The Exciting Intersection of Fintech and Ecommerce
What brand marketers need to know about ecommerce solution providers like Shopify, Affirm, and Square
Fintech has always been part of the ecommerce infrastructure. After all, running an online shop requires digital payment solutions. Some ecommerce platforms, such as Amazon and Shopify, develop their own integrated payment solutions, while others like Squarespace and BigCommerce rely on fintech partners, such as Square and Stripe to provide payment solutions for merchants. Regardless of their different approaches, all of these companies, excluding Amazon, are B2B companies that typically don’t have a direct bearing on the consumer.
We tend to think about B2B companies and B2C companies separately, and what enterprise companies do typically recedes into the backend, invisible to the consumers. Yet, in recent years, new developments at the intersection of ecommerce infrastructure and fintech services point to an emerging shift of the integration point in the ecommerce value chain, which will allow ecommerce-oriented B2B companies to develop consumer-facing products that could transform online checkout as a key consumer touchpoint and thus influence shopper behavior.
The Shopify Playbook
Shopify is arguably one of the most exciting companies operating in the digital economy today. Over the past year or so, the Canadian ecommerce solution provider has quickly emerged as a leading ecommerce platform and a lynchpin in the anti-Amazon alliance.
From Walmart and TikTok to Facebook and Google, it has established extensive partnerships with just about everyone who is competing against Amazon for a share of the growing ecommerce pie. Interestingly, even Netflix, which competes with Amazon Prime Video, chose Shopify as the ecommerce platform for its newly-opened merchandise store.
Of course, the various partnerships stem from different business objectives and aim for different goals. Partnering with Walmart is a mutually beneficial way for both companies to extend their audience reach — for Walmart, it brings more independent merchants onto its marketplace site; for Shopify, it exposes its merchants to Walmart shoppers. Interestingly, Shopify also offers the same type of support for Amazon Marketplace, which is telling of Amazon’s market position and power. The partnership with TikTok follows a similar line of thinking, but for the burgeoning social commerce space.
In comparison, the decision to extend Shop Pay, its proprietary online checkout system, to all retailers selling through Google and Facebook, is a much more consequential decision for Shopify. This is the first time the company has offered a product to merchants that don’t use its ecommerce platform, and it puts the spotlight entirely on its payment solution. Shopify can afford to do so without hurting its larger business, because Shop Pay has become its star product — Shopify claims that Shop Pay checkout “is 70% faster than a typical checkout, with a 1.72 times higher conversion rate” — that can act as a gateway to other Shopify services such as financing and order tracking to entice merchants. And because Shop Pay is so ubiquitous and user-friendly, many online shoppers have embraced it too, which is why Google and Facebook both chose to integrate Shop Pay instead of pushing for their own payment solutions. In a way, Shop Pay now effectively serves as a key differentiator for Shopify to attract SMBs and entrepreneurs.
Besides establishing extensive partnerships and smartly positioning its payment solution as an integration point, another important tactic in the Shopify playbook is to appeal to merchants and small business owners by any means necessary. In May 2020, the company unveiled a business account and debit card called Shopify Balance, a “Buy Now, Pay Later” option called Shop Pay Installments, and a new Local Delivery product, all aimed at enticing prospective customers with a full-suite ecommerce solution. Later in August, Shopify’s in-house production arm, Shopify Studios, created a reality TV show called I Quit that aired on Discovery about people who quit their 9-to-5 jobs to start their own businesses. Interestingly, aside from the role of Shopify COO Harley Finkelstein as one of the show’s mentors, the series is completely unbranded; yet, it would still serve as a great piece of content marketing for Shopify to inspire new entrepreneurs and acquire new customers.
Last week, as part of its Shopify Unite annual developer event, Shopify announced that it’s reducing the share of revenue it collects from developers making less than $1 million per year publishing apps in the Shopify app store from 20% to 0%. It also debuted Checkout Extensions, which will allow developers to build loyalty and rewards apps into the Shopify checkout process. Both moves will make Shopify a more appealing ecommerce solution provider for developers, whose work in turn will help Shopify better address the multitude of commerce use-cases that are emerging globally.
As Shopify firmly establishes its market-leading position among merchants and ecommerce platform owners, it is also starting to make a play for the regular consumers that come into contact with its platform via Shop Pay. Last April, Shopify released a consumer-facing Shop app (a relaunch of its existing order tracking app called Arrival) to let shoppers browse a feed of recommended products based on their previous purchases, learn more about each brand, and make purchases using the one-click Shop Pay checkout. While the Shop app hasn’t exactly taken off as a new ecommerce destination per se, its very existence still hints at Shopify’s larger ambitions in entering the consumer-facing domain as a full-stack ecommerce platform. Moreover, Shopify also recently acqu-hired the team behind Primer, an augmented reality home design app, to build better AR sampling tools, which would be a boost to both its platform functionality and the consumer-facing experience it can provide.
