Fintech

Shopify wishes it didn’t have to be a bank. It didn’t have a choice.

Merchant loans, payments and other services have helped the online storefront provider grow explosively and compete with Amazon's vast, centralized marketplace.

Phone with Shopify app on screen

Shopify's merchant services include a host of financial options, including payments and lending.

Photo: Shopify

The pandemic supercharged Amazon's ecommerce machine — but the same phenomenon strengthened a rising rival, Shopify, which takes a very different approach to selling online.

The company positions itself as a counterpoint to Amazon by enabling smaller merchants to create their own stores and develop their own relationships with customers.

Financial services have become a big part of the company's business. By providing payment processing, point of sale systems and loans, Shopify is seeking to provide everything a small business owner needs to operate a business online. The goal is to become an all-in-one business dashboard for these merchants.

Shopify had revenue of $988.6 million in the first quarter, up 110% year-over-year. Its gross payments volume, a measure of gross merchandise volume processed in-house through Shopify Payments, was $17.3 billion in the first quarter, or 46% of GMV processed, up from 42% in the same period a year ago.

Merchant solutions revenue, which makes up the majority of Shopify's business and includes Shopify Payments, Shopify Shipping and Shopify Capital, grew 137% to $668 million in the first quarter.

We spoke with Kaz Nejatian, vice president of product for merchant services at Shopify, who manages about half of the Shopify product team, including banking services, billing, payments, taxes and foreign exchange.

This interview has been lightly edited for clarity.

How do you decide which fintech products to build yourself versus work with a partner?

This is the meta question we always ask. We care about the merchant experience and the merchant pain. And if we can solve it while partnering, we will. So the product we use is called Shopify Payments. We actually co-built that product with Stripe, it didn't exist before Shopify and Stripe built it together.

So we think something similar is true for our banking products. We have partners in the space, we have Stripe and a bunch of banks underneath them. So yes, we're partnering, but we're literally building that from the ground up.

We don't want to be In the finance space, it's just that banks refuse to deal with our merchants. If I could find banks that will serve our merchants, we'd get out of the business really fast. The problem is the institutional banking system is stacked against merchants.

How so?

We think the banking system is inherently unfair to small merchants, and especially unfair to small merchants who don't come from prestigious schools in big cities. The banking system probably works fine if your name is Mike. But it does not work fine if your name is Muhammad.

Shopify loaned $308.6 million in the first quarter, up from $162.4 million a year ago. Why has Shopify Capital become such a big part of your business?

When the pandemic hit, literally every single bank and online lender withdrew money and said, "Nope, we're not doing loans." That same day Shopify said, "We're doubling down, we're putting a couple hundred million more into the system today." The reason for that is we don't view our Capital business as a cash cow designed to make money off lending.

We view it as a way of making our merchants successful. If our merchants are successful, we're successful in the long run. So our time horizon on payback is different.

So the second thing is, we fund our merchants from $200 up to $1 million. One of our merchants, a T-shirt company [called] Cuts Clothing, has used Shopify Capital 10 times. We've funded them with $2,000, then tens of thousands of dollars, then hundreds of thousands of dollars. They got a $1 million round from us in 2020. These guys would have been laughed out of a bank.

We think of it as a runway extension model for our merchants to help them grow. And we don't look at things [that] banks look at, [like] business plans or credit scores or personal guarantees. We look at millions of data points on the Shopify platform to underwrite each merchant.

Merchants don't need to provide data?

The way Shopify Capital works is that we just underwrite you based on the data already in Shopify. We don't ask for any information. There's no application process. We predict what will happen with extra capital for the business. And if the business is better off with extra capital, we make an offer.

So the types of companies you would want to find would be different from competitors?

Yes, the majority of the reason we're in this business is because banks would reject our merchants over and over again. We have so many stories of minority entrepreneurs who've been rejected by a bank and then see, "Oh, I have an offer from Shopify!" Because merchants know they're ready to grow — and we know. And banks don't.

What's Shopify's goal in terms of payments?

There's just over 700 payment processors for Shopify. Shopify has been accepting cryptocurrency since 2014 — one of the first places to do it. Our general strategy here is we want our merchants to be able to sell to customers with their preferred payment method whenever possible. So we have our own Shopify Payments product, which is a credit card processor. We have Shop Pay, which is the highest converting payment wallet on the internet. We've shared that the Shop [app] now has tens of millions of users.

The single largest problem for our merchants today is usually from the parts of the world where payments on the internet are broken. This is why we invest so much of our time thinking about how we can expand payment processing options for our merchants.

So we have Shop Pay, which I think is the best payment on mobile. And we also have bank payments on Shopify, we allow alternative methods like installments, we have local pay methods in dozens of countries. And we're always working on adding more options into the system.

