The payment provider space is a complex and crowded field in the payments universe, particularly when it comes to supporting merchants. Independent Sales Organizations, Payment Facilitators, and Commerce Enablers all work to simplify payment acceptance for merchants, yet they each craft specific go-to-market strategies and differentiated value propositions. The diversity of these stakeholders underscores the diversity of merchants’ payment acceptance requirements.

In this episode, we had the opportunity to talk with Jared Isaacman, Founder and CEO of the Integrated Payments Provider, Shift4. Over the past 24 years, Shift4 has evolved by addressing the unique requirements of merchant categories and sub-categories in the increasingly complex Point of Sale (POS) environment. Jared’s insights on how he bootstrapped the company to an IPO, successfully integrated multiple acquisitions, and often takes a problem-solving approach that highlights a different ethos than his peers makes this conversation soar.

Yvette Bohanan:

Welcome to Payments On Fire, a podcast from Glenbrook Partners about the payments industry, how it works, and trends in its evolution.

Hello, I’m Yvette Bohanan, a partner at Glenbrook and your host for Payments on Fire. What’s a moonshot? In baseball, it’s a home run hit high into the sky. In aeronautics, it’s launching a spacecraft. For this episode, we’re adopting the definition of a moonshot as an attitude towards life and a way of thinking that drives individuals to believe that the impossible is possible.

And we have the perfect guest for this episode, someone who embodies this definition and, as it turns out, has been to space. Jared Isaacman is the founder and CEO of Shift4. Jared founded Shift4 in 1999 and defined a streamlined merchant application process that cut the time it took for merchants to accept their first card payment from one month down to one day and he threw in the card readers for free. For those of you new to payments, in 1999, that was moonshot thinking. That was just the beginning for Shift4 and for Jared who took Shift4 public on the New York Stock Exchange in 2020, has founded and sold Draken International, a private air force provider, broke the record for circumnavigating the Earth in a light jet and, currently is trailblazing civilian space travel.

In this episode, we discuss everything from scaling a payment service provider business to what you say to your children before heading into outer space. Joining me for this episode is Bryan Derman, a partner at Glenbrook. Bryan, always great to have you on the podcast.

Bryan Derman:

Thanks a lot, Yvette. Great to be with you and excited to be part of this discussion.

Yvette Bohanan:

Me too. Jared, welcome to Payments on Fire. We are absolutely delighted, dare I say, over the moon, that you are spending some time with us on this episode.

Jared Isaacman:

It’s great to be here. Thanks for having me.

Yvette Bohanan:

Fantastic. Let’s get going. I’ve got to jump right in. Shift4, flies somewhat under the radar in the payments industry. You’ve led the company through a significant evolution, both in terms of your target markets, your go-to-market strategies, even the corporate name. For those who are a little bit less familiar with the company, can you take us through the arc of its history? How did this all start?

Jared Isaacman:

Oh. Well, I hope we have enough time. It’s been a 24-year journey. Shift4 was essentially started in my parents’ basement when I was 16 years old so it was quite some time ago. At first, we were really just a general practitioner of payments. I mean, this was during the acceptance time period of just helping a pizza place or a restaurant wanting to accept credit cards.

But we evolved from there, it didn’t take more than a few years in business to realize that if you wanted to find really enduring success in this industry, you had to provide more value than simply an approval or a decline. You had to provide a broader commerce enabling experience and that’s how you would go out and win over customers that you otherwise wouldn’t be able to get and then retain them a lot longer.

So we began that journey by bringing together hardware, software, and payments specific to the restaurant industry. Now, this is back in 2005 and this began our integrated payments journey. When we refer to integrated payments, it’s, again, it’s bringing together software plus payments to give a broader commerce experience. We’ve grown very, very fast since then and moving from one swim lane within restaurants, which is kind of the Irish pub on the corner all the way up to your Bloomin’ Brand, Cheesecake Factory’s of the world.

And then, sought out really some of the most demanding challenging cases in payments. So when you mentioned not a lot of people or maybe have heard of us, we fly under the radar, it’s because we’re not the Square terminals or the Clover ones that you can see at the coffee shop, we’re behind the scenes in the server rooms at half the Las Vegas strip or about 40% of the hotels in the country or increasingly large percentage of major stadiums and theme parks that you would go to with your family and such. So we’ve sought out that really challenging, complicated end of the integrated payment spectrum, and it began with, really, our first entry into restaurants, geez, almost 19, 20 years ago.

Yvette Bohanan:

Mm-hmm. Wow. So a lot’s changed but a lot has stayed the same. This notion of a commerce enablement in 2005 was pretty novel, especially a point of sale. Everything was all focused on internet, what was going on in card not present. So you were innovating in a space that really needed help but was a little bit ignored, for lack of a better word.

