Zomato sets up payments aggregator in compliance with RBI guidelines

On Wednesday, food delivery company Zomato announced the formation of Zomato Payments Pvt Ltd, a wholly owned subsidiary.

Zomato said in a regulatory filing that the company was founded to comply with Reserve Bank of India laws and to "carry on the business of providing payment aggregator services and payment gateway services."

"Zomato Payments Pvt Ltd (ZPPL) is incorporated with an initial subscription of 10,000 equity shares of Rs. 10 each (US$ 0.13), totaling Rs 1,00,000 (US$ 1,348.84)," the company stated in the filing.

This development was reported in the company's Red Herring Prospectus (RHP) from July. "Our Board has approved the incorporation of a wholly-owned subsidiary of the company, pursuant to a resolution dated June 21, 2021, for the purposes of applying for a payment aggregator authorisation in order to continue such operations as per the RBI Guidelines on Regulation of Payment Aggregators and Payment Gateways dated March 17, 2020 and directives issued thereunder," the company said.

Payment Aggregators, as defined by the firm in the RHP, are entities that assist e-commerce sites and merchants in accepting numerous payment instruments from clients for the accomplishment of their payment obligations without the necessity for merchants to establish their own payment integration system. Payment Gateways (PGs) are technical infrastructure providers that route and enable the processing of online payment transactions without being involved in the money.

"PAs were required to get RBI authorization to continue with payment aggregation activities by June 30, 2021, according to a circular dated March 17, 2020 (Guidelines on Regulation of Payment Aggregators and Payment Gateways). The RBI has extended this deadline until September 2021 in a notification dated May 21, 2021 "According to Zomato.

With a market capitalization of Rs. 98,849 crore (US$ 13.33 billion) on listing day, Ant Group-backed Zomato is India's second-most valuable company after Coal India.

HSBC Global Research recently initiated coverage of the firm at "reduce," stating that while the long-term opportunities in the meal delivery market was intriguing, near-term growth could be overestimated.

"Unlike most e-commerce segments, FD (food delivery) will require profound cultural evolution, as there are longstanding inhibitions against eating "non-home-cooked food"; diversification into e-grocery may not be as easy as it appears given cash burn; and current valuations are too punchy and factor in aggressive growth forecasts," said the note's authors, Mr. Yogesh Aggarwal and Mr. Abhishek Pathak.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.