After a brief break, Zomato, one of the top meal delivery services in India, plans to resume lending. The business is currently in negotiations with a number of non-banking financial companies (NBFCs) to lend money to its affiliated restaurants for working capital. Zomato will function as a Loan Service Provider (LSP), obtaining loans from its partners and delivering them to prospective borrowers, according to Moneycontrol. Zomato’s economic model and the restaurant industry could be greatly impacted by this calculated action.
Credits: NewsBytes
The Role and Responsibilities of Zomato as a Loan Service Provider
Zomato will be an important player in obtaining loans from its affiliates, distributing them to partner restaurants, and gathering repayments as a Loan Service Provider. Zomato’s role as a middleman establishes it as a crucial connection between NBFCs and restaurants that require funding. Zomato’s payment for this service will be based on the terms of its contract with the lenders. The business has been working on this project for a while, and next quarter an official announcement is anticipated.
Addressing the Financial Needs of Partner Restaurants
The COVID-19 epidemic had a serious negative effect on the restaurant business, which led to cash flow problems for numerous restaurants. Through working capital loans, Zomato hopes to give its partner restaurants much-needed financial support. Restaurants could be able to pay workers, invest in expansion prospects, and control operating costs with the support of this project.
Zomato’s Previous Ventures in the Lending Space
Zomato is no stranger to the lending business. The company had previously collaborated with NBFCs such as Neogrowth, InCred, and Indifi to support its lending operations. In August 2021, Zomato set up Zomato Payment Private Limited (ZPPL) to apply for a payment aggregator (PA) authorization and later established a wholly-owned NBFC, Zomato Financial Services, in February 2022. However, during the March FY24 quarter, the company surrendered its PA license and wrote down ₹39 crore worth of investments in ZPPL.
Overcoming Regulatory Hurdles
Zomato has encountered regulatory obstacles in its financing adventure, notwithstanding its prior endeavors. Zomato had planned to operate under its own NBFC license, however the license’s acquisition was delayed, forcing Zomato to consider other options. Recently, Zomato appointed Assistant Vice President (AVP) Akshay Gautam from Indifi Technologies to lead its revitalized loan operations. Despite the fact that Zomato is currently seeking approval for its NBFC license, the company may proceed with its lending goals immediately thanks to its partnership strategy with NBFCs.
Impact on the Restaurant Industry
Zomato’s plan to lend money for working capital might completely change the restaurant business. Restaurants can concentrate on providing high-quality service and creative goods by releasing financial limitations. This action can result in more restaurants signing up on Zomato’s platform, increasing market share and fortifying the company’s ecosystem. Furthermore, restaurants that gain from these loans are probably going to think better of Zomato, which could result in stronger and more enduring relationships.
Strengthening Zomato’s Business Model
Zomato’s decision to enter the financing market is in line with its overarching plan to expand its sources of income and improve the value it offers partner restaurants. In addition to receiving a fee from the lenders, Zomato strengthens its position as a full-service provider in the food delivery industry by taking on the role of Loan Service Provider. As eateries look to take advantage of Zomato’s financial support, this move may result in increased engagement on the site.
Potential Challenges and Risks
The relocation offers a lot of potential, but there are risks and difficulties involved as well. The creditworthiness of Zomato’s partner restaurants and the effectiveness of its loan disbursement and collection procedures will determine the success of its lending operations. Zomato also needs to take great care while navigating the regulatory environment to guarantee compliance and stay out of trouble. Strong risk management procedures must be implemented by the business in order to reduce defaults and preserve the sustainability of its lending program.
Conclusion
Zomato has made a strategic move that might completely change the restaurant industry: it has decided to resurrect its lending goals and offer working capital loans to its partner eateries. Zomato has the potential to fortify its business strategy and augment its value proposition by catering to the financial requirements of eateries. The industry will be keenly monitoring the company’s progress as it proceeds forward with its ambitions to observe how this campaign plays out and what effect it has on Zomato and its partner eateries.