Jared Isaacman:

Yeah. I think it was just there was multiple parallel industries that were all serving a common customer. So people selling point of sale system hardware, people selling point of sale system software, and then of course, your payments professionals. And ultimately, the three wound up getting together, it just became a lot more costly for the customer and they didn’t have that one hand to shake, one throat to choke. You had to deal with multiple different vendors.

So I think really at 2004, 2005 time period where we began our integrated payments journey, it was, “Look, if we bring all these together and vertically integrate under one roof, the overall cost to the customer is going to be a lot less. We’re going to attract and retain a much higher quality payments customer and your take rates or the value you’re going to get for that service will be higher because you’re delivering a better experience than simply spitting out a receipt when the card either approves or declines.

We’ve stayed true to that path, finding complexity. That was just one example of hardware, software, and payments for a restaurant but if you think about some of our customers in the hospitality environment, big casino and resorts or stadiums, they’re using 10 different types of software coming from 10 different vendors. It’s really the same story as it was 19 years ago, just at far greater complexity and we love that. That’s what we seek out.

Bryan Derman:

So Jared, my insertion point into your history came in 2015 where, in full disclosure, I was supporting an investor who was looking at a private investment in the company that I think was known as Harbor Touch at the time and my recollection from then is integrating into lots of different software packages was a big initiative. I think since then, the more current strategy reminds me a little more of the so-called full stack players that we associate Stripe, Adyen and, of course, Square there. What is your thought process around the move to full stack and the change that represents?

Jared Isaacman:

Well, I think it’s incredibly important. I think that the payments industry got a bad rap for a very long time because they outsourced extensively and gave a horrific experience to the customer. And I think that was largely based on the belief that as long as we just kept distributing credit cards, that businesses would do business with their consumers the way they want to do business with them and you didn’t have to provide a good service.

But that all changes when it just becomes an entirely different game involving the complexities around software and a broader commerce experience, I think it’s why you’ve seen some real winners in the space, whether you want to talk Shopify or Stripe, Square, that absolutely provide a number of different products and services that benefit the customer beyond a transaction. And similar to our early entry back in 2005, you’re winning over customers that really don’t want to go anywhere else because of the value that’s being provided.

In 2015 when you may have gotten to know us at Harbor Touch, we were largely focused on just restaurants at that point. We may have had a couple pieces of software, we were doing great and growing really fast. Our evolution to Shift4 came after the acquisition of a payment gateway that absolutely brought more end processing capabilities in-house but also brought us hundreds of different software integrations that covered a very large portion of card present commerce in the United States. It has obviously fielded a substantial amount of growth.

I mean, we now touch very close to a quarter of a trillion in payment volume every year but we’ve developed very strong expertise in in-venue or card present payments. Which to those extraordinary companies you mentioned before like Stripe or Adyen who are coming from a card not present expertise, it gives us some natural points of difference which we like.

Bryan Derman:

Yeah. I’ve had that question a number of times from investors, “Which is harder, for a point of sale company to handle e-commerce or for an e-commerce PSP to go to the physical world?” and we certainly come down on the latter. Suddenly, the physical world is the complicated one after a lot of years of e-commerce. How do you, in talking to merchants, whether they’re restaurants, sports venues, hotels, what is the case you make for consolidating efforts across the POS system, the front facing software, and the payment processing? What are the advantages that you say to a merchant of arguably putting a lot of eggs in one basket?

Jared Isaacman:

Yeah. It’s a good question. I think it does vary by vertical. I mean, a large part of our job is to solve pain points for our customers and I can tell you, sports and entertainment stadiums and theme parks, what they’re trying to solve for and why we’re winning there is very different than why we win in, for example, in hotels or restaurants.

For example, stadiums and theme parks, it was all about the mobile experience. Nobody wants to wait in line at halftime to get a beer and a burger. You want to be able to order in your seat and it’s brought right to you and that’s where that capability begins. But then, it goes beyond that where now it has ticketing involved or you cashless checkout to buy your sports jersey for your favorite new soccer player in Miami, for example. Mobile was everything for them.

I mean, the pandemic really forced a pretty big evolution there and that worked out very well because our sports entertainment product was designed to focus on the fan, a mobile first experience. In hotels, a lot of it is about speed. So the hotel industry for a long time was underserved because they had a separate gateway and a separate processor, a separate merchant acquirer. They were buying PCI-validated devices from another provider who was installing it. And the cost certainly added up, but the time to implement, I mean, you were planning rollouts for hotels that constantly reflag or add new franchisees, was pushing 90 days out. We were able to differentiate in that vertical with only two other competitors by really having all those links into payments value chain under one roof.

