Software platforms expand to embedded finance and more: Shopify and Lightspeed are two of the best positioned platforms to benefit from what we believe will be one of the most important investment themes within our coverage over the coming decade: the intersection of software and payments, with embedded monetization- & ecosystem-enhancing financial services as well as commerce enablement solutions. In addition to payments (powered by Stripe) built on top their proprietary software, Shopify and Lightspeed have launched Capital (lending) programs, (potentially) followed by a variety of additional embedded financial services, including card issuance & treasury services (Shopify Balance), instant payouts, B2B AP automation, payroll services, tax services, & more, allowing the platforms to monetize the payments volumes more than once and provide for an improved user experience (reduced merchant churn). Beyond financial services, commerce platforms have been providing solutions for an increasing portion of merchants’ operating activities, with further upside from other emerging revenue streams as their ecosystems scale. In this report, we look at these solutions provided by software platforms at what we project to be a more mature stage, providing an illustrative outlook for their potential contributions in 2030.

 Lightspeed and Shopify in 2030: We provide an illustrative build-up of Lightspeed and Shopify’s gross profit in 2030 with estimates by business segment (our model available in Excel upon request). Our analysis indicates ~18% & ~20% CAGRs for Lightspeed’s GTV & Shopify’s GMV, respectively, over 2020-30 driven primarily by merchant adds. Coupled with monetization rates (measured by gross profit as a percentage of GTV/GMV) doubling over the 10-year period, this would boost Lightspeed and Shopify’s gross profit by ~27% & ~28% per annum, respectively. With the rapid growth comes a material shift in both companies’ business mix. We expect software and payments mix of Lightspeed’s total gross profit to shrink from ~99% in 2020 to ~68% in 2030, with payments surpassing software as the largest component and additional financial services accounting for ~21% of total gross profit. For Shopify, we forecast contribution from software and payments/ transaction fees will shrink from ~89% in 2020 to ~43% in 2030, while Shopify Fulfillment Network (SFN) becomes the largest contributor at ~29% of total gross profit. Embedded finance can be achieved on a first-party or third-party basis: Platforms such as Shopify and Lightspeed own a relationship with an underlying merchant, giving them a privileged position in the distribution of a wide range of embedded financial and other commerce services. The concept of acquiring the customer once, and monetizing multiple times can be done on a first-party basis (e.g., Square) or on a third-party basis (e.g., Lightspeed) utilizing commerce enablement partners such as Stripe, Adyen, and others. These commerce enablement partners tackle the infrastructure, regulatory & compliance upkeep, and continued evolution of these financial services – done at scale, effectively future proofing the offerings on behalf of their software platform partners. From a financial perspective, the third-party partner is able to meaningfully reduce not only the startup expenses associated with launching additional financial services offerings, but also the ongoing costs (i.e., relatively limited costs below gross profit when compared to a non-partnered approach).