Experts Weigh In On Shopify's New Products & Partnerships
Hi all.
Some programming notes: we're having our second virtual event on Thursday, May 28th, from 11am to 12:30pm: Regulation and US Fintech. We're speaking to Amias Gerety, a partner at QED; Melissa Koide, CEO of FinRegLab, and John Pitts, head of regulatory for Plaid. RSVP Here. Hope to see you there!
Hope everyone was able to relax a bit over the holiday weekend, even if not at the beach or hanging out with a larger group of friends and family. In this week’s edition of the newsletter, I’m focusing on a company that I never even wrote about at Bloomberg, but has been one of the most commonly discussed in several of my fintech circles: Shopify.
While it’s been building up different offerings that bring it into the world of tech and finance, the pace of product launches and new partnerships over the past few weeks has been eye catching to say the least. Last week, they unveiled a suite of financial products called Shopify Balance that will become available over the coming months. It will include tools that help vendors monitor cash flow, pay bills, and track expenses. It also teased a banking card meant to help entrepreneurs avoid having to use personal credit cards to run businesses and is similar to offerings from other credit card upstarts. Yet another announcement was a Buy Now, Pay Later feature that lets merchants give customers the chance to split up payments (think Afterpay and Affirm style payments).
Shopify has been pretty quiet in regards to who it’s partnering with on these offerings, but several of the people I’ve talked to close to Shopify and the payments space say that Affirm is the partner for the new installment product, and that Shopify is also making a sizable investment in them. Some people say that Shopify didn’t even send out an RFP for this new launch, which would be weird if true, since that’s pretty status quo for stuff like this. Though I suppose if they are investing in Affirm, they’d want to help them rather than take a chance at hurting them. I reached out to Affirm and they have not responded.
Not all of the partnerships are so secret. Facebook announced something called Facebook Shops in recent weeks, and said that Shopify is one of its partners. (Side note: shares of Shopify took a decent hit when Facebook first made the announcement, but recovered when its CEO joined Zuckerberg’s livestream to announce they were helping). Facebook Shops let businesses set up a unified Facebook and Instagram storefronts. The small businesses can put catalogs online and then take orders through either a link to its own website or Facebook’s checkout feature.
Ian did this month’s Q&A with Shopify’s VP of Financial Services Kaz Netajian, and they spoke about the partnership around Facebook Shops, the benefits it has for influencers, and other potential partnerships down the line. The full 1 hour interview drops tomorrow, so expect an email.
So what does this mean for Shopify, consumers, small businesses and the future of fintech? I think the biggest thing it shows is that fintechs can pivot, build and launch faster than many of us thought when consumer demand is there. Shopify, for instance, did a lot of this because all of a sudden, millions of businesses that were largely operating offline, needed to take things online and FAST. In an interview a couple of weeks ago, CEO Tobi Lütke said that even farmers were using his platform, and that demand has increased substantially for businesses that are selling products to customers that live just a few miles away.
Since I am only as smart as the people I talk to, I asked some experts, and I’m going to close with their thoughts. The consensus was that while the launches have come at a rapid pace, none of this is a surprise, and every company with data is becoming a fintech company:
“The Shopify announcements are exciting because they are indicative of a larger trend. Every software and marketplace company will begin to offer financial products that leverage their data and distribution. Using technology to democratize access to financial products, making them easier and cheaper to use than what financial services companies have traditionally offered, is of huge value to end customers. We've been investing in B2B fintech infrastructure for many years now and Shopify's announcements give us further confidence that those will be fantastic investments over the long term.” Satya Patel, Homebrew
“Whether it's Amazon, Shopify, Walmart or any other company with business or consumer reach, every company with data and distribution is going to become a financial services company. The margin, customer retention impact and competitive differentiation benefits are too great to ignore.” Anonymous
“The rapid pace of launches likely has to do with an influx of talent, and in particularly leadership in the form of Kaz.” Matt Harris, Bain Capital.
“They seem to recognize that embedded financial services are not just an ARPU play, but also enhance stickiness/lock-in and increase TAM and valuation multiple as well. I’ve been pretty bullish on the embedded financial services infrastructure players, and this just reinforces that.” Matt Harris, Bain Capital.
[Regarding current relationships with partners] “They have a very large existing relationship with Stripe and I am sure that Tobi and Patrick are discussing everything before they go with any new partner beyond them on any product. Ultimately Stripe doesn't have a best of breed solution for everything (yet) so they are showing some vulnerability in the short term when large partners go elsewhere for things in the stack.” Anonymous**
“I think this validates a lot of the infrastructure stuff we have been focused on for years, like Alloy. If you are a great infrastructure provider that can nail it for both emerging fintech companies and legacy banks, your solution is also going to work nicely for a dominant vertical SaaS player, marketplace, or consumer company that already has customer distribution figured out.” Charles Birnbaum, Bessemer Venture Partners* *
“For years, everyone was terrified of competing against Amazon, but Shopify slowly but surely built up an alternative ecosystem for merchants (based on owning their own real estate). Now they're gradually pulling it all together. Also, while everyone has commented on how fast they're shipping (which is true), it's also impressive to see their partnerships under the hood.” Anonymous**