$35 billion fintech Stripe just inked a deal with hospitality PoS-maker Lightspeed - and it's a case study in navigating the tricky world of payments
- Lightspeed is a point-of-sale software provider for hospitality companies, restaurants, and niche retailers, and it just launched a payments product in partnership with payments startup Stripe.
- Lightspeed's partnership with Stripe is big, but there are still gaps in the payment world that Lightspeed will need to fill with other payments processors. CBD merchants, for example, are restricted from Stripe's network.
- Here's what the Lightspeed partnership with Stripe means in the context of payments, and where Lightspeed plans to go next using Stripe's other products.
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Montreal-based point-of-sale software company Lightspeed announced a new partnership with the buzzy $35 billion startup Stripe last week.
But Lightspeed's Stripe partnership, which will power Lightspeed's online and in-store payments product, isn't so cut-and-dry, highlighting some of the complexities of the payment world.
Behind the scenes, payments are complicated with a multi-pronged network of players on the value chain. There are layers of payments processors, facilitators, and, ultimately, both online and in-store checkouts that the end consumers see.
It can be hard to sort out who owns what in the multi-layered process that happens behind the scenes each time a consumer makes a purchase.
Not only that, but what's being sold can also impact the type of payments companies you work with. In this case, Stripe Connect won't be able to power all of Lightspeed's payments.
Lightspeed's customers are mostly hospitality companies, restaurants, and niche retailers that are based across the globe. Their products and services are very broad and range from reptile pet supplies to CBD.
However, payments related to the sale of CBD, gambling, or adult entertainment, for example, are restricted from the Stripe platform, according to its website. In a blog post, Stripe explains that given their partnerships with financial institutions like Visa and Mastercard, it needs to work within the requirements of those companies. So in that case, Lightspeed would choose to use a different payments facilitator.
"We might have to create partnerships with more specialized payments companies that will accept merchants that sell CBD, or adult, or a number of things that could be restricted items," Lightspeed CEO Dax Dasilva told Business Insider.
Prior to the Stripe deal, Lightspeed also had partnerships with payments infrastructure startup Finix (which just raised a $35 million Series B led by Sequoia Capital) and FIS' Worldpay. Sequoia Capital also invested in Stripe.
Finix allows companies to build their own payments systems instead of relying on an outside firm like Stripe.
Lightspeed declined to confirm what partners it would depend on for different types of transactions, while a Finix spokesperson confirmed that Lightspeed remains a customer.
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Lightspeed offers online and in-store PoS systems to hospitality companies and retailers. Its products include inventory management, accounting, customer loyalty programs, and also payments, which initially launched last year.
Lightspeed Payments will now be rolled out in partnership with Stripe Connect and Stripe's in-store PoS terminals.
Stripe Connect is a payments platform designed for other platforms and marketplaces like social media companies, ride-sharing services, and ecommerce players. With its infrastructure, clients with multiple buyers and sellers can onboard new sellers and manage payments in and out through one system.
Connect customers include Facebook, GitHub, Lyft, and Shopify. Stripe charges its Connect customers 2.9% plus 30 cents for every successful card transaction processed on behalf of those kinds of companies on its network.
In an earnings call last week, Lightspeed finance chief Brandon Blair Nussey noted that the company expects the cost of the Stripe partnership to be comparable to its existing processing relationship.
Lightspeed, like Lyft and Shopify, is a platform for sellers, but Lightspeed caters to more complex businesses, Dasilva, the company's CEO, told Business Insider. It works with bike shops, golf courses, jewelry stores, and other businesses that have large or high-value inventories and multiple sales channels, like rentals or on-site restaurants.
In addition to providing online payments via Stripe Connect, Lightspeed's brick-and-mortar customers will use Stripe Terminal in-store payments hardware. Lightspeed and its customers will be able to customize Stripe's terminals with their own branding.
Stripe opens the door for Lightspeed to do more, like lending
Part of the reason Lightspeed is partnering with Stripe, Dasilva said, is because of the other products Stripe has to offer.
In addition to payments, Stripe has rolled out card issuing capabilities, small business lending through Stripe Capital, and a corporate card product.
Lightspeed, in turn, is considering doing its own lending to businesses through Stripe Capital, among other things.
"There are different tools for us to do things like same-day funding, credit, and lending," Dasilva said.
"That's certainly one of the attractions of the partnership is the innovation curve that we'll get to ride of Stripe," Nussey said in the recent earnings call. "And of course, they do have a capital solution. So that's one of the things that attracted us to the partnership."
"Lightspeed initially wanted to become a payment facilitator, which means that they would play a very direct role in the payment processing value chain," Jordan McKee, research director of customer experience and commerce at 451 Research, told Business Insider.
But acting as a payments facilitator ("payfac" in industry lingo) requires substantial investments in tech and headcount. So software companies like Lightspeed, GitHub, and Lyft often opt for payfac providers like Stripe.
"Stripe is now the payment processor that Lightspeed Payments is built on top of," said McKee. "What that means is that Lightspeed is now out of the flow of funds, so they don't have to deal with some of the regulatory burden and the risk management associated with that."