The F-word: With Zomato giving up its PA licence, is finance-as-a-feature losing steam?


Dr Srinath Sridharan

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Dr Srinath Sridharan

10 reads

Zomato’s decision to surrender its payments aggregator licence—which it only acquired in January—highlights the intense competition and challenges faced by late entrants in the finance sector. It also brings to the fore the reality that finance isn’t just a feature startups can simply tack on.

May 20, 2024


Key Takeaways

  • In mid-May, Zomato surrendered its payments aggregator licence—something it only received in January after a years-long wait
  • Zomato is hardly alone in beating a retreat from the finance space. Earlier, the likes of L&T Finance and L&T Infra Credit also high-tailed it out.
  • After years spent extolling the importance of finance as a business opportunity, it appears startups may finally be realising that this comes with stringent regulatory oversight
  • While the shrinking regulatory arbitrage is forcing many startups out of the space, it may be creating a more level playing field for those actually looking to innovate

In January, Zomato received the Reserve Bank of India’s (RBI) final approvals for a payment aggregator (PA) licence for its subsidiary, Zomato Payments Pvt Ltd. The coveted PA licence was a hard-fought ordeal for the company and came years after it applied for one.

However, just last week—only a few months on from receiving the coveted PA licence—news broke that Zomato was surrendering it as well as its application for a mobile wallet licence. In a stock exchange filing announcing the move, the company stated that it had written down Rs 39 crore it invested in Zomato Payments as impairment losses and cited the lack of commercial viability in the payments space as the reason for surrendering the licence.

Zomato’s decision highlights the intense competition and challenges faced by late entrants in this sector. In recent months, before Zomato, numerous finance entities, such as L&T Finance and L&T Infra Credit, had also relinquished their certificate of registration, or CoR.

The payments industry is indeed fiercely competitive and overcrowded, making it difficult for new players to gain traction and profitability. However, it's noteworthy that Zomato surely recognised these factors even when it initially applied for the licenses. The payments space has been saturated for a while, with established players dominating the market. Zomato's decision to exit the payments arena after getting the licence, therefore, only sends a confused signal, no matter how the company couches it in PR niceties. 

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