Inside Lightspeed podcast: a conversation with Jona Georgiou about the future of Lightspeed Payments
Gus Papageorgiou, Head of Investor Relations at Lightspeed, sits down with our General Manager of Payments to talk about Lightspeed’s integrated approach.
As industry disruptors replace traditional payment providers, Lightspeed Payments is ahead of the curve, delivering the one-stop solution businesses need now. Jona explains what makes our Payments program innovative and how it will play a key role in Lightspeed’s growth.
Download or listen to the entire conversation right here.
Gus Papageorgiou: Welcome to Inside Lightspeed, the podcast that takes you inside the company powering high performing businesses today. This podcast may include forward looking statements that are based on assumptions and therefore subject to risks and uncertainties that could cause actual results to differ materially from those projected. We undertake no obligation to update these statements except as required by law. You can read about these risks and uncertainties in our filings with U.S. and Canadian securities regulators. Our commentary today may include adjusted financial measures, which are non-IFRS measures. I’m Gus Papageorgiou, Lightspeed’s Head of Investor Relations, and today I’m speaking to Jona Georgiou, Lightspeed’s general manager of Payments and Financial Services. So let’s jump right in. Welcome, Jona.
Jona Georgiou: Thanks, Gus.
Gus Papageorgiou: Glad to have you here today. So before we get off and start talking about Payments, why don’t you tell us a little bit about yourself? How long have you been here at Lightspeed?
Jona Georgiou: Oh, I joined Lightspeed a little over two and a half years ago.
Gus Papageorgiou: Have you spent your entire career in payments? Was payments new to you when you joined Lightspeed?
Jona Georgiou: No, I’ve helped a few SaaS (software as a service) companies monetize payments both in North America and globally. But my educational background is in economics. But I’ve been in the payments field for over 15 years now.
Gus Papageorgiou: And you’re here in Toronto? That’s right.
Jona Georgiou: That’s correct.
Gus Papageorgiou: All right. So getting into this, I think, Jona, in the last few years, we’ve seen a lot of software companies integrate payments into their solutions, not only ourselves, but some of our competitors as well. What’s led to this phenomenon of, you know, payments being integrated with software?
Jona Georgiou: I’d say, generally speaking, an all-in-one solution accelerates commerce for SaaS companies. Typically, SaaS companies are focused on enabling their customers to fulfill their business needs effectively. And while enhancing payment has not always been the top priority, eventually accepting payments becomes a challenge that they are trying to solve. Most companies navigate that by referring merchants or their customers to payment processors outside of their ecosystem. But the whole flow of onboarding a customer historically has typically been clunky and neither party has been providing a best-in-class experience for the customer.
Gus Papageorgiou: So it really wasn’t an issue of, there was this big epiphany that, oh, we need to offer Payments. It was kind of, you know, we’re offering software, payments is a problem, and we need to solve for it. Is that more the way things panned out?
Jona Georgiou: Exactly. One may say that it was a bit of an afterthought because they’re so focused on offering their core business and making that grow. And the payment space has historically been fragmented. And additionally, with different ways of commerce happening now online, in person, curbside payment has become even a bigger challenge for the SMBs (small and medium-sized businesses) and a few legacy payment platforms like FIS, Fiserv saw the benefits they could bring to the SaaS companies by introducing a concept like payment facilitation, where they provide a one-stop-shop experience and additionally add a new revenue stream to SaaS companies.
Gus Papageorgiou: And, you know, in the end, I guess the big benefactor here is the customer, because by integrating the Payments into the software, I mean, it just makes life so much easier for our customers. We talk a little bit about that. I mean, how does, you know, instead of going to two different platforms, you know, you have a software running your business and a payments provider, integrating the two, I think it really does in the end help our customers.
Jona Georgiou: Absolutely. It’s the complete all-in-one solution that really focuses on merchants and what their needs are and having to give them that single point of contact, a single point of truth for their payments and the POS (point of sale) needs, it takes care of, you know, running the business, the day-to-day of the business, so that the merchant can thrive and focus on their craft.