We’re a PCI-validated KIF so we can program and deploy our devices very quickly. We are the gateway, so we have all the software integrations, their property management system. We’re also the acquirer and processor. So overall, you’re able to deliver a lower effective cost of service much, much quicker. But it varies, right? In restaurants, for example, at one point in time, 10, 15 years ago, only the largest restaurants could afford a Micros type system.

And then, we came out with Harbor Touch which is the brand you knew that had a lot of success with SMBs. Of late, it’s really taking all the different integrations that are required for a restaurant to be successful and bringing it under one cloud-based solution. So with Grubhub and Uber Eats and DoorDash, you’d have six iPads on the wall. Nobody wants that anymore. They’d rather just log into a single cloud solution and get a sense of what’s going on.

Those are the pain points that we try and solve, it’s how we differentiate and then you win a customer. But another part of your question was like, “How does everybody feel about having everything under one roof or putting all their eggs in one basket?” and it’s… I know that is a trend that I don’t think is going to reverse course anytime soon. I mean, if you look at whether it’s Toast, Square, Shopify, Stripe, the value they’re providing is the fact that they have all these capabilities on a single integrated platform and it makes it easier.

Bryan Derman:

Make it all work together.

Jared Isaacman:

Yeah. I think only your huge, your Home Depot’s, your Walmart’s are probably putting some value in having a few extra lanes of redundancy.

Bryan Derman:

Indeed. Well, good to know it’ll be easy to get a new number 10 jersey for a bunch of us who are now in the market for one in Miami.

Yvette Bohanan:

That’s right. So you’re talking about integration in one level in terms of the software, in terms of the experience, in terms of what the merchant has to deal with. There’s another type of integration that’s been pretty common around point of sale and that’s the integrating companies, M&A type integrations. And there’s a long tradition or history at point of sale of ISO roll-ups, tech acquisitions like you’re talking about. You’ve acquired a gateway, Merchantlink. You’ve partnered in Europe with Finaro. You brought your own distribution network in-house recently, not too long ago, right? What is interesting to us as we’ve observed some of this is that you’re not only building volume and doing this integration at a technical level and an experience level for the merchant and the consumer, but you’re also realizing a lot of efficiency gains as you scale and that’s not easy to do. That’s pretty notable. How do you think about that? How do you manage to do both?

Jared Isaacman:

This is a really good question. So back to the point of we fly under the radar a little bit, 14 years of our history, we never had any outside capital. It was all self-funded. I had no idea what a Series A, B, C, or D was, and I think as a result, have a really good appreciation for strong unit economics and customer acquisition costs. I think you find that there are some incredible product technology, software-led organizations that build amazing products and have complete disregard for strong fundamentals, especially around unit economics and customer acquisition.

I think just how we grew up as an organization, we know how to balance both. And from our perspective, you could build a really great restaurant product and spend hundreds of millions a year on Google AdWords, in which case, no matter how good your product is, it isn’t going to fix bad pizza. Then, they go out of business and it just challenges your economics even further. From our perspective, we can build an amazing product, buy another restaurant POS company that maybe failed to make the evolution towards cloud-based solutions. So you know they have a great install base of customers but they’re being underserved, they’re going to eventually want to migrate to a better product and now, we can give them a Yellow Brick Road to get there.

And in doing so, you’re going to realize a lot of revenue synergies. You may even have some cost synergies as you inevitably sunset support for these older generation products. And this has become very Shift4 playbook, that’s largely driven a lot of our M&A. I think an interesting note is that I can say this because we haven’t officially closed on Finaro yet which is our European payment platform is we have never acquired a business in the last 10 years that contributed our number one KPI which is end-to-end payment volume.

We’ve purchased software businesses that overlooked payments, legacy businesses that had a great install base for the sake of a customer list to migrate them over and realize a nice gross profit lift. But along the way, we were always migrating their revenue model to what really moves the needle for us which is end-to-end payments. So yeah, I’d say that’s largely…

Now, the other thing we’ve learned over the years in business is you never stop listening to the data and we’ve been selling restaurant point of sale systems in that vertical for, again, 19, 18 plus years. We know exactly which markets work really, really well. And if you can predict future demand, insourcing distribution within those markets is going to be a unit economic enhancement. You’re now trading a variable cost that you would normally have for third party distribution for fixed costs but that has a nice or very attractive payback associated with it. And then in markets that are sparsely populated and you can less likely predict future restaurant production associated with it, then you retain third party distribution and that was a large part of the distribution and sourcing we did last year.

Yvette Bohanan:

So you have this overall arching metric and this resonates with me. At one point in my career, I was at Google and it was always like, “How many seconds are people staring at the internet?” That was their big metric. So your volume metric is similar to that when I’m listening to you but you’re also listening to the data and you’re saying, “Things change and you want to change with them,” and you’re making decisions but your thesis is probably changing in terms of your investment strategy as you move through 24 years.

