Do you invest in public POS and payments companies?
We sit in a position where we could have material, non-public information on many of the public companies in the POS and payments industries. Therefore we don’t take long or short positions on any of the companies in these sectors.
We have even recused ourselves from board positions due to conflicts of interest – i.e. Company A asks us to sit on their board but we also work with their competitor, Company B, so we can’t ethically serve in a formal capacity.
We act as morally as we can, even if it costs us money. Which, honestly, is a shame because these days most boards are rubber stamp committees and they bring very little value to shareholders and customers.
How do I know what I share with you will not become content for an article with my name attached? Surely you’ve found parties reluctant to speak with you because of your position as a journalist.
While there’s no denying that we get ideas for articles from many sources, we have a Chinese wall. For example, if an entity approaches us looking for help in building or launching something we aren’t out there running an article about their needs. You can always preempt your disclosure with “off the record” if you feel it necessary, but those who know and have worked with us would tell you there’s a pretty clear distinction between what we talk about casually and what we will write about. Subjects of our articles are notified prior to release and given the chance for input.
Should resellers own POS assets?
It’s no secret that payments companies are getting into the POS game. Hell, nearly half the restaurant POS market is now owned by payments companies (Heartland, Shift4, First Data, and large ISOs). Payments players did this to make their payments solutions more sticky, not because they cared to invest much in R&D and change their business models (there are some exceptions).
That said, large resellers should see the writing on the wall and question the risk of not having their own POS system. Yes, building software is a different skill set than supporting software and does requires a cultural retooling. But at the same time VARs and large resellers are already in a much better position than their payment processing counterparts in that their culture already has them listening to customer problems. In some respects VARs have a smaller hill to climb.
As an example CBS, a large POSitouch reseller, built Northstar POS. They did so because POSitouch was in no rush to develop a cloud replacement product and CBS’s customers were sharing that they wanted a modern solution in the near future. This coincided with a self-realization that the macro viability of the reseller channel at its current scale was unsustainable – i.e. the channel is and will continue to consolidate into a smaller number of larger players as the internet and price transparency disintermediates box pushers that add no value. (Note: Shift4 has acquired POSitouch and is actively reinvesting capital to create API endpoints for the legacy system. We don’t know if they intend to rearchitect POSitouch to be a truly cloud system or if they will eventually replicate POSitouch’s features in their cloud POS, Harbortouch Bar & Restaurant.)
Owning a POS asset is not an easy thing to undertake but with channel compression it should be a very real strategic conversation at board meetings.
NCR stock jumped because someone is looking to buy the company. What do you think about that?
So many thoughts swirling through our heads on this one that it demands a whole article.
For starters, NCR needs to fix its product problems. This will take significant R&D spend. We don’t think NCR has the right leadership to get this done and remain public. If NCR had an entrepreneur at the helm that understood data and software then maybe the markets would buy into the story and give the company space to execute.
Instead what you have is a company wanting to shoot up its share price by switching to a SaaS model without delivering any of the value of SaaS to its customers. In other words, the customer is not being put first. No entrepreneur would ever do this because they know how hard it is to actually build something of value and if you have no customers, you have no company; people who inherit something that’s already working (even dysfunctionally) have zero appreciation for this.
Private equity funds are typically good operators. The days of solely using leverage to earn your IRR are gone. A PE firm (likely a consortium given the equity check size) will yank out existing management and put in their own. And since PE firms are on a tight timeline, things will be executed pretty quickly.
We think a sale would be great news for NCR’s customers and NCR’s survival. But non-founder management (and boards) optimize for their paychecks over company or customer, and that could break any deal.
Catch you next time.
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