Gus Papageorgiou: It really, I think, in addition, increases accountability, right? Because before you might have the software provider pointing the finger at the payments provider, the payments providers pointing the finger at the software provider. But now by integrating the two, you know, we own the relationship. We own the customer. And so it’s up to us to make sure that everything works.
Jona Georgiou: Exactly. And the level of support there is simply more streamlined. Like you said, there’s no pointing the fingers at one vendor to the other. It’s really, you secure Payments with a company like Lightspeed and you secure your POS through them as well and your support, and your concerns are addressed by that sole company.
Gus Papageorgiou: Switching now to kind of the traction of the solution. So, you know, we’ve said in our last call that about 15% of our U.S. retail GTV (gross transaction value) is going through Payments and that took us about 20 months to get there. In Canada, we’re seeing about 12% of the retail GTV go through Payments and only took us about eight months to get there. You know, what did we learn in the U.S. when we rolled out Payments that allow us to see faster adoption in Canada versus the U.S.? Can we talk about what things we learned and can we apply these as we try to roll this out globally?
Jona Georgiou: Yeah. So like any new product, it took a while to get the momentum going when we first launched Payments in the U.S. market. And launching Payments generally requires a lot of due diligence in terms of compliance, card brand rules, regulations. There’s a risk to think about, risk mitigation, building processes and teams. So we learned so much about the space initially and it was a huge learning curve for us. But most of all, what we learned is about our merchants, their needs. And what we noticed is that this is an underserved market and the customer experience is paramount to Lightspeed, which is why we took our time to get it right. But once we were set up, expansion or the thought of expansion was much easier. Bringing Payments to Canada was simpler because it required, you know, similar rails that we had already built in the U.S. because Canada, too, is credit card heavy. But then there was this element of localized experience that was introduced which is Interac in Canada. And once we understood the localized and understood how to build technology around these localized nuances and choosing the right payment partner, that would give us this opportunity, it became much easier. The adoption and we learn from our go to market strategies and just operations, back office was all streamlined. It put us in a very good position now, when you think about it, when we launch in EMEA (Europe, Middle East and Africa).
Gus Papageorgiou: I want to hit on, you know, regional differences a bit later on. But before we leave North America, you know, we’ve launched Payments in U.S. hospitality. Obviously, the hospitality industry recently has been struggling due to lockdowns. But, you know, as we kind of hopefully get out of these lockdowns and economies open up, can you talk about our expectations here? You know, especially given the latest two acquisitions of ShopKeep and Upserve that’s drastically increased our hospitality footprint in North America. You know, as we emerge from these lockdowns, what do you think are the potential for hospitality for us?
Jona Georgiou: We believe this segment is going to come back strong. I think we are all tired of being home and not socializing and with a large portion of our population getting vaccinated soon, there will be a need for the hospitality industry to be ready and to serve a vast population that has been deprived of basic human behavior, which is socializing and enjoying a meal. For Upserve, this could be huge. They have such a bespoke product to begin with and now with the acquisition, we are in a better position to launch in more markets. ShopKeep, on the other hand, has the vast majority of its customers based in retail and retail fared much better during this period.
Gus Papageorgiou: So we’ve done a pretty good job here in North America and we’re rolling out hospitality in the U.S. and hopefully Canada is coming soon. But North America is a very important market for us and Canada is our home base. We’re seeing great growth in places like Australia, which is further along their COVID recovery. And so we have kind of global ambitions for our Payments. And we launched Payments in the UK about a couple of weeks ago. But what’s next for Lightspeed? Where can we expect our platform to roll out next?
Jona Georgiou: Lightspeed is a global company. It has been for quite some time. And supporting our customers, not just in North America but globally, is something that we take very seriously. We’ve learned that providing an all-in-one solution makes our core SaaS products stickier. The long-term value increases tremendously when a merchant attaches Payments to their POS. We are aiming to provide this, you know, unified support across the globe, starting with EMEA and we just launched Lightspeed Payments in the UK, last month. We can see the opportunity here is massive. And building a commerce platform that offers a compelling payment product and incorporates positive customer experiences is huge. It’s paramount to Lightspeed.
