Shopify is a Fintech - and Banks should take notice

Shopify is a Fintech - and Banks should take notice

What the heck is happening at Shopfiy?

TL;DR, Shopify announced a business debit card (Shopify Balance), a buy now / pay later option for consumers (Installments), and an AI powered fulfilment network for delivery of goods and integration with Facebook and Instagram for shops. Shopify is now Klarna, Brex with a little bit of Amazon thrown in. That’s on top of the existing lending they did to merchants. Shopify is a little bit fintech, with a real growth opportunity that’s a threat and a lesson to anyone in financial services on where finance is going.


Solving Small Businesses Challenges

In our recent report into the SMB landscape in the US we found that Shopify was the 10th most used platform (for any kind of financial services job) by SMB’s, with Paypal and Quickbooks at #1. This suggests that Shopify has a lot of room to grow in Fintech.

Most importantly we found that Shopify was jointly second (with Quickbooks) for solving the problems SMB’s face today (with Stripe being first). Bank of America is 6th and Wells Fargo 10th.

Whilst banks have a large historic market share, it’s clear Shopify has tapped into solving key problems faced by new businesses better than incumbents.

What’s a Shopify? (skip this bit if you’re like, damnit Simon I know who Shopify are)

Shopify a Canadian company, have become the default tool entrepreneurs use to quickly build an e-commerce site and get their product to market. Shopify is used by everyone from independent coffee chains, boutique fashion brands to giant brands like Nescafe and the World Wildlife Fund.

As an e-commerce platform they have a number of ready made templates, and combine sales, marketing, payments and stock management in a way a small business owner can use. Valued at a market cap of $81.9bn at the time of writing (roughly double the size of PNC Bank, and almost as large as banking giant HSBC). Shopify is arguably the alternative for many small businesses to Amazon or Etsy, it’s already huge, and it’s growing.

Shopify launched Shopify Capital in 2016, which helps with cash flow (i.e. shopify will advance the cash until a merchant gets paid), but what Shopify has announced in the last few days by contrast is staggering.

What Shopify Announced

1. Shopify Balance - Business Debit Card

Shopify found that two in five business owners are using their personal account for their business. The key hook is that as soon as a customer has paid on the e-commerce store a merchant would have that cash available immediately. This will be instant and without fees, unlike most business bank accounts that take days and charge fees.

Following the trend this debit card isn’t operating on a Shopify licence, but is using a vendor behind the scenes who provides the infrastructure and has a partner bank (although Shopify hasn’t said who). This is similar to how Uber, Lyft and even Apple have begun to use their brands and customers to become Fintech’s by partnering with modern vendors.

2. Shop Pay Installments - Buy now / Pay Later

Made popular by companies like Klarna, Paypal Credit and Affirm, a consumer gets to choose to pay for their goods in installments. Shopify’s version will allow 4 equal payments and crucially, is at 0%. The merchant gets $400 immediately but the consumer is able to pay for the goods over four months. Shopify hope this will prevent consumers taking on debt they don’t need.

For context, Klarna a company that is known for doing just buy now / pay later is worth $5.5bn. This could be an area that’s attractive to merchants, consumers and generate revenue for Shopify, if they’re able to manage the risk appropriately (!)

3. Shopify Shipping & Fulfillment

Amazon are known for their world beating logistics and shipping capabilities. Amazon are able to predict demand, root goods to be near where demand will come from and reduce shipping time and cost dramatically though automation and clever machine learning algo’s.

Meaning it’s now entirely possible to run a business where the manufacture and distribution of goods is handled by 3rd parties, with a quick shopify page and some marketing spend an entrepreneur can now have world class logistics.

These are the types of problems faced by SMB’s that a bank historically never did (or perhaps would) solve, but seeing how it sits in the context of the fintech offerings is key to understanding the ecosystem play.

4. Facebook Shops Integration

Allows a business to upload their inventory directly to Instagram and Facebook, so a user can browse and purchase items without leaving the Instagram or Facebook page. (Note also Facebook is partnering with a number of other e-commerce providers here)

Marketing is such a key area for e-commerce businesses (and especially drop shippers, who never buy or handle the stock they sell). Marketing and brand is a key differentiator, and the ability to move the purchase much closer to the advertisement will likely increase conversion rates for this key segment.

When you put it all together. Everything is a fintech, and the winners are ecosystems who understand and solve the broader range of problems faced by their audience. They don’t sell disjointed financial products and compete on price. They package manage services and products together to become a more complete home.

Takeaways

  • Merchants don’t want your bank, they want their problems solved
  • New vendors and platforms are emerging that allow companies like Shopify to solve these problems arguably better than incumbents
  • Shopify has more data about the merchants to be able to lend to them and a deeper relationship / ownership of that customer
  • The choice for banks is to enable this new world or fight it with similar services
  • Ultimately these deposits all sit at an institution (often very small), understanding this landscape is a giant deposits and lending opportunity for the banks that grasp it

For big banks there are ways to understand this change, and benefit from it, but it won’t be by doing the same old “omnichannel” strategies.

For big tech’s, there is still so much they could do with financial products, if there were a way to simply, quickly, create unique and tailored financial products...

Nirav P.

Empowering businesses with embedded finance solutions

3y

Great read thanks Simon Taylor. Any idea whose rails Shopify are running this on ?

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Bella Zanesco

Sports / Sustainability Partnerships @AWS | VIP Host & Commentator @ SailGP | Sailing World Champion | Best Selling Author of Smart Girls Screw Up Too (Wiley, Audible and Blinkist) | High Performance Coach

3y
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Araminta Robertson

Founder & MD at Mint Studios | We help financial services and fintech companies acquire customers and position themselves as experts with content marketing | Content Marketing for Fintech & Financial Services

3y

Thish De Zoysa retailer or Fintech? 🤔

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