Zomato sets up payments aggregator in compliance with RBI guidelines

The company's Red Herring Prospectus in July had mentioned this development; the wholly-owned arm has an initial capital of 10,000 equity shares of Rs 10 each

Food delivery platform Zomato said on Wednesday that it has incorporated a wholly-owned subsidiary called Zomato Payments Pvt Ltd.

The company has been formed to comply with the Reserve Bank of India regulations to "carry on the business of providing payment aggregator services and payment gateway services," Zomato said in a regulatory filing.

"Zomato Payments Pvt Ltd (ZPPL) is incorporated with an initial subscription of 10,000 equity shares of Rs 10 each, aggregating to Rs 1,00,000," the firm added in the filing.

The company's Red Herring Prospectus in July had mentioned this development. "Our Board has, pursuant to a resolution dated June 21, 2021, approved the incorporation of a wholly-owned subsidiary of the company, 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," it said.

Payment Aggregators are entities that help e-commerce sites and merchants to accept various payment instruments from the customers for completion of their payment obligations without the need for merchants to create a separate payment integration system of their own, the company further explained in the RHP. Payment Gateways (“PGs”) are entities that provide technology infrastructure to route and facilitate processing of an online payment transaction without any involvement in handling of funds.

"As per the circular dated March 17, 2020 (Guidelines on Regulation of Payment Aggregators and Payment Gateways), PAs were required to obtain authorisation from RBI to continue with payment aggregation activity by June 30, 2021. This timeline has been relaxed by the RBI to September 2021, through its notification dated May 21, 2021," Zomato said.

Ant Group-backed Zomato, which got listed in India on July 14, is the second-most valuable company after Coal India on listing day with a market cap of Rs 98,849 crore.

In a recent note initiating coverage of the company at "reduce," HSBC Global Research said that though the long term opportunity in food delivery sector was promising, near term growth may be over estimated.

Yogesh Aggarwal and Abhishek Pathak, who authored the note, said, "unlike most e-commerce segments, FD (food delivery) will need to see 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 seems given cash burn; and current valuations are too punchy and factor in aggressive growth forecasts".