Buy-now, pay-later (BNPL) platform Sezzle is suing Shopify for allegedly violating United States (US) antitrust laws by “manipulating” customers to use the e-commerce giant’s own BNPL software, causing competitors to lose out on sales.
The lawsuit claims Shopify “copied” Sezzle’s BNPL product and business model by rolling out Shop Pay Installments.
The lawsuit, which was filed June 9 in the U.S. District Court for the District of Minnesota, claims that Shopify is engaging in “monopolistic and anticompetitive business practices in order to stifle competition” for BPNL services on its e-commerce platform. It alleges the company used its market power to favour its own BNPL service for merchants, crowding out competitors such as Minneapolis, Minn.-based Sezzle.
BetaKit reached out to Shopify for comment on the lawsuit but did not hear back by press time.
Shop Pay Installments, powered by US BNPL company Affirm, gives consumers who use Shopify’s Shop Pay and Shop App access to a variable payment installment plan when purchasing products from merchants who have the option enabled.
Shopify and Affirm first struck a partnership in 2020, and later launched Shop Pay Installments for eligible US-based Shopify merchants in 2021. The partnership was last renewed in 2022, and expanded to include Canadian merchants earlier this year.
Sezzle, which launched in 2017, alleges that it once had a “symbiotic relationship” with Shopify, wherein merchants would benefit from offering Sezzle’s BNPL options and Sezzle would take a cut of the proceeds. The lawsuit claims Shopify “copied” Sezzle’s BNPL product and business model by rolling out Shop Pay Installments.
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The lawsuit also alleges Shopify used its power to “force” merchants into contracts that penalized them by charging a small fee for using third-party, non-Shopify BNPL providers.
In its lawsuit, Sezzle claims Shopify intentionally made it more difficult for consumers to find alternative BNPL providers on its merchant sites. It alleges that even if consumers selected Sezzle as a BNPL option when buying a product, Shopify redirected them to a form not associated with Sezzle, allowing it to “intercept” consumers and have them pay through Shop Pay Installments instead.
The lawsuit claims this resulted in Shopify processing sales that would have otherwise gone to Sezzle. Sezzle also claims that Shopify limited the features available for consumers purchasing products with Sezzle as a BNPL option, such as real-time inventory locking and an order ID reconciliation function.
The lawsuit said that by 2024, three years after rolling out the feature, Shop Pay Installments processed more than 75 percent of all BNPL transactions for Shopify merchants.
In the filing, Sezzle claimed Shopify’s actions had no legitimate business purpose. Sezzle is seeking an injunction to block Shopify from continuing this “anticompetitive” conduct, according to the lawsuit, as well as asking for financial damages and legal fees.
BNPL products have exploded in popularity in recent years, particularly amid heightened economic anxiety among consumers who are looking for short-term financing options. The BNPL market is anticipated to hit nearly $350 billion USD in 2025, up from $230 billion last year, according to a Research and Markets report.
Shopify has recently faced other legal difficulties related to its merchants. This month, a Canadian court sided with the company and blocked the Canada Revenue Agency from compelling Shopify to turn over up to six years of merchant data for tax purposes.
Disclosure: BetaKit majority owner Good Future is the family office of two former Shopify leaders, Arati Sharma and Satish Kanwar.
Feature image courtesy Shopify.