Gus Papageorgiou: And, you know, here’s the one thing I think that people don’t realize is just how regional Payments is, right? You touched on it earlier, about Interac in Canada. You know, and obviously there are some commonalities globally as the big three card players are pretty much present everywhere. But there’s still quite a few differences, right? Like I mean, in Germany, I think the bulk of online transactions are not through credit cards, it’s through the local debit system. And I think the Netherlands is a lot the same. But can you talk about some of these regional challenges that we have to address as we plan to roll this out globally? Maybe give some examples, like if you compare Germany to the U.S., what are kind of the bigger differences between those two countries?
Jona Georgiou: You’re absolutely right. The way we pay emerges from culture, habits, innovation, technology that is available to us. And the unique mix of payment methods arises from local circumstances like, you know, government regulations, economic and political conditions, infrastructure, culture, all play a role in what gets offered locally in a region. Different payment methods and preferences are as diverse as people who use them. So, you know, in Germany, for example, adopting digital wallet technologies for e-comm is getting more and more popular. And even with that, it’s still a cash-based society at the point of sale. This has, of course, changed recently. But from a non-cash perspective, Germany is heavy on debit cards and very low on credit cards. Very, very different from what you see in the U.S., where credit cards are widely used and cash, not so much. And comparing these two countries in the e-comm space, again, U.S. very credit card heavy, whereas Germany, people pay direct debit on e-comm transactions. So you’ll see these local nuances and the methods of payment changing as you go across the globe. And even in EMEA, every region has its own localized debit and credit and paying methods.
Gus Papageorgiou: And of course, it takes time and a lot of programmers to integrate that into our Payments offering.
Jona Georgiou: Oh, yes, absolutely. I mean, the experience follows a completely different flow from a product standpoint. And also the connectors could be different. Meaning, you know, which terminal is used and which processor is used behind it, could be nuanced based on region as well.
Gus Papageorgiou: And I guess the other issue as well is that, you know, traditionally North America has been very retail-oriented for us, for ShopKeep and Upserve, and Europe has been very hospitality oriented. You know, we talk a little bit about that as we roll out our kind of global ambitions for Payments, our global footprint is very much hospitality oriented. How is that going to influence the role of Payments?
Jona Georgiou: The payment experience for retail and hospitality are pretty different. The flows are more complex with hospitality. As an example, the ability to split the bill several ways by customer, it could be by order. And these are more complex flows than purchasing a bike, as an example, from a retail store. Additionally, our merchants (consumers) are different using various services and there are local nuances to consider. We have different squads within Payments, within the Payments team, that look at the consumer experience and they specialize in each vertical. So we have a squad for retail, for hospitality, for golf. But at its core, it’s still the concept of processing payments. And so companies like Lightspeed look to partner with a global provider that is able to support a business and product needs. We chose to go with Adyen internationally, given their global footprint in the card present space. And once the localization and fiscalization and regulatory frameworks are resolved for each region, we then want to ignite Payments in each region of these geographies for both retail and hospitality
Gus Papageorgiou: You touched on another, I think, important theme here. You know, we did choose Adyen in Europe and Stripe, our partner in North America. What are kind of the benefits for us to kind of maintain multiple partners versus consolidating down to one partner?
Jona Georgiou: We are a global company, and we serve multiple verticals and there are complexities with that. And no single provider has to this point offered us a solution that meets all of our needs. So certain partners are better suited to certain countries than others, and certain providers offer a better experience depending on whether we are online, in retail, hospitality. And what we’ve really done is designed our system to support multiple processors, and we see a real merit in working with multiple payment partners.
