Protocol | Fintech

Shopify’s payments push is about ‘arming the rebels’ against Amazon

The goal isn't just to make it easier to sell on Shopify — it's about making it easier to sell anywhere, says Shopify VP Carl Rivera.

Shopify's Carl Rivera

Shopify's Carl Rivera says the goal is making ecommerce better.

Photo: Shopify

Shopify, which began as a software company that helps merchants set up online stores, has been going through a serious transformation.

The Canadian tech company has steadily expanded to other products and services, including lending to merchants and offering shoppers "buy now, pay later" deals.

On Tuesday, Shopify announced another major shift. The ecommerce company said it would give merchants on Facebook and Google access to Shop Pay, its payments and checkout tool — including those that don't use Shopify.

It's a big move that underscores Shopify's transformation, IDC analyst Jordan Jewell said.

"They're mostly a payments company in terms of revenue," Jewell said. "They're bringing in two-thirds of their revenue or more from merchant solutions. That part of the business is growing much faster than the subscription revenue."

This trend has become more pronounced during the pandemic. Last year, Shopify's core subscription software business posted revenue of $279 million in Q4 of 2020, up more than 50% year-over-year. But its merchant solutions business, which includes Shop Pay, grew even faster and became an even bigger part of the company's total business, recording revenue of $698 million that quarter, more than double the previous year.

Shopify's momentum and its aggressive expansion to new areas are turning the spotlight on its rivalry with the giant of ecommerce, Amazon. "Amazon actually views them somewhat as a threat," Jewell said.

That competition has been brewing for years. Jewell cited Shopify CEO Tobi Lutke's famous quote in 2019 when he said, "Amazon is trying to build an empire, and Shopify is trying to arm the rebels."

It's a view that Carl Rivera, Shopify's vice president of product who is spearheading the Google and Facebook payments deal, reaffirmed in an interview with Protocol. He also explained why the company is reaching out to non-Shopify merchants.

This interview was edited for brevity and clarity.

Why give non-Shopify merchants access to your checkout and payments tool?

It's pretty straightforward. Shopify's mission since forever is to make commerce better for everyone. After some time, we realized that the best way for us to make commerce better for everyone is to not just think about the merchants, but also to think about their customers and how we can accelerate them through the checkout. Now, we're not just going to think about Shopify merchants. We're also going to think about all the merchants and all customers.

What were the hurdles? What were the things that you and other team members were worried about?

A general truth for product development is that the simpler something feels, the harder it is to build. You think about bringing what is the easiest way to check out from an online store to millions of merchants — obviously there were a ton of technical considerations that we had to take into account to make this experience a reality.

Can you give an example?

A large part for us is: How do we work with authentication and identity? How can we ensure that this is super fast and super secure at the same time, and figure out how [those] transition and handshake moments should happen? That was something we spent a lot of time talking about and discussing.

It's tougher because you're dealing with merchants who are not in your world, so to speak.

When you're building on your own platform, you have full control of every aspect and angle. And when you're building together with a partner, it requires a super close collaboration and a really high level of trust where you can really open up and say, "Here's where we're at with that product. Where are you at in terms of receiving the right API calls," and so forth. This wouldn't have been possible if it wasn't for the very high level of trust that exists between us and these partners. I've been super encouraged to see the news coming out from both of those companies over the past. You can tell that they're increasingly taking commerce more and more seriously.

Shopify clearly grew during the pandemic. Your merchant solutions business, which includes payments, is accelerating much faster than the core business.

Shopify is in the business of making merchants successful. When we think about payment volume, we think of it mostly as a proxy for merchants' success. We will do whatever it takes to make our merchants successful or any merchants that use Shopify services. We know that Shop Pay is one of the things that makes merchants more successful. This is fully why we're pursuing this opportunity.

There's just an abundance of players in the payment space. I continue to be surprised just how little innovation there's been in this space. And so we don't compare ourselves to any payment provider or any wallet in particular. But we find that we stand out quite a bit just by thinking about this space a little bit differently.

What I got from that response is that there's more to come when it comes to payments.

It's certainly fair to say that Shop Pay is in the beginning of its journey. We think very highly of this product. We already see what kind of results it brings. It's certainly no secret that we have even higher ambitions for this product, and look forward to seeing it continue to grow.

There is also the view that you're increasingly becoming a competitor with Amazon.

I think Amazon is an incredible company that has had a lot of success over the years. They're taking an approach to ecommerce that is working really well for them. We're taking a very different approach that seems to be working superbly for Shopify. We're bullish about the path that we're taking. This is the first product that we're launching to non-Shopify merchants and we're going to see how this transpires and see what use they get out of it.

Can you talk about how Shopify went through the past year when the pandemic was raging?

It was a crazy time. We were gearing up for the launch of Shop, which is something that we've been working on for a long period of time. Then the pandemic happened. All of a sudden, all bets are off. Tobi [Lutke] sent out an important letter to the entire company and said this is probably one of the most important times in the history of this company where we need to show up for our merchants. We cut timelines for all of the projects that we were pursuing. We asked ourselves the really hard questions, like "Is this the thing that's going to drive the most merchant impact today? Can we get it out yesterday?" I think Tobi said this best about ecommerce: COVID didn't change anything. It just accelerated all of the things that were already happening. That's really what's happening. It's not that we changed trajectory or changed the path. We just accelerated all of the paths that we were already on.

Tobi also famously said that Shopify's goal is to "arm the rebels" — the merchants — against Amazon. You're laughing. How do you reflect on that statement as you're pursuing these new initiatives?