So you’re saying you’re listening to the data, but how do you actually make a decision and how do you think about risk when you’re changing your thesis? Because a little bit scary to do, right? It’s a little counterintuitive to take a variable cost and move it to a fixed cost even if you have the data. When you’re thinking about that moonshot, when you’re changing your thesis around or when you’re making a big investment, how do you deal with the risk? What risks are important to you? What are you thinking about?

Jared Isaacman:

Yeah. I think it’s a good question. I think you just have to have very high conviction in the model and the way you gain that is by having a lot of data and then you can make some assumptions that your future performance is probably going to be somewhat in line with what it was historically, especially when you have, again, more than 15 years of data.

If you’ve been selling restaurant point of sale systems, for example, very successfully in Miami or Fort Lauderdale or New York City, there’s likely a good chance as you evolve to a newer generation product, a cloud-based product, that demand will be equal or greater than it was before and that’s what gives you the confidence.

Then, you model it out and you put a bunch of chaos factors in because we do care an awful lot about margin, free cashflow. Profitability, metrics matter a lot. I mean, the way we grow up in this world, we don’t ever assume there’s another check waiting around the corner or a capital raise will always be there. So you take an initiative like distribution insourcing and coincide it with the launch of a new restaurant product. You’ve got all this historic data that says, “This should work.” Then you put a bunch of discounts and chaos factor against it and in the end, it was still a dramatic unit economic enhancement. It reduced the payback period for every new customer you brought on and that’s keeping an eye on fundamentals.

I think, at one point, to say distribution insourcing as one of what I would consider even remotely one of the more riskier decisions we made over the years, I think expanding international and assuming that the same success you had in the US you’d be able to find in other markets where the language is different, the taxes are different, customs laws, all different. That’s where, from my perspective, it’s like, “How do you close this big uncertainty gap?” And for us, again, it was very high conviction in a single customer that we knew would have success all over the world and that de-risked international expansion. But that, I would say, would be one of the more bigger risks you would take where you could stand to lose if you don’t get it right.

Yvette Bohanan:

There’s different magnitudes of chaos factor too, right? We’re coming out of this pandemic. That took one of your core segments, restaurant and your entertainment… It threw them for a loop. You could have never predicted that. Then, there’s this competitive chaos sort of thing. So you recently launched a very innovative program to counteract some competition in what they were doing with surcharging. So how do you… Both are unpredictable but you’re thinking on your feet in both cases to try to adjust. Is it easier to adjust when you have those overarching principles like keeping the customer first, looking at volume? What else do you factor in when you get thrown for a loop?

Jared Isaacman:

I mean, I think that… Well, one, we have a fantastic team at Shift4. We’ve all been doing this a really long time and I think we’re all generally cut from the same cloth in that we focus on things that really matter, the fundamentals, profitability, and always assume that the world could fall apart tomorrow. So we pulled off our IPO in June 5th, 2020. First company back in New York Stock Exchange to ring the bell and I think at that point, 80% of our payment volume was restaurants.

What a catastrophic event for, well, the world but also that industry specifically and it was, “Okay. We pull this off, we’re going to become a better, stronger organization that we’ll be able to weather whatever that next storm may be.” So while there was just insanity in 2021 and 2022, I mean, the euphoria, the exuberance, the valuations. We raised 1.2 billion in cash and didn’t spend it at a 25 basis point coupon… We avoided any of the temptation of the moment that just didn’t seem rational and that’s because we have a very good memory of what ’08, ’09 looked like, what dot com looked like because we’ve been there before. And again, first 14 years in business, never had any outside capital. So I think this is part of our identity, we remember those things especially when we’re making decisions or taking risk or pivoting, like we’re thinking about the fundamentals first with it.

Bryan Derman:

Jared, you make a really strong case for the cloud-based integrated payment model and we certainly agree with that. That’s a dominant model in restaurants and increasingly in other verticals. The question I sometimes get is, “Okay. Great movement but aren’t there a lot of companies now doing it?” and you’ve listed out some of them. There is a group of high quality companies in that space. How do you think about the segmentation among them? How do you fit Shift4 into the space alongside a Square, Toast, Lightspeed, Clover? I could probably go on.

Jared Isaacman:

It’s a great question. I’m really glad you drilled down into the segments because I think sometimes restaurants is just painted with a big, broad brush. When reality, how to serve a fast food joint is very different than a table service restaurant versus a fine dining restaurant inside a resort that needs property management system integrations and such.

Like I said in the beginning, we always gravitated more towards complexity. The harder it is, the more painful it is to get the job done, typically the less competition you have to do and you actually can retain some decent margins. So Shift4 is definitely at the upper end, the most challenging end of that restaurant vertical. Don’t get me wrong, we still have a lot of great customers on Main Street but we do touch about 40% of the hotels in this country so you’d find us in a lot of hotel restaurants and resorts.

