offers insights into potential strategies and challenges for Zomato:
- Partnerships: Collaborations with Indifi, Incred, FT Cash, PayU, and IIFL.
- Loan Utilization: Term loans for expansion, renovation, and equipment purchases.
- Extended Services: Loans for delivery partners to cover emergencies and vehicle breakdowns.
Swiggy has reportedly disbursed over Rs 450 crore through its program, with Rs 102 crore in loans granted to delivery partners in the last 12 months alone.
Financial Ecosystem and Data Utilization
Zomato’s extensive data on partner restaurants, including their financial needs and cash flows, positions it advantageously in the lending space. This data can help tailor financial products to meet the specific requirements of its partners.
- Data Advantage: Utilizing transaction and sales data for better loan offerings.
- Tailored Solutions: Customized financial products based on partner needs.
By leveraging detailed insights into operational metrics, Zomato can design financial products that fit partner needs. For example, restaurants with seasonal business can benefit from flexible repayment schedules. Real-time sales and cash flow data help assess creditworthiness accurately, reducing default risks.
Zomato’s data analytics can identify patterns and trends to inform lending decisions. Restaurants with high sales but low cash reserves may need working capital loans. Those with irregular income might prefer products with deferred payment options. By aligning loans with financial profiles, Zomato can provide relevant support.
Zomato’s integration with restaurant management systems provides comprehensive data on inventory, customer preferences, and costs. This allows Zomato to offer loans that address specific needs, such as funding for bulk inventory during peak seasons or upgrading equipment.
Repayment Structures and Comparisons
The repayment structures for loans can significantly impact the success of Zomato’s merchant lending program. Learning from models like Doordash in the US, which offers cash advances based on sales performance, could provide Zomato with innovative ways to manage credit risk.
The Doordash model involves determining credit based on the current or potential sales performance of restaurants, eliminating the need for traditional credit checks. Instead of an interest rate, Doordash takes a one-time fee for the credit. The lending partner then automatically collects a percentage of the restaurant’s daily sales from its bank account, keeping its share of non-performing assets (NPAs) low. However, this kind of arrangement comes with a catch, as the financier is at risk if a restaurant shuts down.
Also read: Customer Experience in Neo Banking: Strategies for Enhancing User Engagement
Market Potential and Growth Metrics
Zomato’s large customer base and extensive network of restaurant partners provide a substantial market for its lending services. The company’s ability to grow this segment will depend on its execution and the attractiveness of its financial products.
- Customer Base: Over 18 million customers and 2,47,000 average monthly active restaurant partners.
- Growth Rates: Restaurant partners growing at a CAGR of 17%, delivery partners at 21%.
Zomato’s renewed focus on lending to its partner restaurants is a strategic move that aims to strengthen its ecosystem and support the financial needs of its partners. While challenges remain, especially in obtaining the necessary regulatory approvals, Zomato’s data-driven approach and strategic partnerships could pave the way for a successful revival of its merchant lending ambitions. As the company continues to navigate these challenges, its ability to innovate in financial services will be crucial to maintaining its competitive edge in the food delivery market.
