NCI: Life and Death in the Payments Sector

NCI Life and Death in the Payments Sector

NCI Life and Death in the Payments Sector

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Speaker1: [00:00:00] Who else is it? How do I get this? Not anything on the screen. Do I activate this? This doesn't work, but I can use this as—oh, it's already—how do I— I don't need to share it continuously. I need to share it. Oh, so I'll tag, you'll share it when I say share it. Alright, perfect. Thank you.

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Speaker2: Oh, because you're running ankle. [00:01:00]

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Speaker1: All right. I am thrilled to have my friend Alex Wilson join us today. Alex and I have had a similar journey. We started as consultants, and we saw that it's better to be an owner, operator, entrepreneur, and have real responsibility. Alex built and sold a company to Shift4, and he is a serial entrepreneur going on another journey today.

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So we're going to talk about payments as a category. Payments are notably rallying today in a sea of red, so I want to highlight that for folks too. Second, we will talk about specific opportunities in that category, differences in public markets and private markets. We'll also talk about the entrepreneurial journey that Alex has gone through, and even health and longevity.

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Alex is very deep in health and longevity. I'm deep in health and longevity. I got the infrared sauna. I listen to Dr. Rhonda Patrick. I got all of our clients, including Alex, Dr. Peter Attia’s big book before I knew he was in the Epstein files. So, Alex, welcome. Good to see you again.

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Speaker2: Yeah. Good to see you too, and thanks for having me on today.

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Speaker1: Always a pleasure. I always learn talking to you. Why don't you start by introducing yourself to the audience?

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Speaker2: Yeah, sure. I live in Miami. Love it here. Definitely a Miami maximalist. Started, like you said, in the consulting days before I decided it was time to start a company. I went to college at Wake Forest, where I actually met my co-founder, Pat Duffy, who you also know. We started The Giving Block back in 2018, ran that for a couple years, sold it to Shift4, like you said. And just yesterday we launched Cyclops. So that's a bit of an overview, but I'm sure we'll get into more details on each of those.

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Speaker1: Yes, we will. We'll get into your next entrepreneurial [00:03:00] adventure in a moment. Entrepreneurs really have to have a high tolerance for pain because you're basically waking up and asking to get punched in the face and in the stomach each day. Elon says it well: it is like eating glass. You need to have a certain mindset to be a founder and entrepreneur, and I think you've got that mindset. So I want to get into that too.

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First, let's start with the overall payments category. The payments sector has been in a bear market for several years now. It was obviously a very hot theme in 2021, and it's gone down quite a bit. Notably, the CEO of PayPal was fired a few weeks ago. That seems to have marked the bottom in the stock and a number of other names in the category. You're seeing private market valuations that are extended—Stripe did an up round at a $130 billion valuation, up from something like $86 billion several years ago. But in public markets, you're seeing a lot of declines. Help us make sense of what you see playing out in markets.

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Speaker2: Yeah. I think you've done a good job of covering a lot of this, where a lot of it just has to do with what's hot, right? This hot ball of money, the attention economy. AI has sort of sucked the air out of the room for a lot of other sectors. Payments was pretty cool and pretty hot for a long time, but over the last couple of years, Nvidia and CoreWeave and these other companies have drawn in a lot of money that may have gone toward payments companies otherwise. I just don't think there's a lot of attention on payments companies right now, and they may not be as new and exciting as some of the other opportunities out there. But I think that'll come back around, and maybe it's already started now.

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Speaker1: Right. Paul, do you mind sharing the screen? I've got PayPal on the screen here. It's the classic non-consensus rally. Everyone hates payments, everyone is throwing the baby out with the bathwater, and it starts to rally. There's also the business that acquired your startup, Shift4. Tell us more about Shift4, the business model it has, and we'll start to break out different segments in the payments category, like merchant acquiring, for example.

