Should Lightspeed Ramp Up its Merchant Cash Advance Business?
Analysts are wondering if Lightspeed should be doing even more merchant cash advances than the company’s currently doing. The company generated just $8.1M in revenue from them over the last fiscal year, a number that amounted to just 1% of total revenue.
“Under normal circumstances, we would likely be pushing [Lightspeed] Capital even harder,” said Lightspeed CFO Asha Bakshani during the Q1 2024 FY earnings call this month, “however, given the current macro environment, we’re being conservative on the ramp. There’s no lack of demand from our customers, and we believe our high GTV customer base is an ideal demographic to use this financial service, especially in the long term. Risk of business failure is much lower with high GTV customers, but the need for capital is still substantial.”
When Lightspeed touted that it had increased its total merchant cash advance receivable balance by $11M for the quarter, an analyst from Bank of America Merrill Lynch wondered if they were being too conservative. “You mentioned that you would be pushing harder, but given the macro, you’re being conservative on the ramp,” the analyst said, “But then, you also mentioned that there is demand for it, so if there is demand, why not push a little bit harder for capital?”
“Yeah, you’re absolutely right,” Bakshani replied. “Capital is a very promising business for us, but what we have to keep in mind is that it still represents today a low single-digit millions in terms of revenue. And so when our sales teams are fully focused on unified payments, there was some distraction in the quarter on capital. And in addition, we want to make sure that in today’s macro that we’re not rushing anything. We want to make sure that we ensure that we stick with the very high rated credit-rated customers for eligibility. But you’re absolutely right, there’s tons of demand. We’re just taking our time intentionally given the macro. Our default rates still remain extremely low, but we definitely should see that pick back up in the back half of the year when unified payments is behind us.”
Lightspeed’s merchant cash advance program was repeatedly raised during the call in very positive terms.
“Once you’re on Lightspeed payments, we underwrite you for capital so you can have access to capital,” said Jean Paul Chauvet, CEO of Lightspeed. “That is a big win for them and our customers.”Last modified: August 18, 2023