Shopify takes on Australian banks by lending to online sellers

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Shopify claims that its sales data says more about a business than a bank could. It will consider expanding its financial services beyond loans. In the United States, Shopify offers commerce transaction accounts.

Tui Allen from Shopify. “Small businesses feel underserved and overwhelmed by traditional financial services and lack the financing they need to grow their business.”

“We embed the capability directly where merchants run their store,” said Tui Allen, Shopify product manager for capital lending and financial services.

“Banks don’t have the insight we have. We’re extending the service, so it’s not just about managing your store, but your entire business on Shopify, including the financial components. We have a significant depth of fintech capability and continue to expand it across the platform.

Shopify is working with Westpac, which will provide money transfer services by connecting Shopify to the Australian payment system.

Shopify is also working with Stripe, another global fintech that has moved from processing payments to providing loans and offering deposits. In the United States, Shopify leverages Stripe’s banking relationships to offer a product called Shopify Balance. Shopify Capital loans are funded by Shopify’s balance sheet.

Ms Allen said Shopify would expand financial services in Australia. “Capital is a very important first step on the way to what we want to do,” she said.

Shopify is preparing to register with the Australian Prudential Regulation Authority under financial sector data collection laws. It does not require an Australian financial services license as its business loans do not fall under the credit laws administered by ASIC.

Its expansion into financial services comes as Shopify faces equity market pressure; its stock is down more than 70 percent this year. It cut about 10% of its workforce after an expected post-COVID surge in e-commerce traffic failed; its CEO said recently that online shopping volumes had returned to pre-COVID levels rather than being permanently boosted by the pandemic.

Australia is Shopify Capital’s fourth marketplace, which launched in the US in 2016 and expanded to Canada in 2020 and the UK in 2021.

Jack Dorsey’s payments company Square (now Block) launched business loans in Australia last year; Square told the Australian Financial Review Banking Summit in June that it was seeing strong demand.

PayPal also provides business loans through PayPal Working Capital, and the product has seen heavy repeat use: eight out of 10 businesses that repaid their first PayPal loan took out a second.

In the United States, Shopify has moved to buy now, pay later. It has a relationship with Affirm, a major competitor to Afterpay and Zip. Shop Pay Installments launched in June 2021, but declined to say whether BNPL would roll out to its Australian merchant base.

Several local businesses are exploring “integrated finance”. One example is Flare, which after developing a payroll platform to help employers connect with their employees, is exploring a new distribution model for financial services by providing employees with bank accounts and a retirement pension.

The big banks are trying to react. Commonwealth Bank has a relationship with BigCommerce, which also helps small businesses sell online – but is overshadowed by Shopify.

ANZ Bank considered buying MYOB, a cloud accounting platform that could have provided it with quality data to help it grow business lending through a platform. But the deal was scrapped after ANZ decided to sue Suncorp instead.

But “small business owners don’t wake up thinking about how to balance the books or where to get financing,” Ms Allen said.

“They wake up thinking about creating a product they are passionate about and putting it online. They feel underserved and overwhelmed by traditional financial services and lack the funding they need to grow the business.

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