We recently wrote about payment processing solutions for midsize businesses. One of the market leaders in providing payment processing solutions for the midsize segment is Lightspeed. LTP CEO, Aditya Khurjekar, had an opportunity to chat with Lightspeed CEO, Dax Dasilva. Lightspeed is a fast-growing startup headquartered in Canada that has helped more than 25,000 businesses sell and manage their inventory via their POS system. Dax gave us an overview of the stage the company is in right now and shared his insights on EMV implementation and how the October 1 deadline affected the players in the market—payment processors and merchants. Here is the transcript of the interview with Dax:
LTP: There is a lot of discussion around the EMV transition, especially regarding readiness, given that the deadline was October 1. We at LTP were recently researching the needs of midsize merchants as they seem to be relatively ignore. Can you get us started with an overview of Lightspeed and then your thoughts on EMV readiness.
Dax Dasilva: Yes, sure. As you know, we have been running our business for 10 years and provide payment services for independent retailers & restaurateurs at the point-of-sale. We have about 25,000 locations. We do everything with processing payments, keeping track of inventory and serving customers. We are on the bigger side of the SMB category; our clients have an average annual revenue of $200,000—we are not doing much with micro-merchants. Square’s average is around $8,000 and Shopify’s is about $20,000-30,000 because they are primarily e-commerce. Many of our clients have online shopping options, but they also have physical locations and physical inventories. They do a certain volume and that is our sweet spot. On the retail side, we are doing inventory, complex workflows and on the restaurant side, we do table service, bars, nightclubs, etc. There is more complexity and those businesses need deeper tools. Our sweet spot is a mainstream independent business that requires a little bit more than out of the box technology and we want to make it as customizable as possible. Retailers and restaurateurs have to be multiple personalities nowadays: they have to be amazing in their store locations; they have to be great online, they have to be great on social media and they have to have an excellent back office to do the right ordering. They have all these expectations now as a retail business or as a restaurant; it is only through systems they are going to be able to multiply their efforts. So we decided to make sure that they do not have to worry about the technology and can focus on their customers and business model. That is what Lightspeed is about. We recently raised $61 million in the Series C funding round, which brings the total funding to $126 million. We are now one of the best funded in the points-of-sale space. We operated with no investment for the first seven years and only took our first investment in 2012. We have 25,000 customers in 100 countries processing $10 billion in annual transaction volume a year. Our customers are transacting quite a significant volume because of what they sell. They’re premium merchant restaurants with high tickets per sale. That is one of the reasons why EMV is very important to our clients. That is why we spend so much time and energy making sure that we are EMV-capable, not just EMV-ready. We were surprised that not just our competitors, but also many people in our space were caught cold-footed yesterday; they were with EMV partners that were not certified yet. They offer their customers the EMV liability coverage because they are not ready; it is just industry-wide. A lot of the processors are not certified yet. We worked with Cayan and others, but most of our customers are with Cayan and Cayan receives their certification from First Data. We have thousands of Genius terminals that are EMV-capable and we are turning on the EMV mode in phases. It’s nice to know that we are ahead, and that’s on all our products for retail and restaurant. This has been such a big priority for Lightspeed because our customers have the most to lose. They are selling the high-value inventory, they are transacting the table service dinner that can be several hundred dollars. If someone comes with a fake credit card and there is fraud, our customers have much more to lose than a Square micro-merchant. That is why we spending so much time to educate our customer base. We want them to be as prepared as possible and understand what it means.
LTP: Your primary objective for the latest round was on international expansion. Can you share with us what types of initiatives you are investing in when it comes to international expansion? Is there any focus?
DD: Our retail software is very strong in North America and our restaurant software is very strong in Europe. So, for us, international expansion means bringing retail to Europe and bringing restaurants to North America. We want all of our sales offices to sell all of our products, to have local infrastructure, to have local payment integration and internationalized software platforms supporting multiple languages with documentation in multiple languages. All of this takes people and resources. We have a great sales channel and partner channel. That’s our plan for the international expansion of those two products. In addition, we are making large investments in e-commerce to take it to another level. Our retail stores are premium independent retailers and they want more customized ability and more power. Therefore, we are heavily investing to give them that and to take them online. We are also investing in the infrastructure of our systems because we are scaling and adding 1000 new customers a month.
