Lavu’s CEO sent an email on August 7, more than three weeks after Toast rescinded their ordering fee (how slow does marketing move at Lavu?).
The email, copied below, really points us to one thing…
Merchants are dumb and cannot do math.
They actually believe they are getting paid to use Lavu.
And in Lavu’s defense, it’s sorta true: a merchant using Toast will likely see a reduction in cost to use Lavu.
But is Lavu anywhere as good as Toast?
The underlying problem is that Lavu has become an also-ran.
Toast, Square, and Spoton are spending so much money on R&D it’s going to be hard for Lavu to compete in any meaningful way.
Sure, you can find some market niches, but given how lucrative surcharging or convenience fees are for processors (they’re making 150-200 bps of a merchant’s total volume), it’s competitive everywhere.
It’s why we laugh when competitors want to copy Toast’s pricing model.
Um, is your product as good as Toast? If not, how do you expect to rip the same margins?
If you’re curious about the math, Lavu is offering 25% cash back on a merchant’s current rate.
On Toast’s average take rate of 55 bps, 25% equates to a ~15 bps discount.
That means there’s still 40 bps of margin.
Conventionally a merchant doing $1M in GPV should be paying 20 bps of margin.
Smarter ones pay less.
So at 40 bps, Lavu would still make out like a thief: $4,000 a year to do nothing.
In fact, Toast’s record-breaking payment margins for the merchants they serve has invited competition, like Clover’s desire to do more M&A, and Square becoming more aggressive in their move upmarket.
We like Lavu’s positioning that Lavu will pay the merchant. It’s not even a sleight of hand: just elementary math akin to pushing a card around on a table.
But merchants can’t count, so many will receive the email and think that Lavu is performing some divine miracle.
Just imagine transporting back 1,000,000 years and being made leader of all living things because you possessed the wizardry of tool-making. And not even impressive tool making, but hardening clay into an oblong disc that could passably be used as a plate just because it happened to be out in the sun too long.
Merchants really are that unbelievably dense.
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