Why have your own app?

We think of Shop as a shopping destination that allows our merchants to establish deep relationships with their buyers. And the meta effect of Shop is that the future of commerce must be decentralized and led by brands, and not centralized and basic.

Like Amazon?

Look, I think centralized marketplaces have a place, but it's not a great thing for the world where brands can't build a relationship with the consumer, right?

And what centralized marketplaces have done is they've promoted a consumerist vision of the world where you can buy everything. But none of it has any value. None of it has any story behind it. And that's just not great for the world.

How many people are actually paying Shopify with crypto?

It's not high right now. It is some, it's not nothing. What we think is super interesting is the way crypto helps trust between merchants and buyers. And that's what we're working on. Think about provable ownership — how a merchant can transfer to a buyer a proof of ownership and authenticity. Like, this is internet-native, authentic ownership that allows creators to put their name on a tangible thing. And we think that's super interesting.

When you buy a T-shirt from Cuts, you want people to know it's from Cuts. It's an ethically-made, comfortable T-shirt made by a brand you respect. We think cryptocurrencies are a super interesting way to prove ownership. And that's something that shakes the foundations of "big is good."

What's the goal with your point of sale system?

The all new point of sale is available in the U.S. and Canada; we've launched in the U.K. and Ireland. It's not just a point of sale system. What it's designed to do is turn what would have been cashiers into salespeople, and to extend the relationship. So Allbirds, a Shopify merchant — when you buy something online and you can pick it up in store. If you live in New York, you just buy it at Allbirds and go pick it up. It's just down the street from you. You could also walk into a store, buy a thing, and say, "Hey, look, I'm going to go for dinner, could you just please ship this to my house because you have my address?"

If you search "Wordle" on the App Store right now, you'll find nearly a dozen copycat versions of the game.
Screenshot: Nick Statt/Protocol

On this episode of the Source Code podcast: Nick Statt joins the show to discuss the rise of Wordle, the subsequent rise of the Wordle clones, and why it’s so easy to copy a game. Then Ben Pimentel chats about the fight over Web3, why Jack Dorsey and Marc Andreessen are at odds, and the killer app for the future of the web. Finally, Allison Levitsky explains some of the big new future-of-work trends, including the four-day workweek and dog-walker perks.

For more on the topics in this episode:

Keep Reading Show less
David Pierce

David Pierce ( @pierce) is Protocol's editorial director. Prior to joining Protocol, he was a columnist at The Wall Street Journal, a senior writer with Wired, and deputy editor at The Verge. He owns all the phones.


Greg Petraetis, SVP and Managing Director, Midmarket and Partner Ecosystem, North America at SAP

As businesses grow during the pandemic, they also encounter pressing challenges to maintain that success. Among them is the pressure to strengthen their digital backbone, which leads to the question: How can companies find the ideal technology provider suited to their evolving needs?

In the midmarket space, small- and medium-sized businesses (SMBs) often need support to buoy them through any choppy waters ahead. As a SaaS solutions provider, SAP has extensive expertise developing strategies to connect innovative companies with their customers.

“We’ve seen how so many SMBs want to become the next billion-dollar companies as they move from being innovators and disruptors to global leaders,” says Greg Petraetis, senior vice president and managing director, Midmarket and Partner Ecosystem, North America at SAP, in an interview with Protocol. “And we’re there to catch them along that trajectory and help them achieve that profitable growth.”

Keep Reading Show less
David Silverberg
David Silverberg is a Toronto-based freelance journalist, editor and writing coach. He writes for The Washington Post, BBC News, Business Insider, The Toronto Star, New Scientist, Fodor's, and several alumni magazines. He also writes for brands such as 23andme, Shopify and Bold Commerce. He has served as editor of B2B News Network, Canada's only B2B news magazine, and Digital Journal, a leading pioneer in citizen journalism. Find more about him at www.davidsilverberg.ca
China

Will there be China tech IPOs to watch in 2022?

After the DiDi chaos, Chinese companies are cautiously looking to return to the capital market.

If TikTok parent company ByteDance went public this year, it would undoubtedly become the biggest IPO of any Chinese company in 2022.

Photo Illustration: Omar Marques/SOPA Images/LightRocket via Getty Images

As 2022 begins, the biggest question for China IPO watchers is: Will there still be any significant IPOs this year worth anticipating?

For them, 2021 was divided into two halves: The first six months were filled with ambitious Chinese companies listing overseas, culminating in ride-hailing giant DiDi’s IPO on June 30, but it was all downhill from there. In the wake of DiDi’s rushed IPO, Chinese regulators imposed harsh cybersecurity reviews on several companies that were about to go public. Others put their IPO plans on hold. Stock markets reacted accordingly: Alibaba, Pinduoduo and others saw their share prices slashed in half.