Some of our customers, great examples like Tao or Hakkasan, they’re not going to run their business on Square or something that was designed for simplicity because maybe that merchant’s going to download the app at home and run their whole business from it and that might be great for a food truck or a coffee shop. So the way I see the lane is you see Clover and Square very much at the smallest end of the spectrum, not a lot of table service, not a lot of complexity because neither one of them has the sophisticated, local distribution from a technical perspective. Fiserv has amazing distribution to sell the product. But to program a POS system or something goes down on a Friday night, that’s where they run into a challenge and Square doesn’t even have that. So they’re naturally at the bottom end of it.

Then, there’s Toast who really just has a phenomenal handle on the whole middle end of the restaurant spectrum and we overlap with them for sure. I think we have some advantages in, again, the upper end, the more complex space but it’s a really big market. I’ve never really found a winner take all very often, at least in my business career.

The other thing I’d say too is for salespeople out there, we all like our sizzle features. What can we talk about to get somebody’s attention in that moment? And what you’d hear with Toast or Square a lot would be capital programs and payroll and those sizzle features definitely appeal to a certain type of customer. Tao or Hakkasan is not going to take 100% APR money. They’re also likely not going to move off of ADP or Paycom or something that has a bigger HR type function beyond just payroll. So based on your sizzle features and how you promote them says something about the market you’re chasing down. Shift4 doesn’t have either of those but we do have a lot of mobile technology, a lot of business intelligence products, a lot of hotel software integrations, and that tells you a little bit about where we’re finding our success in the market.

Bryan Derman:

Great. We wanted to turn a little bit to the international side because as we understand, that’s expected to be a big growth driver for you over the next several years. I think the first thing to observe about it, and I heard you say this in the recent earnings call, is that integrated cloud software and payments is almost not a thing. That even in other developed markets like Europe, we had a client where we would’ve desperately loved a multinational solution of the SkyTab type and we were really struck by how hard that is to find even in Europe. What’s your thinking about where foreign markets stand and are they ready for the solution that’s been, as we said a minute ago, so successful in the US?

Jared Isaacman:

In the card present world, there is really no integrated payments outside of the US and Canada to some extent. I think people are fooled sometimes when they see the pay at the table handheld devices that come over and really, it’s a wireless non-integrated terminal and that was a factor of EMV and chip and PIN doing it. And of course, they were ahead with EMV too.

But when it comes to kind of marrying the software and the payment solution together, it is non-existent. We process all the online reservations for Hilton all over the world. Same with Mandarin Oriental, Hyatt, Radisson. These are customers that do end to end with us here in the United States. But in Europe, what happens is you make a Hilton reservation online, it goes through our rails, we encrypt it, tokenize it, and then when you show up to the Hilton in Madrid, they were literally running it through a de-tokenizer software that we have and then they’re manually keying in the transaction into a bank terminal.

You go to any restaurant across Europe and you’ll see the same thing where they might have a point of sale system, they’re just taking the total and keying it into a terminal and bringing it to your table. We know it can be so much better than that. I mean, that’s solid 10, 15 years behind where we’re at in the US. So if you think all of our products and services have worked reasonably well for us in the US over the last 24 years, it’s certainly very enticing to think about replicating that in other geographic markets so that’s part of the enthusiasm for Europe.

Bryan Derman:

Is that the principle why you expect to grow internationally? I know a little bit about Finaro, that’s primarily an e-commerce online oriented business, so will it be a bit of both?

Jared Isaacman:

It was. We’ve had an opportunity to shape the direction of the business over the 15 or 16-month period, from signing the deal to approval. We signed a very important strategic customer, one we did not deserve. A global card not present customer that’d very much be a typical, in fact was an Adyen customer, and was entirely relationship driven. Very upfront had said, “We won this through a relationship. We are going to learn an awful lot from them and we will profitably follow them in every market in the world and they literally have the intention of being in almost every country in the world.”

And then, when we get there, we’ll bring the products and services that have worked for us here in the United States into those markets because safe to assume there’s going to be a fair amount of restaurants and hotels and maybe even occasional stadium or two around the world. That’s what we know today. That’s what we can count on when we underwrite moving into different geographic markets. Now, over time, well, is it possible we do become better at card not present and that becomes more of our strength in certain regions? For sure.

And frankly, as hard as it is, it’s still easier to sue than card present in a lot of those markets. But that’s the game plan and Finaro, for us, was a very modern platform for authorizations and settlement. It gave us a lot of capabilities and we’ve retooled it. We said that very much upfront is that, “We will retool this and gear it towards card present.” We have EMV certs in Europe now. We have SkyTabs in Europe right now. We’re testing some of our hotel integrations in Europe. So that’s very much the plan.