2020 proved to be a great year for Shopify, as the company seized the accelerated retail transformation and grew its market share in respect to total U.S. ecommerce sales from 5.9% in Q1 2020 to 8.6% in Q1 2021. Looking ahead, if Shopify can continue to stick to its playbook and appeal to both merchants’ and shoppers’ demands for a more user-friendly online shopping experience, it will certainly continue to grow in prominence, not as an Amazon alternative but as a first choice for small business owners, and play an integral role in the larger ecommerce infrastructure.
The Rise of Buy Now, Pay Later Solutions
Another category of fintech upstarts that is shifting shopper behavior is the “buy now, pay later” (BNPL) services, exemplified by companies like Affirm, Klarna, and Afterpay. After first achieving popularity in the European markets, the BNPL companies are now starting to gain traction in the U.S. as well. Per a recent survey by The Ascent, 55.8% of U.S. consumers have used a BNPL service, up from 37.65% in July of 2020 — an increase of almost 50% in less than one year. This reflects a willingness to splurge as the U.S. emerges from the Covid-19 pandemic, as 44% of U.S, adults say they are willing to take on debt to “treat themselves.”
BNPL services position themselves as a more flexible and transparent alternative to credit cards, allowing consumers to split purchases into installments and charging them either simple interest or no interest at all. They are particularly appealing to many Millenials and Gen Z consumers who are afraid of falling into debt and want a cardless alternative to the compound interest model of credit cards. For businesses, integrating BNPL services allows them to sell large purchases online more easily and reach more people without credit cards. No wonder everyone from the aforementioned Shopify to Square and PayPal have launched their own BNPL services.
Installment payments are nothing new — furniture stores have long let people pay for big-ticket items in installments after taking home said items. In a sense, the BNPL services are digital reincarnations of those installment programs, spreading across categories and into smaller purchase amounts. But because they command consumer attention over a sustained period of time to pay off, these BNPL services could become quite sticky and retain users. Klarna engages shoppers beyond the point of purchase by enabling them to track their packages within the Klarna app, where they may also be tempted to view items from other retailers or add products to their wish lists. Affirm recently announced a forthcoming ”buy now, pay later” debit card, as it aims to deepen its existing consumer relationships and expand into more financial services.
Moreover, category-specific BNPL are also starting to emerge. For example, Uplift, which works with travel companies like Carnival Corp. and Southwest Airlines, helps consumers finance leisure purchases from $100 flights to $25,000 cruises via both simple-interest and interest-free offerings. If this trend continues, more upmarket categories could become accessible to a wider consumer base, especially those who are wary of taking on credit card debt.
For consumer brands, integrating BNPL options into your checkout process should be a top priority. The Ascent survey found that 61% of BNPL users would rather use a BNPL service offered directly from the retailer they’re buying from than going through a third party. For banks and credit card companies, simplifying existing installment payment programs to match the user experience of these digital-native BNPL solutions should also be of high consideration.
Remaking the Commerce Infrastructure
It is no secret that banks are falling out of favor with small business owners, who are increasingly drawn to the digital-native solutions that fintech companies provide. An 11:FS study shows that 62% of SMBs don’t believe their business banking account offers any additional benefits compared with their personal accounts. Just over two-thirds (67%) of them use one of six fintech business platforms, compared with 51% using one of five large banks. This is further accentuated by the accelerated digitalization for businesses. For example, over the course of the pandemic, 88% of restaurants considered swapping to digital menus, Square’s Future of Restaurants 2021 report shows. And 76% of restaurants plan to continue offering contactless payment options even after the pandemic. Seizing this great growth opportunity, companies like Square and Stripe are striking iron while it’s hot.
Square, whose main product is its brick-and-mortar POS system, struggled during the pandemic as stores shut down. Fortunately, the company expanded beyond its core business and now includes tools for sellers to list their products online as well as the Cash App that has powered substantial growth over the past year. It recently teamed up with rapper Megan Thee Stallion in a social campaign for Cash App to give away $1 million worth of stocks and educate people about investing. Square’s new SMB offerings hinted at a deposit product launch; when a Square checking account launches, its extensive merchant network may help it emerge as a significant threat to incumbent banks. It is also worth noting that Square’s system also runs a loyalty program that enrolls customers based on the debit or credit card they regularly use, which merchants can opt into to boost customer retention.
Stripe also launched two new services last month: one called Stripe Tax, which will automate the calculation and collection of sales tax, value-added tax, and goods and services tax for transactions made through Stripe’s platform, and the other called Stripe Identity, an identity verification tool to help businesses reduce payments fraud and prevent account takeovers. While both services will make Stripe a more compelling service for vendors, Analyst Ben Thompson acutely pinpointed that not setting an industry standard around identity verification and becoming more of a consumer brand is a big missed opportunity for Stripe.
Together with Shopify, these companies are leading the revolution in remaking commerce infrastructure. Unlike Amazon, which primarily acts as a generic channel that drives sales for brands, these companies at the intersection of ecommerce and fintech are empowering brands and small business owners to create a unique branded online storefront while requiring the least amount of effort or technical know-how, and all without sacrificing the user experience. Today’s consumers demand personalized and frictionless shopping journeys, regardless of what online storefront they visit, and only by overhauling the infrastructure that undergirds the commerce operations can a real omnichannel retail strategy be achieved.