Keep Reading Show less
Zeyi Yang

Zeyi Yang is a reporter with Protocol | China. Previously, he worked as a reporting fellow for the digital magazine Rest of World, covering the intersection of technology and culture in China and neighboring countries. He has also contributed to the South China Morning Post, Nikkei Asia, Columbia Journalism Review, among other publications. In his spare time, Zeyi co-founded a Mandarin podcast that tells LGBTQ stories in China. He has been playing Pokemon for 14 years and has a weird favorite pick.

Boost 2

Can Matt Mullenweg save the internet?

He's turning Automattic into a different kind of tech giant. But can he take on the trillion-dollar walled gardens and give the internet back to the people?

Matt Mullenweg, CEO of Automattic and founder of WordPress, poses for Protocol at his home in Houston, Texas.
Photo: Arturo Olmos for Protocol

In the early days of the pandemic, Matt Mullenweg didn't move to a compound in Hawaii, bug out to a bunker in New Zealand or head to Miami and start shilling for crypto. No, in the early days of the pandemic, Mullenweg bought an RV. He drove it all over the country, bouncing between Houston and San Francisco and Jackson Hole with plenty of stops in national parks. In between, he started doing some tinkering.

The tinkering is a part-time gig: Most of Mullenweg’s time is spent as CEO of Automattic, one of the web’s largest platforms. It’s best known as the company that runs WordPress.com, the hosted version of the blogging platform that powers about 43% of the websites on the internet. Since WordPress is open-source software, no company technically owns it, but Automattic provides tools and services and oversees most of the WordPress-powered internet. It’s also the owner of the booming ecommerce platform WooCommerce, Day One, the analytics tool Parse.ly and the podcast app Pocket Casts. Oh, and Tumblr. And Simplenote. And many others. That makes Mullenweg one of the most powerful CEOs in tech, and one of the most important voices in the debate over the future of the internet.

Keep Reading Show less
David Pierce

David Pierce ( @pierce) is Protocol's editorial director. Prior to joining Protocol, he was a columnist at The Wall Street Journal, a senior writer with Wired, and deputy editor at The Verge. He owns all the phones.

Entertainment

Will NFT backlash stop the blockchain gaming boom?

Few players seem to want NFTs. But that might not be enough to stop blockchain gaming from going mainstream.

NFTs in particular, and the broader blockchain gaming movement of which they are a part, have elicited a rare level of polarization among players, developers and large game-makers.
Illustration: fairywong/DigitalVision Vectors/Getty Images; Protocol

The non-fungible token debate has moved from the art world to the gaming industry, and it’s morphed into an all-consuming fight about the future of entertainment and what role, if any, the crypto movement should play in the way video games make money.

From microtransactions to crunch culture, the video game industry is full of unsavory business practices that persist in spite of widespread backlash among the general gaming audience and near-constant denunciation from outspoken industry leaders and critics. That’s in part because such practices are often lucrative or steeped in industry norms that are difficult or costly to change.

Keep Reading Show less
Nick Statt
Nick Statt is Protocol's video game reporter. Prior to joining Protocol, he was news editor at The Verge covering the gaming industry, mobile apps and antitrust out of San Francisco, in addition to managing coverage of Silicon Valley tech giants and startups. He now resides in Rochester, New York, home of the garbage plate and, completely coincidentally, the World Video Game Hall of Fame. He can be reached at nstatt@protocol.com.

Tech workers want three-day weekends. It won’t be possible everywhere, but more companies are starting to consider it.

Illustration: Christopher T. Fong/Protocol

Welcome back to Ask a Tech Worker. For this recurring feature, I’ve been hitting the streets of San Francisco’s Financial District at lunchtime to chat with tech employees about how the workplace is changing. This time I asked about the four-day work week, that elusive schedule that companies like Bolt, Signifyd, Panasonic, Eidos-Montréal and Wildbit have adopted and a number of others have tested or considered. Got a suggestion for a future topic? Email me.

The four-day work week may be the next frontier for tech companies using work-life balance to compete for talent. Since the New Year, Bolt, commerce protection platform Signifyd and Panasonic have all announced that they’re offering four-day weeks to employees.

Keep Reading Show less
Allison Levitsky
Allison Levitsky is a reporter at Protocol covering workplace issues in tech. She previously covered big tech companies and the tech workforce for the Silicon Valley Business Journal. Allison grew up in the Bay Area and graduated from UC Berkeley.
Latest Stories
Bulletins