Bryan Derman:

Excellent. May have a customer for you down the road.

Jared Isaacman:

That’d be wonderful.

Yvette Bohanan:

One or two maybe. Okay, Bryan. So Jared, you’re touching on a couple of things that I’m going to try to pull together. I’m going to tug on a couple threads. You’ve been talking a lot about KPIs. You were talking a little bit about economics of things. Now, we’re looking at international and international changes the transaction level economics in a lot of ways. You have countries with very regulated interchange. For example, in the card space you have people who prefer to pay different ways. You’re touching on point of sale versus card not present environments and the economics of that at transaction level are quite different as well as mix of the types of payments, methods people prefer to use. When you take all of that into consideration and you’re thinking about this, probably at a portfolio level or country level, I don’t know, you tell me, how do you think about the KPIs and how they affect your margin from that transaction level view?

Jared Isaacman:

Yeah. I mean, well, you’re completely spot on. There are a lot of drawbacks when you expand internationally, especially with respect to take rates, especially with card present take rates in a lot of these markets. Not to mention, it may not even be a traditional Visa, MasterCards, it could be more like fund transfer type transactions which costs nothing to do and you charge nothing for them. So that is certainly a reality. I think we have to think through our pricing strategy in some of these markets.

In the US, if we have a blended 65-basis point take rate and therefore we charge $29 a month for our point of sale system, it might be $69 or $79 a month with the realization that the average volume per merchant will be less and the take rate will be less but there’s also a lot of good just tailwinds associated with it. Again, I think we’re 10 years back in time in terms of integrated payments in a lot of these markets. Your cash to credit conversion, which is probably at its tail end here in the US, is still booming in many, many markets around the world. So yeah, I mean, there’s puts and takes for sure but that’s obviously definitely part of the thought process as we expand.

Yvette Bohanan:

Are investors keeping up with all of the dynamics of what’s going on at the transaction level and the economics and how people are thinking about this now? I mean, there’s a tremendous amount of change. Just the percent of total cost of payments that interchange represents over the years has changed dramatically just in the US and there’s a lot of new types of fees being introduced all the time by the networks, right? Tokenization fees, you mentioned you were tokenizing, de-tokenizing. Sometimes the provider is able to offer a service there that increases their value to the merchant and sometimes you’re also getting hit on the backend with a lot of fees coming at you in terms of your costs. So how tuned in are the investors and the analysts when it comes to the subtleties that you’re having to deal with here?

Jared Isaacman:

It’s a great question. We just passed our third year as a publicly traded company and what a roller coaster it has been for FinTech investors. There’s great analysts that cover the space. They’re pretty on top of most things. I’d say there’s a handful of some very smart payments investors that have been around for a long time, know how to dampen out the noise a little bit.

But the overwhelming majority are, I think, just immensely confused. They’re very, very reactionary. If I were even to attempt to list the ever evolving thought process of payment investors over the last three years, the time of the IPO, the scaled, consolidated players have the advantage. A half penny here or there is going to be all the difference. I mean, that was right after all the mega mergers that had taken place. And then, fintech’s going to revolutionize it all, of which case they didn’t really care or understand how people were growing but everybody’s going to be a winner. And then, it’s been essentially all doom and gloom since. I mean, everything from crypto was going to change it all. Buy now, pay later was going to change it all. There was a brief period where I think Amazon in the UK stopped taking Visa for a week and that was utter panic.

Yvette Bohanan:

Yeah.

Jared Isaacman:

These guys shake down the card brands… This is very normal. Walmart does it every now and then. There is genuine concern and confusion about who is winning and losing, I’d say is one of the big debates. And then, who can I trust? Because I mean, there’s just a lot going on. I mean, take Square. I think they’ve done an incredible job with small businesses and serving those that were previously maybe intentionally underserved. They have a music streaming business. They have an incredible focus on crypto right now that’s confusing. People have done an awful lot of M&A and what they thought they were getting turned out to be something totally different, that goes to trust right now. Take rate, any movement around take rate is observed to be like a death spiral. So I think that it’s been a very negative period in FinTech for the last 18 months and it changes by the day on what is the dark cloud of the moment. It is changing quite a bit.

Yvette Bohanan:

Indeed.

Bryan Derman:

Changing quite a bit and continuing to change. I think we’ve been at this for almost 45 minutes now and no one’s talked about AI yet.

Yvette Bohanan:

How is that possible?

Bryan Derman:

I don’t think that’s even allowed, right? We were supposed to start there.

Jared Isaacman:

I thought we were moving on to superconductors.

Yvette Bohanan:

Yeah. Quantum, here we go. Yeah.

