Finance Everywhere, Podcasts

Inside Shopify’s financial services strategy

  • Shopify provides more than a million merchants with the tools they need to start, manage and grow their businesses.
  • By looking after all aspects of business operations in one place, Shopify is able to build financial products -- including banking, money management, credits and payments -- that are tailored to sellers’ needs.
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Inside Shopify’s financial services strategy

The convergence of retail and financial services is being led by large platforms that help merchants seamlessly reach customers online and offline. Indeed, embedding financial services within commerce platforms helps them unlock additional value from seller relationships, and provides a repository of data to personalize product offerings.

A major player in this ecosystem is Shopify, a Canada-based company that helps more than a million merchants operate digitally and in-person. On today’s Tearsheet podcast, we speak with Kaz Nejatian, vice president and general manager of Shopify Financial Solutions.

Shopify, a 14-year-old company that has a market capitalization of more than $100 billion, began making forays into financial services in 2013, with the launch of Shopify Point of Sale. Three years later, it rolled out Shopify Capital for sellers. The company in recent months made a couple of noteworthy financial product announcements, including the upcoming launch of Shopify Balance, a money management solution for sellers; and a buy-now-pay-later option for consumers in partnership with point-of-sale lender Affirm.

Nejatian discusses Shopify’s financial product roadmap and how its embedded financial solutions connect to the company’s broader seller toolkit. A lawyer by training, Nejatian previously worked in private practice; the Canadian government; Facebook; and founded and successfully exited payments startup Kash.

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The following excerpts were edited for clarity.

The journey to Shopify

I’ve spent most of my life in this weird intersection of money and computers. I grew up watching my mom manage her store, and when I was a teenager, I was responsible for making sure her books balanced at the end of the day. I would leave school, go to the store and look at the credit card terminal. I became obsessed with this thing. I broke my first rule and hacked my first credit card terminal when I was a teenager.

I spent most of my career in that space. I’m a payment lawyer, and I had a payments startup. I was at Facebook working on payments and billing. The thing that really drew me to Shopify was the fact that Shopify helps merchants like my mom, who is a Shopify merchant. About a year ago, I decided to join the company to help create the next million entrepreneurs. Our team works both on [financial] products and partnerships and commercial operations across the board for all of our merchants.

Shopify’s approach to financial services

If you look at financial services, the largest companies in the world are fine, but small businesses are not fine, and I think the pandemic has made that super obvious. Legacy banks don’t want to serve small businesses and entrepreneurs, and because they don’t want to, they create processes that are punishing for entrepreneurs. When the pandemic hit, one of the first things we did was [put our capital product to work]. We put $200 million more dollars into the market.

Shopify’s data advantage 

Shopify is where merchants come to work. They receive their sales from the Shopify website, and they run their stores through Shopify Point of Sale, and they do their marketing through [the platform]. This is where all their information lives. Because we have all this information, we can make really smart decisions. If you go to a traditional bank and ask for a loan, the bank will get you to fill out a bunch of forms. We don’t need to do that because we already have all that information, and we don’t need to rely on outdated legacy systems to make decisions. We look at literally thousands upon thousands of factors [and] have software make decisions where people used to make those decisions, and this has allowed us to move much faster.

How shopping app Shop connects to payment vehicle Shop Pay

Shop Pay is the easiest converting, and most loyal payments [vehicle], which is why our merchants love it. We recently released some data showing that Shop Pay converts 190% better on mobile than alternatives. Shop Pay is designed to fight [cart abandonment], which is why our merchants love it. 

Shop Pay and Shop work so well together because Shop Pay converts customers and Shop allows merchants to connect with customers again and again, and they can have their own branding and communication [channels]. Shop Pay takes a traditional checkout field — anywhere from 16 to 22 pieces of information — and reduces all that to one click.  

Why Shopify is rolling out banking and money management offerings, Shopify Balance

The reason why we’re working on this is we’re trying to make it easier for merchants to start and run their businesses. Legacy banks suck when it comes to entrepreneurs and small businesses. Our merchants don’t get the services they need, they get put on hold and have to fill out lots of forms. This harms their ability to focus on their businesses, and that’s why we are getting into Shopify Balance. That’s why we got into shipping, fulfillment and marketing. I don’t think of shipping as something different from Shopify Balance. We think of this as our subset of problems that make our merchants less likely to succeed [and] it’s our job to make small companies win.

The rationale for point-of-sale loans, Shop Pay Installments, in partnership with Affirm

Our merchants have told us that payment choice and flexibility is helpful for conversion and buyer acquisition.

When it comes to the existing buy now, pay later solutions, we think experience is not great on mobile without having to enter a whole bunch of [information], and the off-site process is just not great. Our goal is to make that native for our merchants. Millions of users who already use Shop Pay every time they pay for something, and our Shop Pay Installment product will be native to Shop Pay.

The entry of other platforms like Amazon, Facebook, eBay into financial services

I am excited about our merchants having more choices. I’m for lots of people offering financial solutions to merchants because I think they are incredibly underserved. Successful entrepreneurs today need to find their customers through multiple different channels. Just selling in one place doesn’t tend to work as well anymore, and we help our merchants through partnerships with Facebook, Pinterest, eBay and lots of other channels. Anything that will reduce the barrier to entrepreneurship is great. It’s good for commerce, and we think our financial services products that are native to Shopify are ones that our merchants prefer.

1 comments on “Inside Shopify’s financial services strategy”

  • Shopify is a great example of the disruptive open platform concept that is changing both e-commerce and finance. Already number two in e-commerce sales behind only Amazon, Shopify’s ecosystem system allows any e-commerce merchants to start, manage, and grow a business by leveraging technology and data.

    Shopify is advancing its “embedded finance” offerings as a way to create a more seamless experience for its customers to buy and sell products and services without the need for a traditional bank. Their point of sale solutions will keep their clients capital within the Shopify ecosystem for future use. By providing additional options for money management, Shopify clients will continue to move away from using traditional FI’s. Most importantly, Shopify is leading in supporting small business owners as it relates to the innovation and growth of their businesses. Small businesses are the lifeblood of the U.S. economy, by giving small businesses financial choice through multiple partnerships, Shopify is redefining e-commerce.

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