Shopify expands into financial services
E-commerce company vows offering will be better than traditional system
Shopify Inc. plans on allowing merchants to start opening their own very bank-like accounts with it in the United States later this year, and then in Canada at some point after that, as the e-commerce company expands further into financial services.
Among the offerings the Ottawa-based firm announced Wednesday was Shopify Balance, a planned business account, payment card and rewards program that are being designed with startups and entrepreneurs in mind.
The no-monthly-fee, no-minimum-balance account will function similarly to a typical bank account, except it will run through Shopify instead of a traditional bank. Merchants will be able to make deposits, withdraw funds, pay bills and track transactions through the account and with physical and virtual cards, the company says.
There are hundreds of thousands of merchants on Shopify using their personal bank account, credit card “and a box full of receipts” to run their businesses, said Kaz Nejatian, vice-president and general manager of Shopify’s financial-solutions team.
Those same entrepreneurs and businesses could be dealing with traditional banking systems that may misunderstand them or are designed to serve bigger companies, which is an issue Shopify is aiming to solve.
“If you’re an independent business, the legacy banking system just sucks for you,” Nejatian said. “It is not designed to do the things you need to do. It is not designed to move at the speed you need to move at. And it’s not designed around your business.”
While Shopify is trying to improve on what banks are doing, it will have to rely on regulated financial firms in some ways, according to Nejatian. Shopify, for example, will build the software and the user experience, but the company will partner with a financial institution so that funds are held in federally insured accounts.
The cards will offer merchants access to their funds, including money Shopify is loaning them via its Shopify Capital program.
There are also plans to offer merchants cash back and discounts for their business spending with Shopify Balance, which will launch later this year in the U.S., and then at some point later in Canada. Further details are still to come.
“It will do everything that a legacy bank account does, but it’ll do all of it better,” Nejatian said.
Shopify has a pattern of launching new products first in the U.S., its biggest market. But the business account and card also mark another step by Shopify into financial services. The company already provides payment processing and cash advances and loans to entrepreneurs, with approximately US$192 million in Shopify Capital funding outstanding as of the end of March. Shopify Capital launched in Canada in April.
The business account wasn’t the only financial service Shopify announced Wednesday, as the company unveiled a new “buy now, pay later” option that will launch in the U.S. later this year and let consumers pay in four interest-free instalments.
These products were among several new and updated ones that were announced in sync with Shopify’s Reunite event, a virtual reboot of the company’s annual Unite conference, which was cancelled in late February because of COVID-19.
“We’re going to give all eligible merchants on all of our plans the financial products they need to start, run and grow their business,” Shopify chief operating officer Harley Finkelstein said during the webcast.
The new products come as the coronavirus pandemic has nudged consumers towards more online shopping, with Shopify saying earlier this month that COVID -19 has “accelerated the shift of purchase habits” toward e-commerce.
While the pandemic may be increasing online shopping, it remains to be seen if it will translate into consistent profits for Shopify, which reported a net loss of US$31.4 million for the three months ended March 31.
Revenues, however, grew 47 per cent year-over-year for the first quarter, to US$470 million.
The new products could help Shopify’s expansion efforts, with National Bank Financial analyst Richard Tse writing in a report earlier this month that they continue to believe Shopify “is in the early stages of a rapidly growing” market for e-commerce.
“With recent announcements of new services … we expect the pace of new product development to continue, as will adoption, which should drive up take-rates and merchant stickiness to the platform,” Tse said.
Shopify shares were up 2.64 per cent at the close in Toronto and 3.32 per cent in New York on Wednesday.