Bryan Derman:

Yeah. So you’ve got that, you’ve got new kinds of regulations, some interesting ideas about what might happen to credit card routing in the US that made mention of some of the interesting surcharging plays that are going on these days. Probably some degree of blending between POS and online transactions, it seems like QR codes are sometimes the bridge between those. Got people at Whole Foods paying with their palms. Just a lot going on, convergence of online and offline channels. If we ask you to switch on your long range radar for a moment, what do you see coming next? What are you looking at in maybe a 3, 5, I don’t even want to say 10-year horizon?

Jared Isaacman:

Yeah. And I have to say, I feel like we’re actually a bit behind on this but we’re running as quickly as we can which is taking the integrated payments 2.0 evolution of our industry and making it global. I think that is just so imperative and you’ve got two organizations in Stripe and Adyen that do it very, very well and the demand for this is only going to go up. I mean, when I talk about those evolutionary phases of 1.0, 2.0, 3.0, 1.0 was again just doing an approval or decline. This is all about price, right?

So speaking to investor confusion now about take rate movements, the hardest thing to do is convince a merchant, especially a large enterprise one, to switch their payments to you. They usually have anything else better to do at the time. So if they are making a change, it’s not because they’re going to deliver an inferior commerce experience to their patrons or their consumers, that isn’t going to happen. So the 1.0 to 2.0 evolution was, “I’m doing payments plus I’m adding value across the commerce experience. That’s going to be great for your guests and you’re going to be happy to pay for it.” In which case, price became less of a concern.

I think you saw that Square, Shopify, they’ve all taken price in various capabilities they’ve added and customers are staying and the platforms are growing at a pretty reasonably good rate. That’s 2.0 and I think Shift4 was very early in that. I mean, 2005 we had end-to-end restaurant point of sale solution with SaaS and payments. It’s 10 years before anyone heard of Clover or Toast. So I think we were very quick and then we brought it to a lot of other verticals. But seeing that businesses are going to want to conduct business all over the world and easily, like not want to have relationships with 100 different local banks, creating 100 different local entities, getting shaken down from 100 different tax authorities. They would rather pay more, a healthy amount more, to have a single portal that gives them access to the world and they can add and drop geographies as they please, fantastic reconciliation, and still get a superior commerce experience than an approval or decline.

And, really, hats off to Adyen and Stripe being able to do that and in different lanes too between app developers and real enterprise type customers. We want to do the exact same thing and we want to do it predominantly with card present. But naturally, our capabilities are expanding beyond that in card not present. That’s the 3.0 evolution. So it’s hard work, we took the first big step in that direction with the Finaro deal 15 months ago but it’ll be our focus area. It is our number one capital allocation priority, is expanding our reach all over the world.

Bryan Derman:

It sounds like that implies abstraction of a whole additional set of functions, tax, shipping, those sort of things and pulling that up into the payments and the POS software.

Jared Isaacman:

Absolutely.

Bryan Derman:

Big initiative.

Jared Isaacman:

Yeah. I’m glad you described it the way you did. A lot of people… I mean, for as much as, again, I have nothing but amazing things to say about what Adyen and Stripe have built is they didn’t dig new plumbing into all these banks across the world. They didn’t lay new cable. It’s all the same old rails that we know that have been around for a very long time but they built an incredible layer on top of it to make it very, very easy for that customer. Take all the pain and friction out of all those geographies and yeah, there’s tax and treasury components to it all that yeah, it’s just fantastic. We want to be there too.

Yvette Bohanan:

Well, this has been very interesting to get your thoughts on the industry but we would be remiss if we didn’t touch on a couple of other things before we wrap up. One of the things that we noticed was you have a lot of involvement obviously in air and space, all things air and space, and you also have incorporated a major philanthropic component into a lot of what you’ve done in that area.

So when you circumnavigated the globe, it was a fundraiser for Make-A-Wish and when you went up in your space mission, it was raising funds for St. Jude and you have a slightly different ethos on a lot of areas here. How did you come to have this blend of business and philanthropy with your moonshot mindset? You’re making big bets and you’re also doing well and doing good is one way to say it. When did that start? Where did that come from in your life?

Jared Isaacman:

Well, I think the philanthropic one was definitely as a child, probably five or six years old, my parents a handful of times since I was a kid would vacation in Mexico and I just have very distinct memories of just seeing families where the children were just living out of a tire on the side of the street. It was very clear to me even in a very young age that just some of us are delta, far better hand in life than others. It’s unfair. It’s the real shitty deal, right?

So if you have the means to help, you feel like it’s an obligation, I think just part of a broader philosophy of just leave the world a better place. If there is a judgment day, you certainly want to say you did whatever you could at the time to make it a little bit better. So that’s been one philosophy I’ve lived by, the other is just you’re not really fulfilling your purpose in life if you don’t maximize the opportunities that you are lucky enough to get.