LTP: Let us go back to your comment on working with Cayan. How would you characterize all the various players that are involved here in the payment processing market in regard with EMV implementation? Can you share some thoughts on the dynamics of how are you sharing the burden and dealing with it as a team?
DD: For our industry, it has been a year of discovery. Just imagine the amount of work the processors had to do this year in terms of preparing their systems for certification, understanding certification, understanding the liability shift, the coverage, integrating new hardware, etc. Honestly, today, I am not sure I will see a full working EMV demonstration from many players. All these pieces—the certification, the hardware integration, the software developers’ kit, all this stuff was in a working process. We are still talking to customers to understand their concerns and needs to see how we can get ready for this. Our processing partners are also trying to prepare. We are trying to integrate with SDKs from a POS perspective and it may not be ready. Everybody is trying their best to do the best for their customers on October 1. I was very happy when our processing partner got its EMV certification recently. It was not that long, just weeks ago. Many are still not certified, so it is a definite win. We will allow our clients to process EMV payments today or tomorrow. However, we cannot just switch people. It will be chaotic. We will divide them into groups and switch little by little.
LTP: Why is it hard? What is the difficulty in turning on the switch for everybody?
DD: When it comes to “everybody,” there is a massive training issue. If we turn it on for everybody overnight, we can expect several hundred or thousands of calls. Both we and Cayan have already doubled the calls volume. Everybody wants hardware and assistance with installation. People are still ordering their EMV hardware. We will turn the switch on and provide assistance to those who need it. That is a spike in calls that we want to be able to manage and help everybody get what they need. However, at the same time, if the stores have their EMV mode turned off for a week even though they have EMV hardware from us and Cayan and our software, and in case there is an EMV-related charge anywhere, they are going to be covered because the liability was shifted and it is recovered by us. We do not anticipate a lot of that; retailers and restaurateurs have invested in the EMV hardware, but the EMV mode has not been enabled yet. We need to do everything for them to know they are covered. However, it is impossible for anyone to EMV-enable everyone at one time. We cannot help everyone all at once.
LTP: There were mobile payments and contactless payments years before EMV came. Are they going to accelerate? Are you even thinking about contactless?
DD: We are getting contactless with this investment. Our team’s terminals can take Samsung Pay, Android Pay and Apple Pay. That is something that people get with their investments in EMV hardware. In fact, even before we turn on the EMV mode, people can use contactless today.
LTP: What is the difference between readiness for contactless payments and other types of payments behind the scene?
DD: Well, contactless is not accepted everywhere. Not everybody has an iPhone 6 or an NFC-enabled Android or Samsung phone. However, more and more people are getting it and trying to pay in a contactless fashion. Clerks in restaurants are starting to get used to taking payments that way; it’s also an education thing. I think contactless is going to take off. There may be the case when people pay contactless before they even pay with their chip card although, there has actually been a step backwards on mobile payments. We did very well the last couple of years, as did Square, having card swipes that connect to iPads. You can walk around with your mobile device and accept payments anywhere in the store. Mostly, those are the counter-on devices that are available and certified. We do not see mobile devices in the field as much quite yet. I think because of the EMV, we are taking a step back with the mobile payments. But when it does come back—when the hardware will be working for more mobile EMV devices—then we will see better security for mobile payments than what we had before. Hopefully, we will be back where we used to be.
LTP: That is a great point. EMV implementation is actually almost an excuse to do the bigger thing. EMV itself may not give you direct benefits as a retailer, but investing in something that allows you to do omnichannel, to do e-commerce better and quality better is certainly of value for the business and their customers. Do you agree?
DD: Yes, EMV is like a checkbox among other things that everybody has to do to make their business better—whether it is an EMV deadline in the US or physical printing requirement in Europe which is soon coming to Latin America where every restaurant will have to have a printing box to report transactions to the government. All those regulations are reasons to reexamine their systems. It also forces companies to look at omnichannel systems. I think it is going to be a positive change and it is a way to get to another level and serve customers better, gain better loyalty and provide a better experience. It is an investment to change systems for something like EMV, but there is more benefit in that than just EMV.