Canadian E-commerce giant Shopify has expanded its financial services offering with the launch of Shopify Balance, a banking product for small businesses.
Shopify Balance is composed of three products, a bank account, card, and rewards program for Shopify merchants. According to Shopify, the idea behind the new offering is to provide financial services that are built for independent businesses and entrepreneurs.
“Existing banking products for small businesses just suck,” said Kaz Nejatian, vice president and general manager of Shopify Financial Solutions. “The legacy banking system does not serve [small businesses] well.”
“COVID completely changed everything we were doing; it was a massive pivot by the company.”
Speaking with BetaKit, Nejatian added, “Balance is a suite of three things, three separate things coming together. It’s a pseudo financial management product for merchants, two, it’s a business account that will replace their existing bank account, [and] three, it’s a business card designed with independent businesses in mind.”
Shopify revealed Balance at Reunite on Wednesday, a virtual event held by the company in place of Unite, its annual developer conference that was cancelled by the COVID-19 pandemic.
Nejatian explained that the idea for Balance came from Shopify pivoting to focus its efforts on the current global crisis.
“We were thinking about things around this space [prior], but, honestly, COVID completely changed everything we were doing; it was a massive pivot by the company,” Nejatian told BetaKit. “Tobi told everyone, literally told everyone, to ‘delete all your plans’. So we just went and deleted all the plans and came up with new ones, and this was part of it.”
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The general manager of Shopify Financial Solutions added that Balance came from Shopify noticing difficulties its small business merchants faced getting access to capital from incumbent financial institutions during COVID-19.
“I honestly think our businesses fail today because the existing legacy products aren’t good enough,” said Nejatian. “Every small business ends up being run out of a shoebox, an Excel sheet, and honestly, it’s just bad for the survival of small businesses. Legacy banks are supposed to handle large companies like Shopify, they are not [made to] manage small, independent businesses.”
“Our goal of Balance is to have [Shopify] become the financial operating system too.”
According to Shopify, two in five of the company’s merchants currently use their personal bank accounts and cards for business. “They’re combining their personal and business finances, making it difficult to measure the financial health of the business,” said Shopify.
Shopify Balance is set to launch for early access in the United States (US) later this year. In expanding its finance and commerce stack, Shopify also expands its ever-growing list of partners, competitors, and ‘frenemies’. Setting aside traditional financial institutions, the new banking product would place Shopify in competition with challenger banks such as United Kingdom-based Revolut and Monzo, which are both working to launch in the US. And while Nejatian would not provide a timeline as to when Balance will launch in Canada, when it does it will further encroach on the turf of fellow Canadian startups like Koho, Wealthsimple, and Borrowell. Competition across North America with the likes of Square and PayPal, among others, will only intensify.
Nejatian told BetaKit he doesn’t see Balance as a competitive offering, rather, it’s Shopify looking to solve a pain point for its merchants. He did add, however, that Shopify’s aim is to become the financial operating system for its merchants. “Today, Shopify is the retail operating system for our merchants,” he said. “Our goal of Balance is to have [Shopify] become the financial operating system too.”
“Shopify is a company dedicated to solving one problem, how do we enable more entrepreneurship around the world and we tackle these problems one at a time,” he added. “This is just the next most annoying thing.”
The Shopify Balance Account is what the company is calling, a “one-stop-shop” within the Shopify admin, that will allow merchants to pay bills, track expenses, and generally view cash flow. It is not restricted to use with the Shopify platform. Merchants will be able to use the account, as well as the card, for everyday business needs and expenses, similar to any traditional business banking account.
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Shopify Balance Card will be offered as both a physical and virtual card that Shopify merchants can use when making any purchases. It will also be possible to make withdrawals from ATMs. Balance will come with no monthly fees or minimum balances.
Shopify says it will be working with a “trusted card issuing and bank partner” to launch Balance, but would not share details on who that partner would be.
“Shopify Balance is not a bank and we are not pursuing banking licenses at this time,” a Shopify spokesperson told BetaKit. “We will be working with a trusted card issuing and bank partner, and we will work together to make sure we provide a merchant-centric program offering deposit insurance, security and support to Shopify merchants.”
In the US, applying for a banking licence can be an arduous process, and is controlled by the Office of the Comptroller of the Currency, which has exclusive authority to issue a federal or ‘national bank’ charter. Last month, Monzo applied for its US banking licence, with approval expected to take between 18 months and 2 years.
Canada’s banking regulations have been similarly difficult to navigate for startups looking to successfully break into the financial services space. Koho, for example, which offers bank accounts and credit cards for consumers, currently works through partnerships with Visa and Peoples Trust Company. Similarly, Borrowell, which offers a range of financial products for Canadian businesses, works through Scotiabank, EQ Bank, Motusbank, and BMO to offer banking services.
Shopify would not provide detail on which financial institutions it may plan to partner with when it launches Balance in Canada, noting “we do not have an estimated launch date for Canada to share at this time.”
The third aspect of Balance is a rewards program. Merchants will be able to earn cashback and discounts on everyday spending, including shipping and marketing.
Shopify Balance follows a number of recent announcements made by Shopify over the past month. In April, Shopify brought its small business loan fund, Shopify Capital, to Canada, after adding $200 million to the fund to help businesses affected by COVID-19.
Nejatian described Shopify Payments, Capital, and Balance as all coming together to make accessing e-commerce, loans, and banking services easier, and doing so “fully natively” through the Shopify platform.
At Reunite, Shopify also announced Shop Pay Installments, a flexible payment option for consumers making purchases through Shopify merchant stores. The “buy now, pay later” option, as Shopify calls it, gives consumers the option to split purchases into four equal payments over time, interest-free and with no additional fees to consumers.
Shopify noted that the idea behind the flexible payment option is meant to “increase a merchant’s average order size by making purchases more palatable to consumers – particularly in the current economic climate.”
Shop Pay Installments will be available to US merchants (eligible for Shopify Payments) later this year. The Ottawa-based e-commerce company is set to work with a partner to launch the program, though Nejatian would not share who the partner might be, noting it will be announced at a later date.
Image courtesy Shopify.