We reached out to Dutchie but they never replied.
If this behavior is sounding like Toast already, keep reading.
Dutchie raised a boatload of money to roll up POS in the cannabis industry.
Underpinning their strategy was the idea that payments processing would be so lucrative that it could carry the business.
And it’s not a bad strategy.
Toast makes about 85% of their revenues on payment processing.
Shopify now generates over half their revenue from payment processing.
Companies like Shift4 who have no product make even more of their revenue from payments.
And it makes a ton of sense: merchants have no idea what payments should cost, have to accept payments to stay in business, and offering payments takes literally zero R&D.
Quite literally: it’s not even a product.
The problem for Dutchie, however, is that conventional credit and debit cards are impermissible in the US cannabis industry.
That’s because the credit card networks and banks view cannabis as a no-go since it’s not legally allowed on the federal banking level.
Which makes Dutchie’s model heavily reliant on legislation, which can be quite risky.
But Dutchie is still behaving as if they anticipate a massive cash cow in payments processing.
For instance, look at how Dutchie priced the New York POS RFP: free fiddy.
And look at the below thread between Dutchie and a prospective customer.
Clearly this is the Free POS positioning that we saw in restaurants about 6 years ago.
But truth be told it works wonders on brick and mortar merchants who can’t do math (even enterprise merchants aren’t any smarter, shockingly).
Because by and large, retailers refuse to pay for value.
So the only way to recoup the costs of your product – which despite your marketing team’s best efforts and merchants’ wet dreams – isn’t actually free.
The opposite.
Turns out software is expensive.
But, you know, who would actually be dumb enough believe something was free?
Enter brick and mortar merchants.
So why is Dutchie behaving like this?
Because Dutchie has a PIN debit product now.
Dutchie’s debit rail at 3.5% and $0.50 per swipe is absurdly expensive.
They’re riding PayNetworx as their backend, so they’re paying Paynetworx something to route PIN debit to compliant rails (TBD which PIN debit rails will approve Paynetworx).
See below sample agreement:
A typical PIN debit fee is about $0.12 per transaction.
There are multiple PIN debit networks, and a table of fees is found here.
Take the most expensive (ie conservative) Star network rate at 1.55% and $0.04 if you want to compare here.
For every $1M in sales with $100 in average check, a Star debit merchant would pay $15,900.
A Dutchie Pay debit merchant would pay $40,000.
But take an average PIN debit rate of $0.12 and that Dutchie merchant would be paying $1,200 per year.
Dutchie’s rate is only, you know, a very reasonable 33x increase.
Technically with the $30/mo fee it would be $40,360, but it’s a rounding error in the scheme of things.
No wonder Dutchie can justify a free POS at these rates.
We were told Dutchie sees $2B of PIN debit volume currently.
At 3.5%, that’s $70M in profit.
Assume a $100 average check = 20M transactions at $0.50 per is another $10M in profit.
We’ve quoted out Paynetworx before, and it was $0.40 per transaction.
So Dutchie stands to net $72M in profit, and we bet they got an even better rate from Paynetworx.
For doing nothing.
Cuz payments.
No clue how much Dutchie cares to make on SaaS, but at $10K per store, which is about what Toast makes, $72M in profit would mean they could should give away POS systems to 7,200 dispensaries.
But why do that when you can make $72M doing nothing AND make even MORE money on SaaS?
And that’s how you become a real partner to your customer: double dipping, baby.
Jordan:
As you know, I work for Shift4, was with Restaurant Manager POS prior to that. I still read your weekly blogs, and have been “silent”, mostly. But I cannot sit by when week-after-week you erroneously claim that Shift4 “has no product”. You seem to dis the SkyTab POS Ecosystem. Why? Surely you have contacts that will let you “test drive” the system? Take a deep dive, I think, in fact I would be shocked, if you were not very impressed. If you don’t take a look at what a system does/can do, and the rest of the world knows about the sytem, you will continue to lose credibility.
Can the “Sky Tab” system process card payments with any processor I want?
I thought so….that makes it nothing more than a giant scam. I work for a growing company that is your worst nightmare; our only customer education tool is this “if you use a system that locks you into a single processor you are going to get screwed”. That is it; that is all we are trying to educate the customer on because its the god damned truth!
Monogamy should not be a word ever used with a POS system…..you should be able to swing with any processor you want otherwise you are in a bad bad marriage!!!!
Honestly I’m not qualified to tell you if a POS system is worth anything from a feature perspective. But I listen to your resellers. And customers. And then common sense tells me someone who spends $100M a year leveraging MIT engineers is going to be further ahead than someone who spends a few percentages of that outsourcing to mid-level engineering talent.
I’m quite positive Sky Tab works for really small merchants. I don’t think Shift4 will build a POS product that will ever be competitive with Toast, Square, SpotOn, or others that are aggressively investing.
It’s just math.