E-commerce giant Shopify Inc. is extending its reach into financial services with plans to offer deposit accounts and payment cards to small-business owners who might feel underappreciated by traditional banks.
The Ottawa-based company expects to launch Shopify Balance in the United States under an early access trial later this year. The small suite of banking products will be built into its popular retailing software.
Shopify’s business bank account is aimed at independent business owners and entrepreneurs, with no monthly fees, access to credit and the ability to track cash flow or pay bills without leaving Shopify’s interface. The premise is that while large and mid-sized companies are well taken care of by incumbent banks, “today’s banking just sucks for small businesses," said Kaz Nejatian, Shopify’s vice-president and general manager of financial solutions.
“It’s causing trouble for our entrepreneurs, and so it’s our job to fix it,” he said.
Shopify’s own research suggests many small-business owners use their personal bank accounts and credit cards for business, exposing their personal finances to business risk. As an alternative, the company plans to offer a “corporate card” that will allow clients to withdraw funds from Balance business accounts at ATMs, as they would with a debit card, as well as make purchases on credit. It will also offer rewards such as cash back and discounts on business spending, tailored to individual businesses.
By offering business accounts, Shopify is staking out new ground in the race to deploy technology and software to serve an increasing number of small businesses and startups with distinct banking needs. The company already offers loans and cash advances through Shopify Capital, which was launched in the United States in 2016 and expanded to Canada last month. And its financial services team now has a few hundred employees based in cities around the world, including Toronto.
Mr. Nejatian sidesteps any suggestion he’s building a financial technology company inside the merchant software powerhouse. But just as many retailers use its software as an “operating system” to run their business, "we also want to be their financial operating system. We want it to be where they come to check their balance, where they come to pay their bills, where they come to manage their money,” he said.
Shopify announced its Balance product at a virtual event on Wednesday. A day earlier, the company also unveiled a partnership with Facebook Inc. to launch Facebook Shops, a tool to help merchants make custom online storefronts for Facebook and Instagram.
There is no launch date for Shopify Balance in Canada, however, and it won’t be coming to this country in 2020. “We haven’t planned that far ahead," Mr. Nejatian said.
Even as Shopify positions itself to compete with established banks for small-business accounts, it will be dependent on some of those same financial institutions. The software company is not licensed to take deposits and doesn’t want to build a typical bank of its own, so it has struck partnerships with large financial institutions and tech companies – Shopify won’t reveal which ones until Balance launches – and is still looking for more partners.
One problem the company hopes to solve is the delay merchants often encounter receiving funds from Shopify – they can take days to clear. “We’re very determined to make money land in our merchants’ accounts faster,” Mr. Nejatian said. But he didn’t say how, as Shopify might have to rely on the same back-end payments networks used by its banking partners.
He also said the decision to raise deposits is not intended to be a new source of funding for Shopify Capital. “We’re not launching this to get more deposits to make more loans," he said. “Our intention in building Balance is to build something that is better than a bank, better than the old normal."
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