Canada is home to three fast-growing POS and e-commerce technology vendors with global ambitions, Shopify, Lightspeed POS, and TouchBistro. They each offer all-in-one POS solutions including integrated payments processing, providing merchants with a single platform to manage their business, Robin Arnfield reports
Although Shopify, Lightspeed, and TouchBistro initially partnered with third-party processors on a customer referral model, they realised that becoming payment facilitators which manage the relationship with the merchant, provides a better customer experience and a greater source of revenues.
A payment facilitator (payfac) establishes its own merchant bank account with an acquirer and receives a merchant ID to acquire and aggregate payments for a group of smaller merchants, known as sub-merchants. These smaller merchants no longer need to get their own merchant ID and, instead, are on-boarded under the payfac’s master MID.
The downside is that payfacs are liable for financial losses arising from processing risks and fraud for the sub-merchants they process on behalf of. The benefit is that payfacs can provide merchant services offerings that are tightly integrated with some other solution that they sell, without the lengthy underwriting process traditionally required to provide merchant accounts to businesses.
Both Shopify and Lightspeed are publicly quoted companies, Shopify’s IPO having taken place on the New York Stock Exchange in 2015, and Lightspeed’s IPO occurring on the Toronto Stock Exchange in 2019. Shopify’s share price reached record heights in early 2020, as it reported growth in providing its e-commerce platform to larger online merchants, having originally targeted SMEs. However, although still Canada’s top tech stock, Shopify’s share price has dropped recently.
Shopify offers a range of services and software to enable merchants to operate e-commerce businesses, including order management, inventory and fulfilment, payments, warehousing facilities, shipping, analytics, merchant cash advances, and physical POS hardware.
Now in 15 countries
In a challenge to Amazon, Shopify is rolling out a network of fulfilment centres to help US merchants lower shipping costs and ensure timely deliveries.
The Shopify Payments service is a fully integrated payments processing platform for online and offline card acceptance and is available in 15 countries including the US, Canada, UK, Australia, Japan, Germany, and Spain.
Merchants who use Shopify Payments are eligible for cash advances from Shopify Capital. Currently, two-thirds of Shopify’s merchants in these 15 countries are using Shopify Payments.
As of December 31, 2019, one million merchants from 175 countries used Shopify’s software solutions, with the US accounting for 52% of merchants, followed by the UK with 7%, and Canada and Australia both with 6%.
Shopify’s revenues are split between subscription solutions and merchant solutions revenues, with payments processing fees accounting for the majority of its merchant solutions revenues. If merchants don’t use Shopify Payments, Shopify charges a transaction fee based on a percentage of gross merchant volume (GMV).
According to eMarketer, in October 2019 Amazon had 37.3% of US retail e-commerce sales followed by Shopify with 5.9%, eBay with 5.7%, and Walmart with 4.7%.
Shopify’s market share is based on its 2019 US gross merchant volume, excluding merchant sales made through POS. It defines GMV as the total dollar value of orders processed on the Shopify platform in the period, net of refunds, and inclusive of shipping and handling, duty, and value-added taxes.
In the year to 31 December 2019, Shopify saw its total revenues rise by 27% year-on-year to $1.578bn, while Q4 2019 revenues rose by 47% year-on-year to $505.2m.
In Q4 2019, GMV rose by 47% year-on-year to $20.6bn, while gross payments volume – the amount of GMV processed through Shopify Payments – grew by 41% to $8.9bn, accounting for 43% of GMV processed in the quarter.
For 2019 as a whole, GMV totalled $61.1bn, while gross payments volume grew to $25.7bn, accounting for 42% of GMV processed in the year.
Shopify Capital issued $115.9m in merchant cash advances and loans in Q4 2019, taking its cumulative cash advances to $885m since the launch of Shopify Capital in April 2016. Originally, Shopify only provided merchant cash advances to established online retailers, and required them to have a credit or payments history or collateral.
In January 2020, it began offering micro-loans starting at $200 to start-up e-commerce businesses which agree to use the Shopify Payments service. In October 2019, installment payment provider Splitit signed an agreement with Shopify to make the Splitit Buy Now Pay Later (BNPL) service available to Shopify’s global network of merchants.
Splitit’s BNPL technology has been integrated with Shopify’s platform and is listed directly inside Shopify as an integrated payment gateway, which Shopify’s merchants can add to their websites to offer their customers a BNPL payment option linked to their existing credit cards.
In February 2020, Shopify joined the Libra Association, the governing body for Facebook’s controversial Libra cryptocurrency. Shopify’s support for Libra follows eight high-profile defections from the association since October, including cancellations of membership by Mastercard, PayPal, Stripe, and Visa. The defections followed strong criticism of Libra from central banks and financial regulators.
