Embedded finance in action: Shopify Balance
Shopify is a Canadian ecommerce platform providing tools to start, grow, market and manage online retail businesses, powering over 1 million merchants in over 175 countries.
Since its launch in 2006, the company has expanded its core platform offering to include embedded finance solutions, with the aim of making business finances much more streamlined and integrated for its merchants. This started with Shopify Payments in 2013, enabling merchants to accept debit and credit card payments without using a third party.
Shopify Capital launched in 2016 to provide easy and fast funding to merchants on its platform, rolling out to more markets since then, including US, UK, Canada and most recently Australia.
The latest product in Shopify’s embedded finance ecosystem is Shopify Balance, which launched in the US in 2021 through a partnership with Stripe and partner banks Evolve Bank & Trust, and Celtic Bank. Shopify Balance is an all-in-one money management account and rewards-earning Visa debit card that allows Shopify merchants to manage their money and their business in one place.
What’s in it for Shopify customers?
Shopify research found that two in five merchants are currently using their personal bank accounts and cards for business, meaning they’re combining their personal and business finances, making it difficult to measure the financial health of the business.
Shopify Balance aims to help merchants avoid this by bringing business banking to the place they conduct their business; their Shopify accounts.
Shopify Balance offers an account that lets merchants manage their cash flow, pay bills, get paid faster, and track expenses. Shopify Balance also offers physical and virtual cards that merchants can use to access their money faster when spending in-store, mobile or online.
Easier and cheaper than traditional business banking
With Shopify Balance, there are no monthly fees, hidden fees, or minimum balance requirements. Opening an account is also very straightforward, with no need to wait in line or fill out long forms, merchants can set up their business account online in minutes.
One stop shop
Embedding business banking into Shopify provides merchants with a one stop shop within their account where they can get a clear view of cash flow, pay bills, track expenses and make decisions about the future of their business. Much like Shopify’s many other products, merchants can log into their account with the same account credentials they use for their Shopify store.
Payments from Shopify sales land into Shopify Balance accounts up to 4 days earlier than with other banks. Merchants can then use the money from their Shopify sales to make online and in-store business purchases with their Visa spending card.
“Our merchants overwhelmingly love Balance, love the fact that it’s embedded right within Shopify.”
Kaz Nejatian
Vice President, Merchant Services, Shopify
Earn rewards for everyday business spending
Shopify Balance allows merchants to earn cashback on business essentials, and unlock exclusive offers. They can get 2% cashback automatically credited to their account each month when they spend on eligible business purchases like social media advertising and domain names. Shopify offers 10% cashback when businesses hire designers, developers, and consultants through Shopify Experts.
Full feature list:
- Manage your money and business in one place
- No monthly fees, account fees, or transfer fees
- Sign up online in minutes and avoid the paperwork
- Get paid the next business day
- No minimum account balance required
- Earn up to $2,000 cashback per year
- FDIC insurance eligible up to $250,000
Shopify Capital
Shopify Capital removes the complexity of traditional financing, allowing merchants to apply for and pay back funding within the same Shopify platform they use to run their business. Shopify launched Capital to help their businesses grow by reducing barriers and making funding fast, simple, and integrated with Shopify.
Traditional lenders often require business owners to apply through lengthy and complex processes. With Shopify Capital there’s no lengthy application process and no personal credit checks, no requirement to take equity in the business or ask merchants for cash flow projections.
Instead, merchants receive offers for funding through their Shopify dashboard. Once approved, funds are deposited in as little as two business days for merchants to use how they choose for their business, with most investing in talent, inventory and marketing to maximise growth or bridge cash flow during seasonal dips.
As merchants make sales, they repay based on an agreed fixed percentage of daily sales — lowering cash flow risks by removing the uncertainty of compounding interest rates and hidden fees. There is no specified time limit for repayment — merchants pay back funding based on their sales, so payments flex with their business.
Since launching in 2016, Shopify Capital has provided more than $3.8 billion USD in funding to tens of thousands of entrepreneurs in the US, UK and Canada, a 90% increase in total funding in the past 15 months. This funding has been vital as businesses look to accelerate growth, with merchants that received funding through Shopify Capital averaging 36% higher sales in the following six months compared to their peers.
What’s in it for Shopify?