For me, I woke up on my keyboard in the basement, I don’t know, I probably was 19. It was probably my first three years in business and I felt like I was burning myself out and I began pursuing a childhood passion I had of flying and I really never stopped and it became the balance to my day job, a form of therapy, if you will. And opportunities came and I wanted to continue to chase them down and play at a higher and higher level and never obviously could have imagined it would’ve taken me where it did, which whether it’s world record flights or flying air shows or going into space, but if the ball is bouncing my way and those things are coming my way, then the other philosophy has to kick in which is you got to try and leave the world a little better along the way. So they were always paired hand in hand and we’ll just keep doing it.

Yvette Bohanan:

You’ve been growing steadily as you’ve gone through this whole journey, and my prediction is you’re going to grow even more as you get into international in that. How do you instill that into your corporate culture? As you’re going through mergers and acquisitions, as you’re bringing on new people into your organization, there’s this sometimes when world is zigging, you’re zagging, right? How do you pull all of this off into a corporate culture?

Jared Isaacman:

Well, I mean, the people are always… It’s always the hard part. I mean, it’s very easy to manipulate an Excel file and say, “This makes sense.” People is one of the hardest jobs in leadership. It is managing personalities and getting a lot of people to do things they would rather not do. It becomes even harder when they’re new to the organization and they didn’t grow up with you in the business or, again, completely different culture, different part of the world. I’d say that we have our principles in the organization that we’re trying to instill. We call it the Shift4 Way. I’d say it’s a very evolved set of philosophies from our early days and I’d also say I stole a lot of it from SpaceX because I think they’re the most innovative and impressive organization I’ve ever seen.

And it helps now because as a bigger organization, you have learning and development resources, you have a human resources department. So if you think you have a formula that can generally guide people in the right direction to make good decisions, to make them quickly, again, just do the right thing, it’s actually easier now to message those things and reinforce them and that’s helping a lot in M&A.

It’s a lot different now than it was maybe five or six years ago where the only way to do is you got to just spend a lot of time there. You got to be in the trenches with everybody and show you that, “We loved everything about how you did it before, that’s why we bought the business. But we do this to make one plus one equal a bigger number so now we got to smash it all together,” and that’s just being present. It’s being there all the time and showing your way of how to do it and showing the results and we still do that now but we do it with far better tools that work at enterprise level which is great.

Yvette Bohanan:

So kids are probably the hardest job in the world though, right? So you’re going up into space. What did your kids think about you going up into space and what did you tell them about personal moonshots that you’re taking?

Jared Isaacman:

I mean, I certainly think raising kids is one of those things you can’t get wrong. But I don’t think it’s my hardest job because I’m pretty lucky, my wife does it at a pretty incredible level, so my kids are just awesome. But with all this space stuff, they really, at the time, Mila was probably seven, Liv was five, they, I think, assumed a lot of dads and moms went up into space all the time. I show them all the launches on the livecast which is now twice a week practically so I don’t think they really considered whether there was a human in it or whether it was a cargo, they just thought there was a lot of launches. I think that as we got closer to the launch date, they had a greater sense of what it meant and I think even what the risks are associated with it. They’re awesome. Everybody’s very supportive.

Yvette Bohanan:

Did they ask you what did it feel like or what did you see or were they curious? Kids are always curious.

Jared Isaacman:

I think at the time it was much more about Baby Yoda. The Mandalorian was at peak in late ’21 when I went to orbit so there were a lot of questions about aliens and it doesn’t come up a lot at all and it’s still… Obviously, it’s a very big part of my life today and will be in the future and they have their own interests which is awesome.

Yvette Bohanan:

That is awesome.

Bryan Derman:

Are you going to go back up, Jared? You got another flight planned?

Jared Isaacman:

Yeah. Actually, there’s a little bit of a joint venture between SpaceX and a program we created called Polaris which… It’s all development missions so it’s actually up to three more flights and we’re basically building things that haven’t either been built at all or haven’t been done in 50 years, really with the aim of delivering on SpaceX’s vision to make life multi-planetary. So flying out much farther into space through the Van Allen radiation belts, getting good radiation data, building new spacesuits for spacewalks. Last ones that were made in the US for 40 years ago, they cost about a quarter of a billion dollars each which isn’t very scalable when you talk about populating another planet someday where you might need thousands of them. So I get to be a fly on the wall in some real awesome history that SpaceX is doing. So yeah, there’ll be more.

Yvette Bohanan:

No doubt. Well, thank you so much, Jared, for joining us on this episode. It has been an absolute pleasure and we wish you all the very best of luck in all of your endeavors as you go forward.

Jared Isaacman:

Well, thank you.

Yvette Bohanan:

It’s been a lot of fun. And to all of you listening, thanks for joining us and until next time, keep up the good work and go after your own moonshots. Bye for now.

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