Gus Papageorgiou: So we’ve talked about hospitality, we’ve talked about retail, and you have to roll out globally, so you’re going to be very busy over the next few months. Going a little bit beyond that. I mean, one of the initiatives that we rolled out recently as our Supplier Network and everybody internally is pretty excited about the potential there. Still a lot of heavy lifting to get it up to its potential. But, you know, one of the kind of avenues it opens up for us is the potential for B2B (business to business) payments, integrating our suppliers with the merchant or the restaurateur. Can we talk about that? How different is that going to be from what we have currently? What is the potential there? And what do you think are the biggest challenges to making that a reality?
Jona Georgiou: The B2B side of the business, the opportunity is massive, both from an innovation standpoint as well as revenue. The B2B segment has seen some megadeals in the recent years. It adds to the growing list of services you can offer as a company, be it invoicing, you could do international payment processing, payment analytics, issuing cards. The challenge again falls back to the current payment landscape, how they are built. Not all payment companies have an API-first mindset. So to launch Payments in the space successfully, you have to think of all the different payment mediums. One business owner’s preferred method of payment may not be someone else’s, and it could be that it’s not likely supported. So there are these traditional methods of wire transfer. Signing a check, that is pretty prevalent in B2B. Collections is another factor. But moving to a new and modern solution like ours would mitigate potential risks. Lastly, B2B payments is complicated. Coordinating that many payment methods is a time consuming and resource-intensive avenue. And we have to be very strategic on how we bring this to market. There is definitely a potential for additional revenue source here. So at the same time, it provides the consumer the benefits from faster payment, better customer experience, reclaim time, improved operational efficiency and a whole lot more.
Gus Papageorgiou: One of the questions I get a lot from investors is, you know, why isn’t Payments adoption 100%? Let’s let’s talk about that for a bit. You know, first of all, I think there are some industries where we cannot offer Payments currently. Is that correct?
Jona Georgiou: That’s right. The space is heavily regulated. We are not able to sell to a whole list of prohibited merchants. Like I mentioned, CBD, you know, pharmaceuticals and nutraceuticals being one of those. And while this certainly isn’t the majority of our business, these are industries that we currently support in our core business for retail. This prevents us from getting that 100% adoption you spoke about earlier. Plus with Payments comes risk, right? So we have to be mindful about who we are boarding. We have to make sure we know the merchants, know their customers, know their business requirements. So if a merchant is not able to meet certain risk criteria, we do not board them on Payments.
Gus Papageorgiou: Do you think eventually we will try to find partners that will help us onboard these merchants, or are we just going to kind of say, okay, well, we can’t access these merchants, we’ll just let it go?
Jona Georgiou: That would be ideal that we support these verticals as well. The standards are changing, specifically for CBD, we hear it in the news. The government, regulatory agencies, banks, financial institutions are evolving their policies around it and becoming more and more accepting. So our hope is that we would be able to support, and we don’t have to scout for a new high-risk processor and we can leverage our existing partnerships sometime in the future.
Gus Papageorgiou: Hopefully that will just kind of work itself out as some of these regulations change. But okay, so if we remove that fact that, you know, certain segments, certain verticals are not eligible for Payments, aside from that, what is the biggest reason customers decline Payments?
Jona Georgiou: I think it’s just oftentimes, it’s just having to switch. A large portion of our business is in the brick and mortar space and to switch terminals, pay for them, negotiate again, some merchants just don’t want to go through that, especially if they have an existing deal that is very cost effective. So not all merchants are looking for innovations, especially the really small businesses. They just want to take payments and get paid.
Gus Papageorgiou: You have enough issues on your plate when you’re trying to run a small business. But one of the things I think that helps Payments adoption is just really the value proposition for customers, right? The ability for us to integrate Payments into the software, I think offers a lot more value for our customers. And maybe we could just discuss that for a bit. I mean, if you look at the value proposition, how do we sell this to customers?
