There is a tendency among payment companies to position themselves as software businesses. Toast is a software company, Lightspeed Commerce is a software company….Today I would like to profile a payments company that does not follow this trend. Shift4 Payments (NYSE: FOUR 0.00) is in the business of accepting and processing payments and does not pretend to be something else. Similar to Toast and Lightspeed Commerce, Shift4 offers Point-of-Sale software, an e-commerce platform, and a number of other software solutions (marketing, loyalty, ticketing, etc.), but payment processing is at the core of what the company does.

Perhaps, it is the focus on its core competence that allowed the company to deliver consistent revenue growth while maintaining profitability on an Adjusted EBITDA basis. Shift4 also reached GAAP profitability in its latest reported quarter, so perhaps, being a payments company, and not a software business, is not such a bad thing after all. Anyways, let’s take a closer look at Shift4 Payments.

Business Overview

In their own words, Shift4 Payments is “a leading independent provider of payment acceptance and payment processing technology solutions in the United States.” The company provides its merchant clients with end-to-end solutions for accepting payments including merchant acquiring, Point-of-Sale (POS) software, integrated hardware (under the brands Harbortouch and SkyTab), payment processing, as well as e-commerce platform capabilities (under the brand Shift4Shop). The company’s closest competitors in the United States are Square, Toast, and Lightspeed Commerce.

Image source: SkyTab by Shift4

Shift4 merchants operate across multiple verticals, including food and beverage, hospitality, sports and entertainment, gaming, specialty retail, and non-profits, and range from small and medium-sized businesses to large enterprises. The company refers to its restaurant, hospitality, and retail customers as “High growth core”, and sports and entertainment, gaming, non-profits, and e-commerce customers, as “New verticals”.

The company served over 200,000 customers at the end of 2021, including such well-known brands as Burger King, Wendy’s, Best Western, Wyndham Hotels & Resorts, and Hilton. In November 2021, the company also signed a 5-year deal to process payments for Elon Musk’s Starlink.

As I wrote in “Fintech companies powering “in real life” commerce“, Shift4 Payments was founded in 1999 and went through several iterations, changing the name along the way. In 2018, still operating under the name Lighthouse Network, the company acquired a payment gateway provider Shift4 Corporation and rebranded the whole group into Shift4 Payments.

The company went public in June 2020 and has since then continued to pursue acquisitions to grow its customer base or expand into new verticals. For instance, in 2020 Shift4 acquired 3dCart, which became the foundation for Shift4Shop, the company’s e-commerce offering. In 2021, Shift4 acquired VenueNext, which allowed the company to expand into the sports and entertainment vertical.

Image source: Investor Day Presentation

In March 2022 the company announced the acquisition of The Giving Block, a platform for non-profits to accept cryptocurrency donations, and Finaro, a European e-commerce acquirer with a banking license. The premise is that the acquisition of The Giving Block will boost the company’s presence in the non-profit segment, while the acquisition of Finaro, will springboard the company’s global expansion.

Payment Volume

The company does not regularly disclose the number of customers, customer locations, or the total value of gross merchandise sold via the company’s POS solutions. Thus, “end-to-end payment volume” is pretty much the only non-financial metric disclosed regularly. Shift4 defines “end-to-end payment volume” as “the total dollar amount of card payments that we authorize and settle on behalf of our merchants.”

Shift4’s end-to-end payment volume grew at a CAGR of 42% during the 2018-2021 period, reaching $46.7 billion in 2021. The company’s management is expecting end-to-end payment volume to reach $68-70 billion in 2022, which would represent a 46-50% increase compared to 2021.

If you read my profile of Lightspeed Commerce (NYSE: LSPD), you’d remember that the company reports two metrics, Gross Transaction Value (GTV), and Gross Payment Volume (GPV). In short, GTV is the total value of the transactions initiated from Lightspeed POS terminals, while GPV is a portion of GTV, which was processed by Lightspeed end-to-end.

In the case of Shift4, the company reports only the “end-to-end payment volume”, which would be the equivalent of the Gross Payment Volume for Lightspeed. “End-to-end volume” does not include volume processed by gateway-only customers via third-party processors. Migration of such “gateway-only” customers to end-to-end payment processing is one of the key priorities for the company. Shift4 estimates the migration opportunity at $180 billion in end-to-end payment volume in their Q4 2021 shareholder letter.

The acquisition of Finaro is expected to contribute approximately $15 billion to the total end-to-end payment volume in 2023 (following the expected closing of the transaction at the end of 2022).