Canadian e-commerce giant Shopify has broadened its financial services offering with the launch of Shopify Balance, a banking product for small businesses.
Shopify Balance is made up of three products, a bank account, a card, and a rewards program for Shopify merchants. According to Shopify, the idea behind the new offering is to provide financial services designed for businesses and independent entrepreneurs.
“Existing banking products for small businesses are just bad,” said Kaz Nejatian, vice president and general manager of Shopify Financial Solutions. “The old banking system does not serve [small businesses] good.”
“COVID has completely changed everything we do; it was a massive backbone of the business.
Speaking to BetaKit, Nejatian added, “Libra is a continuation of three things, three separate things that come together. It’s a pseudo financial management product for traders, two is a business account that will replace their existing bank account, [and] third, it’s a business card designed for independent businesses.
Shopify revealed on Wednesday Balance at Reunite, a virtual event hosted by the company in place of Unite, its annual developer conference that was canceled by the COVID-19 pandemic.
Nejatian explained that the idea for Libra came from the backbone of Shopify 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 did; it was a massive backbone of the business, ”Nejatian told BetaKit. “Tobi told everyone, literally told everyone, to ‘delete all your plans’. So we went and cut all the plans and came up with new ones, and that was part of it. “
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The Managing Director of Shopify Financial Solutions added that Libra is from Shopify, noting the difficulties its small merchants have in accessing capital from incumbent financial institutions during COVID-19.
“I honestly think our businesses are failing today because the existing products are not good enough,” Nejatian said. “Every small business ends up with a shoebox, an excel sheet, and honestly, that’s just bad for the survival of small businesses. Old banks are supposed to run big businesses like Shopify, they aren’t. [made to] manage small independent businesses.
“Our goal of balance is to have [Shopify] also become the financial operating system.
According to Shopify, two in five of the company’s merchants currently use their personal bank accounts and cards for business purposes. “They combine their personal and business finances, which makes it difficult to measure the financial health of the business,” Shopify said.
Shopify Balance is expected to launch for early access in the United States (US) later this year. By expanding its financial and business stack, Shopify is also expanding its ever-growing list of partners, competitors, and “enemies.” Traditional financial institutions aside, the new banking product would put Shopify in competition with competing UK-based banks like Revolut and Monzo, both of which are working to launch in the US. And while Nejatian won’t provide a timeline for when Libra will launch in Canada, when it does, it will further encroach on the turf of other Canadian startups like Koho, Wealthsimple, and Borrowell. Competition across North America with companies like Square and PayPal, among others, will only intensify.
Nejatian told BetaKit that he doesn’t see Balance as a competitive offering, but rather that Shopify is looking to fix a problem for its merchants. He added, however, that Shopify’s goal 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] also become the financial operating system.
“Shopify is a company dedicated to solving a problem, how can we enable more entrepreneurship in the world and we are tackling these problems one at a time,” he added. “It’s just the next most annoying thing.”
The Shopify balance account is what the company calls 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 limited to use with the Shopify platform. Merchants will be able to use the account, along with the card, for day-to-day business expenses and needs, just like any traditional business bank account.
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Shopify Balance Card will be offered as both a physical and virtual card that Shopify merchants can use when shopping. It will also be possible to make withdrawals from ATMs. The balance will come with no monthly fees or minimum balance.
Shopify says it will work with a “trusted banking and card issuer partner” to launch Libra, but would not share details on who that partner would be.
“Shopify Balance is not a bank and we are not looking for banking licenses at this time,” a Shopify spokesperson told BetaKit. “We will be working with a trusted banking and card issuer partner, and we will work together to ensure we deliver a merchant-centric program offering deposit insurance, security and support to Shopify merchants. “
In the United States, applying for a banking license can be a daunting process and is controlled by the Office of the Comptroller of the Currency, which has the exclusive authority to issue a federal or “national bank” charter. Last month, Monzo applied for his US banking license, which is expected to take between 18 months and 2 years to be approved.
Canada’s banking regulations have been equally difficult to navigate for startups looking to successfully enter the financial services space. Koho, for example, which offers bank accounts and credit cards to consumers, is currently working in partnership with Visa and Peoples Trust Company. Likewise, Borrowell, which offers a range of financial products to Canadian businesses, works through Scotiabank, EQ Bank, Motusbank and BMO to provide banking services.
Shopify would not provide details on which financial institutions it might consider partnering with when it launches Balance in Canada, noting that “we don’t have an estimated launch date to share for Canada at this time.”
The third aspect of Libra is a rewards program. Merchants will be able to earn cash back rewards and discounts on daily expenses, including shipping and marketing costs.
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’s payments, principal, and balance as all coming together to facilitate access to e-commerce, loans, and banking in a “fully native” way through the Shopify platform.
During Reunite, Shopify also announced Shop Pay installments, a flexible payment option for consumers shopping at Shopify merchant stores. The “buy now, pay later” option, as Shopify calls it, gives consumers the ability to split purchases into four equal payments over time with no interest and no additional cost to consumers.
Shopify noted that the idea behind the flexible payment option is intended to “increase a merchant’s average order size by making purchases more acceptable to consumers – especially in today’s economic climate.”
Store installment payments 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, although Nejatian is not disclosing who the partner might be, noting that it will be announced at a later date.
Image courtesy of Shopify.