Zomato Bets on “Buy Now, Pay Later”

“Explore the Unexplored with Buy Now, Pay Later!”

We are pretty sure the first thing that comes to your mind is a credit card. But here we are not talking about it. Buy now pay later (BNPL) is a financing option provided by various business players like Mobikwik, Lazypay, ZestMoney, and many more. It is a short-term loan provided with little or zero, interest charges ranging over a period of 15 days.

The difference between credit cards and BNPL is that the former requires a lot of formalities to be done and a prior credit score is required. But in the case of BNPL, there exist no such conditions. For the youngsters and students, BNPL is a boon!

However, the credit limit is just Rs 10,000/- as of now which is much lower than the credit cards. But all odds favor it! Currently, the BNPL market is valued at 3.5 billion $ and it is all set to double in the coming two years.

Reason being: Solving the right problem of the right age group! Hassle-free credit availability to the 18-25 age groups who need it the most.

How Do They Make Money?

BNPL providers make money by charging the third parties starting from 2% of the total amount transferred if the customer chooses the BNPL payment method.

From the customers, no fee or interest is charged as long as no default is made by them. However, if they fail to do so, a whopping 10-30% interest rate is charged!

Zomato entering BNPL

Isn’t it foolish to totally rely on third-party BNPL companies and give away your money? Zomato thought the same one day and in order to eliminate this indirect chain (through Simpl), they came up with the idea of Zomato setting up its own BNPL company! Yes, you heard it right, a food delivery giant is now thinking to become a full-fledged fintech player. With this move, Zomato will become the first food-tech company to launch BNPL services in India until Swiggy launches this service before them.

Source: Company, Kotak Institutional Equities

Will this move be strategic for Zomato?

Now here, Zomato is targeting two things which are as follows:

1.  It will focus on the growth of its core business. The company wants more people to habituate to order their food online. If one takes a look at Zomato’s latest financials then one will observe that in 2021 nearly 50% of the customers were actually “new customers” who ordered food on Zomato. On these bases, it can be concluded that there is still an untapped market that hasn’t warmed up to online food delivery apps like Zomato.

2.  The company is going to bet on Order Now, Pay Later as those customers will soon be prime customers for Zomato. After all, it’s a market that is booming like anything. It is expected to grow by 15 times and $45–$50-billion industry.

However, this move does raise questions like what if people don’t pay and they default? Won’t Zomato lose money?

Yes, this can happen. And most probably it will happen. But Zomato does have a lot of data of its customers. They know about their eating preferences, their payments preferences, and the kind of money they spend on the app. So, it can kind of make a guess on whether that customer will be good for the BNPL type of credit too. And the aim here is not only about being a BNPL behemoth (a large and powerful organization) but also to keep the customer within its ecosystem and extract maximum value.

Conclusions

Zomato is India’s greatest food delivery app. It has millions of customers as well as restaurant partners. If the company becomes successful in entering the BNPL segment it will be an amazing first-mover advantage to the company and beneficial for the customers also. When people pay later, they tend to order more. Also, if they succeed in that, they not only be saving money by their very own BNPL company but also be taking a higher commission on the orders. So, they can become a profitable business by increasing their profits. But will all this work out the way they hope? Well, your guess is as good as ours.

Until then, do share your views on whether this move will be a boon or bane for Zomato.

References:

1. https://www.thehindubusinessline.com/
2. https://sensextoday.co.in/zomato-as-fintech/?utm_source=rss&utm_medium=rss&utm_campaign=zomato-as-fintech
3. https://bit.ly/3JWlMyY
4. https://asianatimes.com/zomato-may-provide-an-option-for-bnpl-buy-now-pay-later-soon/?amp=1
5. https://www.techpluto.com/zomato-may-soon-enter-bnpl-space-allowing-customers-to-eat-now-and-pay-later/
6. https://bit.ly/3BSY2Ja