Jona Georgiou: There are numerous advantages of Lightspeed Payments as an integrated solution. First of all, like I mentioned, it’s an all-in-one solution that helps the merchant grow and reinvent their business. And they don’t have to, you know, manage these different relationships with their vendors like the POS and the processor and the accounting and, you know, reconciliation. And merchants are able to process sales faster with integrated payments and with Lightspeed Payments. And, you know, when you process sales faster there’s less human errors, you don’t have to punch numbers on your terminal anymore. So, you know, the checkout flows, and becomes more delightful. And, you know, it’s also automatically syncing your payment information with your sale information. And additionally, it kind of covers all the processing needs, like the whole omni experience online, in store and now curbside. So Payments also provides that customer the insights, that comprehensive reporting, to see their transactions and their respective payouts so they don’t have to spend time reconciling their books. And it provides a very simple, transparent pricing for the merchants. So no hidden costs or setup fees or monthly minimums or getting, you know, fined for early termination as an example. So that’s simplicity. And with the value prop, it gets the merchant a complete commerce experience without the hassle of maintaining several different books or vendor relationships. And they can really focus on what they do best.
Gus Papageorgiou: I think this really is a key value proposition here and kind of in line with our omnichannel strategy that Dax (Founder and CEO of Lightspeed) and JP (President of Lightspeed) are really highlighting, right? I mean, the fact that you have one payment method for in-store, curbside, online also really helps, you know, with the data that you have, the analytics, the loyalty. So you can really kind of optimize your business and your operations and really kind of hopefully help them increase their sales and just make life generally more prosperous for them.
Jona Georgiou: Absolutely. It truly is that, you know, single source of truth and it adds up. Like it ties in the merchant information to run the business on the data and the products. And they’re able to seriously streamline some of these dated processes that have been used historically.
Gus Papageorgiou: So, you know, if you look over the next few months and years as there’s no shortage of challenges on our hands, on your hands. You have to roll out Payments globally, what you’re doing. We have to light up both retail and hospitality. So a lot of work there. But as we knock down these obstacles, what do you see as the impediment for us achieving a much higher penetration of our GTV going through Payments? I mean, versus right now, we’ve said that less than 10% of our GTV is going through Payments if we look out. Do you think there’s any impediments for us getting that number much, much higher?
Jona Georgiou: There are challenges. And part of the challenge is what I mentioned in the beginning of our chat: is a lot of SaaS companies were so focused on their core business that Payments was more on the referrals side. And now part of the challenge has been launching Payments broadly beyond North America is that these several different referral partnerships that we have to look into, they don’t bring that kind of economics that Payments does. So, yes, a few challenges, but for the most part, these are all solvable. Some might be more complex than others. But no, I see the penetration of GTV growth tremendously in the future.
Gus Papageorgiou: Another question I get is just on the margins of Payments. And we’ve stated publicly that we’re getting roughly 2.6% per transaction and our gross margins for Payments is in the mid 20% range. You know, if we look out a few years, hopefully our GTV grows, hopefully our customer base grows. What can we expect from margins from the payment solutions over the long term?
Jona Georgiou: I think cost optimization plays a role. It’s something that I have had in my mind for quite some time. There are several ways to handle them. It could be through negotiating better rates with your payment provider, and as we grow our business and have more GTV flowing through Payments, economies of scale kicks in and we get better rates. So then on top of that, if you send level three data, which is, you know, just enhanced transaction data, like adding zip code and tax rate and invoice reference number to your processors, you know, you can qualify for better interchange rate, which makes up the majority of our cost. So bring additional optionality on Payments also to improve these margins, such as instant payout, that could bring additional revenue streams to Payments and financial services overall.
Gus Papageorgiou: So it’s not just scale and cost. It’s also, you know, offering more financial services. And just so that hits on my next point before I let you go, I think Lightspeed Capital also falls within your responsibilities. Now we have our Capital offering, and we recently acquired ShopKeep which had a much more advanced Capital business. Can you discuss the difference between these approaches, between Lightspeed and ShopKeep?