I think that the rally cry of arming the rebels is a great one. We truly try to as much as possible democratize ecommerce. We believe that the future of commerce benefits from more voices, not fewer. What Shopify is doing is really leveling the playing field where these first-time sellers get a really sophisticated, super-advanced platform that allows them to compete.

So giving non-Shopify merchants access to your technology is a way of arming even more rebels.

Yeah, I totally agree with that sentiment. I think that's absolutely right. Again, our mission is not to make commerce better for Shopify merchants. It is: Let's make commerce better for everyone. The future of commerce will benefit from more voices, not fewer.

Image: Yuanxin

Yuanxin Technology doesn't hide its ambition. In the first line of its prospectus, the company says its mission is to be the "first choice for patients' healthcare and medication needs in China." But the road to winning the crowded China health tech race is a long one for this Tencent- and Sequoia-backed startup, even with a recent valuation of $4 billion, according to Chinese publication Lieyunwang. Here's everything you need to know about Yuanxin Technology's forthcoming IPO on the Hong Kong Stock Exchange.

What does Yuanxin do?

There are many ways startups can crack open the health care market in China, and Yuanxin has focused on one: prescription drugs. According to its prospectus, sales of prescription drugs outside hospitals account for only 23% of the total healthcare market in China, whereas that number is 70.2% in the United States.

Yuanxin started with physical stores. Since 2015, it has opened 217 pharmacies immediately outside Chinese hospitals. "A pharmacy has to be on the main road where a patient exits the hospital. It needs to be highly accessible," Yuanxin founder He Tao told Chinese media in August. Then, patients are encouraged to refill their prescriptions on Yuanxin's online platforms and to follow up with telehealth services instead of returning to a hospital.

From there, Yuanxin has built a large product portfolio that offers online doctor visits, pharmacies and private insurance plans. It also works with enterprise clients, designing office automation and prescription management systems for hospitals and selling digital ads for big pharma.

Yuanxin's Financials

Yuanxin's annual revenues have been steadily growing from $127 million in 2018 to $365 million in 2019 and $561 million in 2020. In each of those three years, over 97% of revenue came from "out-of-hospital comprehensive patient services," which include the company's physical pharmacies and telehealth services. More specifically, approximately 83% of its retail sales derived from prescription drugs.

But the company hasn't made a profit. Yuanxin's annual losses grew from $17 million in 2018 to $26 million in 2019 and $48 million in 2020. The losses are moderate considering the ever-growing revenues, but cast doubt on whether the company can become profitable any time soon. Apart from the cost of drug supplies, the biggest spend is marketing and sales.

What's next for Yuanxin

There are still abundant opportunities in the prescription drug market. In 2020, China's National Medical Products Administration started to explore lifting the ban on selling prescription drugs online. Although it's unclear when the change will take place, it looks like more purely-online platforms will be able to write prescriptions in the future. With its established market presence, Yuanxin is likely one of the players that can benefit greatly from such a policy change.

The enterprise and health insurance businesses of Yuanxin are still fairly small (accounting for less than 3% of annual revenue), but this is where the company sees an opportunity for future growth. Yuanxin is particularly hoping to power its growth with data and artificial intelligence. It boasts a database of 14 million prescriptions accumulated over years, and the company says the data can be used in many ways: designing private insurance plans, training doctors and offering chronic disease management services. The company says it currently employs 509 people on its R&D team, including 437 software engineers and 22 data engineers and scientists.

What Could Go Wrong?

The COVID-19 pandemic has helped sell the story of digital health care, but Yuanxin isn't the only company benefiting from this opportunity. 2020 has seen a slew of Chinese health tech companies rise. They either completed their IPO process before Yuanxin (like JD, Alibaba and Ping An's healthcare subsidiaries) or are close to it (WeDoctor and DXY). In this crowded sector, Yuanxin faces competition from both companies with Big Tech parent companies behind them and startups that have their own specialized advantages.

Like each of its competitors, Yuanxin needs to be careful with how it processes patient data — some of the most sensitive personal data online. Recent Chinese legislation around personal data has made it clear that it will be increasingly difficult to monetize user data. In the prospectus, Yuanxin elaborately explained how it anonymizes data and prevents data from being leaked or hacked, but it also admitted that it cannot foresee what future policies will be introduced.

Who Gets Rich

  • Yuanxin's founder and CEO He Tao and SVP He Weizhuang own 29.82% of the company's shares through a jointly controlled company. (It's unclear whether He Tao and He Weizhuang are related.)
  • Tencent owns 19.55% of the shares.
  • Sequoia owns 16.21% of the shares.
  • Other major investors include Qiming, Starquest Capital and Kunling, which respectively own 7.12%, 6.51% and 5.32% of the shares.

What People Are Saying

  • "The demands of patients, hospitals, insurance companies, pharmacies and pharmaceutical companies are all different. How to meet each individual demand and find a core profit model is the key to Yuanxin Technology's future growth." — Xu Yuchen, insurance industry analyst and member of China Association of Actuaries, in Chinese publication Lanjinger.
  • "The window of opportunity caused by the pandemic, as well as the high valuations of those companies that have gone public, brings hope to other medical services companies…[But] the window of opportunity is closing and the potential of Internet healthcare is yet to be explored with new ideas. Therefore, traditional, asset-heavy healthcare companies need to take this opportunity and go public as soon as possible." —Wang Hang, founder and CEO of online healthcare platform Haodf, in state media China.com.

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.

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