Shopify said in a statement that it will work with the Libra Association to “collectively to build a payment network that makes money easier to access and supports merchants and consumers everywhere.”
In September 2019, privately held restaurant POS system vendor TouchBistro raised C$158m in Series E funding from investors such as Canada’s OMERS Growth Equity, Barclays, RBC Ventures, BMO Capital Partners, and JPMorgan Chase. “If we maintain our current growth trajectory, which is seeing us sign up 30-50 restaurants a day, a 2021 IPO is certainly a possibility,” Alex Barrotti, TouchBistro’s CEO and founder, tells CI.
As of February 2020, TouchBistro’s iPad-based POS technology had been rolled out to 25,000 restaurants and pubs globally. “In 2011, we would sign up 30 new restaurants a month, and today we are winning 30-50 restaurants a day,” says Barrotti. “We sign up 500-700 new venues every month worldwide.”
TouchBistro has offices in the US, Canada, Mexico, and the UK, and sells into 100 countries. Its technology includes table-side and over-the-counter order-taking, payment processing, menu management, sales tracking and reporting, and staff scheduling.
In October 2019, TouchBistro launched TouchBistro Reservations, a reservation and guest management platform for restaurants, which is integrated with TouchBistro POS and provides restaurants with insights about their customers such as spend and dining history and drink preferences. Restaurants that subscribe to TouchBistro Reservations can accept reservations online through their own website, Google Search and Maps, or via the TB Dine website or mobile app.
Since TouchBistro Reservations includes CRM technology, TouchBistro is now looking at developing a customer loyalty module. “We’re now on both sides of the equation, as we own the POS software and the reservation component,” says Barrotti. “In the past, the two weren’t integrated in our platform. We would know you had been to a specific restaurant a number of times, but wouldn’t know what you had bought. Now we know what you ordered, so the next time you come in, we can make you an offer.”
TouchBistro Payments powered by Chase
In 2018, TouchBistro launched TouchBistro Payments powered by Chase to provide integrated payment processing for restaurants in the US. TouchBistro Payments offers instant payment processing and an integrated mobile payment device that allows customers to pay at the table using contactless, chip, and magnetic-stripe cards plus Apple Pay, Google Pay, and Samsung Pay.
In Canada, TouchBistro’s payments processing partner is Moneris, a joint venture between RBC and BMO Bank of Montreal. Its UK processing partner is Barclaycard, which processes nearly half of the UK’s credit and debit card transactions.
Barclaycard’s payment solution is integrated with TouchBistro, which means TouchBistro-based UK restaurant POS devices can automatically calculate the amount of a bill, including split amounts between diners and gratuities, and then process the payment.
In Mexico, TouchBistro’s processing partner is EVO Payments, and in other markets TouchBistro partners with Square and Worldpay.
According to Canada’s The Globe & Mail newspaper, TouchBistro’s payments processing revenue-sharing deals with JP Morgan in the US, Barclaycard in the UK and Mexico’s EVO Payments now account for 21% of recurring revenue.
“When we originally launched our company, we would refer customers to one of our payments processor partners such as Moneris in Canada and Chase in the US,” says Barrotti. “The customer’s payment device would come from one of our processing partners.
This model served us well for many years. But the downside was that, when on-boarding a client, we would hand them over to the payments processor, and they would go into a black hole until we found out if they were approved for payment processing or not.”
Although TouchBistro still does some referrals to payments processors, it has moved to a payments facilitator model where it owns the processing relationship with the client and passes the transactions through to the underlying processor, Chase in the US and Barclaycard in the UK. In Canada, TouchBistro has a payments referral model, not a payfac relationship, with Moneris.
However, unlike a typical payments facilitator which takes the payment risk, reports the top-line merchant processing revenue on its profit and loss account, and pays a fee to the underlying processor, TouchBistro lets the processor take the risk.
“We just report our share of the processing fee,” says Barrotti. “Instead of reporting income on 140 basis points – the amount the merchant pays including interchange and credit card processing fees – paying out funds to all the parties, and owning the risk, we just report our commission of 50 basis points, and don’t take the risk. When we enter a new market, we talk to all the banks to negotiate the best partnership. Then we launch with a preferred partner in that market.”
Barrotti says that TouchBistro is winning new venues from its existing restaurant clients as well as entirely new customers. “I would say that 50% of our new restaurants each month are owned by existing clients, and the remainder are entirely new customers,” he says. “But 80% of our new restaurant clients who don’t have an existing relationship with us, opt for our payments facilitation contract, which is very good for us.”
TouchBistro could become a processor in its own right, Barrotti says. “But we would need considerably more people to deal with our clients, and would have to manage the risk,” he says.
