eCom Innovation Success – Shop Pay

Short blog as follow up to yesterday’s blog on Acceptance Hurdles in eCommerce. Successful innovation requires a great new customer experience and/or economic model. The most recent success in the US is Shopify’s Shop Pay.

Two excellent Shop Pay articles:

    1. Tech Crunch – Shopify Expands One Click – June 2021
    2. What is Shop Pay and How Does it Work? – April 2022

How did Shopify grow from nothing, to processing more than $24B in orders? Value proposition and partnerships. 

Value to Merchant

    • 70% faster checkout
    • 1.72x improved conversion
    • No incremental cost
    • Split into 4 transactions (BNPL like card based instant approval)
    • Integration to Google Shopping and Facebook Marketplace
    • Performance Tracking (from order to delivery)
    • Open to Shopify or non-Shopify merchants

Value to Consumer

    • PII not stored with Merchant
    • Integration of receipts and order tracking across merchants (even Amazon)
    • Centrally manage orders and returns
    • Quickly auto-fill 
    • Integration with Google Wallet credentials 
    • Curated recommendations based upon prior purchases

Key Partnerships

    • Stripe
    • Google
    • Facebook

Consumer Journey

Shopify recognized a break in the customer experience between search/social and product selection/checkout (blog on marketing funnel). Technically, there are other options for merchants to “one click”.

For example, If you are in Google Shopping, were a registered Google Pay user AND the merchant turned on Google Pay everything worked (see intersections blog). But Google’s services are consumer focused, with no eCommerce Checkout technology footprint. Furthermore less than 10% of consumers use GooglePay and few product searches begin in Google. In fact Google and Facebook combined obtain fewer product searches than Amazon. Thus Google Pay was a partial solution for: 1)  merchants with technical integration, 2) where consumers had GooglePay account, and 3) began product search with Google. See Venn diagram.

Shop Pay greatly expanded the intersection between merchants and consumers for multiple “journeys”; improving the checkout experience in either 1) direct or 2) Google/ Facebook product search. Shopify’s “neutral” focus on creating a great shopping experience created alignment. While Google has integrated payment into the OS, it is a consumer connection. The merchant connection to Google Pay is still required. Shop Pay makes the merchant connection and even integrates Google Pay stored credentials. 

Shop Pay’s fantastic traction flows from their existing merchant base and a very significant legal innovation: consumer agreement.

As I mentioned back in 2013, Braintree had a similar plan prior to its acquisition by PayPal. Braintree pitched new merchants a value proposition that included autofill of card information based upon information consumers provided during payment to their largest customers: Uber, AirBnB. These merchants found out about Braintree’s message and told them frankly “this is not your consumer information.. You are our [dumb] processor and will not reuse any consumer payment credentials for any other purpose”. 

Typically, merchants do not grant consumer permissions to their service providers. However Shopify’s Shop Pay has found a way to engage directly with the consumer (top 3 shopping App) and gain consumer permissions to vault and manage PII based a direct consumer agreement

Winners/Losers

Shop Pay competes directly with Paypal in providing a “one click” shopping experience with no PayPal price premium. For eCom merchants with infrequent customers, or with a significant Google/Facebook conversion funnel this is a best in class solution.  Given its substantial traction, other alternative payment methods will contain value propositions that look like an empty shell (ex A2A or FedNow). 

Payment in the OS will win.. at least on Apple. ApplePay will continue to dominate in environments where its devices are present in the consumer journey. Apple’s commitment to privacy, and trust will make Apple a better broker of identity and store of consumer information, a role that will improve with payment tokenization.  

Secure Remote Commerce (SRC) success will significantly impair any 3rd party credential management role. However SRC is meeting significant resistance from issuers, as they endeavor to protect consumer information from rippling through the 4 party networks. 

Acceptance Hurdles? Holding consumer permissions is the most powerful way to get around any acceptance hurdles. Merchants, acquirers, processors, networks and issuers will all line up to support the consumer in using their card (more quickly).  Shopify’s Shop Pay is actually a better bet for issuers than SRC, as card issuers have the potential to create a “second” validated identity, or risk score the identity that was entered by the consumer. In this way issuers have a role in how consumer information flows within the payment scheme without letting it leak through to other banks.  

In the near term, Shop Pay is a big win for V/MA/Amex Cards and perhaps the best mechanism for card based installments (ie BNPL like card products). Banks would obviously like to play the role of “vault” for the consumer identity and the payment instruments. Obviously, Shopify will prefer a consumer ID they can own  within a consumer agreement they control vs a bank ID they will need to pay for.  If a Bank ID like Authentify can improve fraud.. It is a one time use for validation by Stripe (ie for fraud). 

Wrap Up

Innovating in eCom is HARD. Shopify fixed multiple problems, aggressively sought partnerships and gained consumer trust. Though all of this they have created tremendous alignment. IMHO Shop Pay is one of the best “wallet” innovations in the last 5 years (within mature card markets). Technically, many of its features existed in other products (ex Google Pay) but none had the ability to create both consumer AND merchant connections within a significant portion of the consumer journey (ex Google AND Facebook). 

Google and Facebook would likely identify Shop Pay a key service in their efforts to enable small merchants to compete with Amazon. Given their consumer direct role, Shop Pay will be sought out as a key partner and conduit for new payment and identity services. Services which deliver incremental conversion and a better consumer experience will gain traction. I don’t believe any A2A, RTP or FedNow service would qualify. After all taking money out of a consumer’s account more quickly and at a higher cost is not exactly something that will resonate with either consumer or merchant. 

Leave a Reply

Your email address will not be published.