Quick proof points
- More than 100,000 US small businesses opened Shopify Balance accounts in the first four months after launch
- Merchants that received funding through Shopify Capital average 36% higher sales in the following six months compared to their peers
Increased GMV
It’s in Shopify’s best interest to act as a catalyst for the success of its huge network of merchants. More successful Shopify merchants = increased Gross Merchandise Value (GMV) = overall Shopify platform success.
Shopify Balance is one way to help merchants get a better picture of their business finances, save time, and spend more time growing their businesses.
Shopify Capital can help fund that business growth, quickly and easily. Merchants that received funding through Shopify Capital average 36% higher sales in the following six months compared to their peers.
Remove barriers to success
Shopify’s position is that banks are not designed to support small businesses. Research has shown that a huge barrier entrepreneurs face is access to financial services & managing cash flow. That’s Shopify’s story behind the creation of Shopify Balance: so entrepreneurs can manage their money where they make it and focus on building their business.
“Legacy banks suck when it comes to entrepreneurs and small businesses. Our merchants don’t get the services they need, they get put on hold and have to fill out lots of forms. This harms their ability to focus on their businesses, and that’s why we are getting into Shopify Balance. That’s why we got into shipping, fulfillment and marketing. I don’t think of shipping as something different from Shopify Balance. We think of this as our subset of problems that make our merchants less likely to succeed and it’s our job to make small companies win.”
Kaz Nejatian
Vice President, Merchant Services, Shopify
Essentially, Shopify is marketing Shopify Balance as a way for online businesses to “skip the bank,” and the associated friction that comes with having another thing to manage.
“Shopify is advancing its “embedded finance” offerings as a way to create a more seamless experience for its customers to buy and sell products and services without the need for a traditional bank.”
David Donovan
Publicis Sapient
Shopify’s merchant-first strategy is to become the one stop shop for successful online businesses, by providing innovative products and services that lower barriers, simplify operations and act as catalysts to grow merchant sales. Shopify’s embedded finance products like Shopify Balance play a core role in this strategy, apparent in the ‘Money’ swimlane below.
Increased engagement from “first sale to full scale”
Shopify is on the journey with its merchants from getting started, to finding product-market fit with first sales, to then scale. Shopify states that it will continue to focus on building those tools to make it easier for merchants to be successful at any stage. Of focus will be areas like easier onboarding for those getting started, enhancements to Shopify Balance, Shopify Capital, and B2B offerings for those scaling, and the best ecosystem of partner apps to help at every stage of the journey.
Building stronger relationships with its merchants gives Shopify a data advantage over traditional banks. With more data, Shopify has a better understanding of its merchants businesses, to be able to lend to them and a deeper ownership of each customer.
“If you go to a traditional bank and ask for a loan, the bank will get you to fill out a bunch of forms. We don’t need to do that because we already have all that information, and we don’t need to rely on outdated legacy systems to make decisions. We look at literally thousands upon thousands of factors and have software make decisions where people used to make those decisions, and this has allowed us to move much faster.”
Kaz Nejatian
Vice President, Merchant Services, Shopify
Shopify Balance was an instant success, with more than 100,000 US small businesses opening Shopify Balance accounts in the first four months after launch.
All about that BaaS
Shopify had already been partnering with Stripe for years to power its Shopify Payments offering, so it was natural to work with Stripe to launch Shopify Balance. Using Stripe Treasury, Shopify Balance was built so merchants could seamlessly manage their funds on the same platform where they run and grow their business. Shopify also leveraged Stripe Issuing so merchants could easily create, manage, and distribute virtual and physical cards to control expenses, reduce operational burden, and quickly access their Shopify balance funds with no hidden fees.
“The reason we partnered with Stripe was to create a fairer, more even playing field for our merchants. What Stripe has enabled us to do is to focus on our merchants rather than our money movement.”
Kaz Nejatian
Vice President, Merchant Services, Shopify
Shopify used Stripe’s architecture, APIs, and speed, which eliminated complexity and helped Shopify quickly offer a financial product that allows merchants to access their funds faster without paying annual card fees, monthly account fees, or minimum balance fees, among many other benefits.
Shopify Balance funds are held with financial institution partners including Evolve Bank & Trust, Member FDIC & Celtic Bank, Member FDIC.