Lightspeed serves over 74,000 SME locations worldwide and processes approximately $20bn in gross transaction volumes (GTV) for its customers. Its cloud-based POS software caters for bricks-and-mortar retailers and restaurants as well as online merchants. The software offers a range of tools to help SMEs manage their business, including financial reporting, cash flow tracking, analytics, and loyalty.
According to Lightspeed, US retailers using the Lightspeed platform saw 13.8% growth year-on-year gross in GTV in January to October 2019. In contrast, industry average retail GTV during this period grew 3% year-on-year, according to the US Census Bureau’s Advance Monthly Retail Survey.
In January 2019, Lightspeed launched its Lightspeed Payments platform in the US for physical and online retailers, and has just announced the initial availability of Lightspeed Payments for US hospitality merchants. Lightspeed spokesperson Bradley Grill says that Lightspeed will roll out Lightspeed Payments to Canadian retailers during 2020.
“Canadian retailers represented nearly 10% of Lightspeed’s GTV in the last 12 months and are poised to embrace Lightspeed Payments in a meaningful way,” Lightspeed CEO Dax Dasilva said in an investor presentation in February 2020.
In its third quarter ending 31 December 2019, 50% of Lightspeed’s new US retail customers signed up for Lightspeed Payments along with the company’s other software.
Eliminating the need for a separate payment processing provider, Lightspeed Payments directly integrates with the Lightspeed POS platform. Operating from one system of record, merchants can use the suite of modules comprising the Lightspeed platform to operate from a single back-end.
“For Lightspeed Payments we act as the payment facilitator and the customer only deals with us for their payments,” says Grill. “We have a number of processing partners for our Lightspeed Payments solution including Worldpay and Stripe. Outside North America, we work with partners who provide processing for our customers, who have to arrange a direct relationship with one of these third-party processors.
“Merchants are taking advantage of cloud technology to increasingly streamline operations and generate a tangible return on investment,” Dasilva said in a news release. “Lightspeed Payments provides customers with the simplicity they desire to optimise their time and grow their business.”
In a statement, Lightspeed said that Lightspeed Payments offers transparent pricing and cost certainty, as there are no start-up fees and standard rates are charged for card-present transactions, card-not-present payments, and keyed-in transactions.
In its third quarter ending 31 December 2019, Lightspeed’s software and payments revenue rose by 58% year-on-year to $28.4m, representing just under 90% of total revenue.
“Overall for the month of December 2019, we had our most successful month yet in terms of customers signing up for Lightspeed Payments,” Dasilva said in a February 2020 investor presentation. “Furthermore, for the first time since Lightspeed Payments went live, monthly payments signups from our existing base exceeded what we signed up from net new customers. We’ve learned a lot during the past 12 months about our ability to forecast, sell, support and grow the payments business. Drawing upon this experience, we’ve never been more confident that payments will be an important long-term growth driver for Lightspeed.”
Partnership with Stripe
In February 2020, Lightspeed announced a partnership with Stripe to enable Lightspeed Payments to offer North American merchants extra processing options. The two companies have integrated several of Stripe’s payment software offerings into Lightspeed Payments, including Stripe Connect, a product for marketplaces and online platforms, and Stripe Terminal, which allows for in-person payments at the point of sale.
According to Lightspeed, a key benefit of integrating with Stripe is being able to offer retailers and restaurants a mobile checkout capability, as well as card acceptance at countertop POS terminals.
Stripe and Lightspeed said that the integration of Stripe Terminal will make it easier for restaurants and retailers to start accepting in-store payments and customise card readers with their own unique branding, as well as reduce latency at the checkout.
Stripe Connect enables rapid on-boarding for e-businesses wanting to accept payments with Lightspeed, automates payouts, and keeps Lightspeed out of the flow of funds, reducing the operational and regulatory burden of managing money movement.
“Stripe Connect is a solution for platforms to facilitate payments for merchants,” Stripe spokesperson Lewis Clark tells CI. ‘Rather than becoming a payfac themselves, platforms and marketplaces integrate Stripe Connect to stay outside the flow of funds while still providing customized experiences to sub-merchants for accepting payments. Stripe has direct integrations to the card networks in Europe and APAC. In the US, we currently work with First Data as our card acquiring processor.”
In January 2020, Lightspeed bought German hospitality POS software vendor Gastrofix in order to expand in Europe, following its October 2019 acquisition of Australian POS software firm Kounta and its July 2019 purchase of Swiss hospitality POS software vendor Ikentoo.
Cash is still the dominant payment method in Germany, accounting for 67% of the 50bn consumer-to-business transactions a year, but electronic payments are growing in the country, according to a September 2019 report by McKinsey & Co.
According to Dasilva, Lightspeed wants to benefit from the significant growth in electronic payments in Germany and consequent demand for POS solutions. “We see us being part of that (electronic payments) trend,” Dasilva told The Globe and Mail.