Jona Georgiou: Both capital products are merchant cash advances. Lightspeed Capital is still pretty much in its early stage and we are building on some flows within the product. ShopKeep Capital, on the other hand, has been around since 2019. So prior to the acquisition of ShopKeep, that product, they were using their own funds and they built the product for both integrated payment customers as well as non-integrated. They built their own underwriting and operations and team and they have their own list of eligibility requirements. And once a merchant’s passed those eligibility requirements, they’re able to bring capital to those customers, regardless whether they’re ShopKeep merchants that are integrated or not. The ex-CFO of ShopKeep is executing on this initiative and exploring ways to expand it further. Lightspeed Capital used Stripe infrastructure to offer capital to only a group of customers that are Lightspeed Payments-only merchants. The eligibility thresholds are a little less flexible because, you know, in that model, Stripe owns the risk at the moment and we are iterating and constantly iterating as we are learning more. But Lightspeed Capital is evolving and as the product is getting built, we are looking at creative ways which strive to improve the experience and grow adoption. But I must point out, the advantage here on Lightspeed Capital is we are learning a ton. We are learning so much about having this offering, what merchants’ needs are, and a lot around the requirements where and how they’re using the capital. So the good thing is it’s all under one umbrella now.
Gus Papageorgiou: And if you if you look at the offerings that we’re putting out there and the traction, I mean, obviously still very early. Can you discuss a little bit about the, you know, the typical working capital advance that we’re seeing and maybe about the duration of the payback?
Jona Georgiou: We are still early in the process, so we are seeing how it evolves. Our maximum advance is $100,000 USD, but our average is much lower than that. Generally an advance is set to be repaid through daily reimbursements over six to nine months.
Gus Papageorgiou: And then if you look at the two, if we compare Lightspeed then versus the ShopKeep approach, you know, which do you think will be more appropriate for us going forward?
Jona Georgiou: It’ll be a blend of the two. Both will be upgraded to the verticals we serve. This is us looking ahead, you know, eight to 10 months in and making this offer global while Lightspeed Capital will operate around the boundaries of Lightspeed Payments. ShopKeep, on the other hand, given they are quite a bit more advanced in their product, will be extended to merchants currently not on Payments but are still looking to get that, you know, aid to run the business. The aim here is to be there for our merchants when they need us, specifically during times like these, right? So where they are looking for support or thinking of ways on how to bring their business back and thrive again in the economy as things open up, we want to be there for our merchants and help them with Capital where possible. And we are looking to be their partner during this phase and looking to support them as much as possible.
Gus Papageorgiou: And so, as you say, currently Capital for us is only available in the U.S., but our intentions are eventually to roll this out globally, correct?
Jona Georgiou: We are looking into it. Obviously, there will be local regulations to follow, just like we had to do for Payments. But we are working through those details at the moment.
Gus Papageorgiou: Ok, one last topic before I let you go here. So we’ve launched Payments and it’s doing quite well. More recently, we launched Capital and you know, we think that business has promise as well. What do you think we can offer in addition to these financial services for our customers? If we look out a few years, what is the potential for Lightspeed’s financial services to expand not just geographically, but in terms of the solutions that we offer?
Jona Georgiou: Quite honestly, we have a whole flywheel of financial products that would be a natural extension of Payments to build. We have the foundation done, which is Payments, and we are getting better and better at that. And then the idea is to help our merchants make, move and manage their money. So the obvious one here is instant deposit, paying the merchant their sales volume instantly on the debit cards. And that’s something that would be the next stop for us.
Gus Papageorgiou: Well, it seems that there’s no shortage of things on your to-do list over the next few years, so that’s great. Jona, I want to thank you for joining us today. And we look forward to maybe speaking to you again in the future.
Jona Georgiou: Thank you, Gus. It was a pleasure. I’m always happy talking about Payments.
Gus Papageorgiou: Great. Thanks, everyone. Thank you for listening to Inside Lightspeed. For more information about Lightspeed’s integrated payment offering, visit LightspeedHQ.com. If you aren’t already, be sure to follow Lightspeed on LinkedIn, Facebook, Twitter and Instagram. Our handle is LightspeedHQ. Original music for the episode was composed by Timothy LeClaire. The episode was edited by Jonathan Beaten and produced by Lightspeed. See you next time.