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Speaker2: Yeah. So Shift4 is a really underappreciated business. When we sold The Giving Block, we weren't actually planning on selling the company at the time, but we were starting to get a lot of inbound interest. We hired bankers to run a process, and personally I'd never heard of Shift4 back then. That was about four years ago when we closed the deal. But once you hear the name Shift4 once, you know to look for it, and it's actually everywhere. They're huge, especially if you think about the US market: 30% of restaurants in the country, 40% of hotels, something like 70% or 80% of stadiums and event venues, and then all sorts of online e-commerce businesses. It's everywhere. And the founder in particular, Jared Isaacman, has a really cool story. He has even gone to space, and maybe we can get into that more later, but he was a really awesome guy to work for.

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Speaker1: Perfect. I think a lot of it has to do with how companies are introduced into public markets. If you go through a venture route and you've got some logos there and there's a roadshow process and it looks like Silicon Valley, you get a different reception.

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Speaker2: Yeah.

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Speaker1: Go ahead.

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Speaker2: I think that plays a role in this too. The way the company looks, the way the company feels, is definitely not a Silicon Valley company. The company was started in Allentown, Pennsylvania. I don't think Jared took any outside money until the IPO, actually. He really built it organically, very disciplined, more old school, you could say. Not all hype, not announcing announcements and things like that.

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Speaker1: Yeah, exactly. And I'm sharing on the screen here Shift4’s free cash flow yield. This is one of the stocks in our 2026 Lumida stock picks. Timing payments is the key thing here. The thing about these annual stock picks is not everything is set up on January 1st. You've got to stock and wait for the good entry. But if I look at it now, it's got a 12.79 free cash flow yield, and it's got a very clean balance sheet. How does a company like this differentiate and compete with a company like Stripe? Here's another thing, by the way: 7.8 price-to-free-cash-flow ratio, and a price-to-sales ratio less than one. Go ahead.

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Speaker2: Yeah. The company is making a lot of money, unlike a lot of hot companies that people think are cool and pay a lot of attention to. Shift4 actually makes money, and they've definitely got that going for them. In terms of how Shift4 differentiates, it's changed a little bit over time. When they started, the pitch was basically: consolidate everything to one payments company. You get the payments, the gateway, the hardware, everything all in one. They were focused on things like restaurants and hotels and things like that. One differentiator back then was even integrations. The company has been around for about 25 years now, so what differentiated them has changed over the years. Because they've grown so much, they've gotten into other verticals and other geographies. It's a very global company now compared to where it was five years ago at the IPO. I think what differentiates them is a little bit different in each market. In some markets it might be the hardware. In some markets it might be the integrations. In some markets, like higher-risk categories, it might be the approval rates and the optimizations that can be done. So it's a bit more nuanced overall.

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Speaker1: How about Adyen and other players in the category that also have a lot of attention from investors?

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Speaker2: Yeah, I think Adyen is a really well-run company and they're doing really well. I think one interesting dynamic is Shift4 started as a point-of-sale company and then got into e-commerce, whereas Adyen and a lot of the other companies like Stripe are doing the reverse. Point of sale is something that's a bit hard for them to break into. They're certainly making some progress there. But if you go to Europe and compare the European and US market for restaurants, for example, when you go to restaurants here, it's very digital, very integrated, fairly automated. It's a pretty competitive market. You go to Europe on vacation and they're still bringing you the terminal to your table, and then manually reconciling that with a terminal somewhere else. It's a mess. It's very old school. A lot of it's still done by the banks over there compared to the US. Shift4 has been investing a lot in other markets because the opportunity and the competitor set are so much different there, and there's a lot of growth to be added there.

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Speaker1: Got it. Is Stripe eating everyone's lunch, or is that a myth?

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Speaker2: Sorry, I lost your audio for a second.

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Speaker1: Is Stripe eating everyone's lunch? This thing went from an $86 billion valuation to $130 billion valuation. Obviously that's in private markets, not mark-to-market land where the rest of us live. How much of that is perception versus reality?

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