Shopify’s Funding Automation Key to Its Growth

Canadian e-commerce company Shopify (NYSE:SHOP) has a business funding arm called Shopify Capital that issued $60.4 million in merchant cash advances in Q1 this year, according to the company’s earnings report yesterday.

The funding operation offers an MCA product exclusively to merchants that are customers of Shopify. The company helps small business owners create online stores, with products ranging from web design to marketing and analytics. Currently, Shopify supports more than 600,000 small businesses worldwide.

Shopify Capital was launched in April 2016, but a company representative said it wasn’t until April 2017 that it started using algorithms 100 percent to automate offers of capital to merchants.

“What Shopify can see is a lot of patterns in a merchant’s [online] store,” a company spokesperson told deBanked. “How engaged is that merchant? What has their GMV (Gross Merchant Volume) been? How spotty is their GMV? How often do they sell? There’s a bunch of different factors that help us predict GMV going forward. And as [our] algorithm gets better and smarter, we are able to get more granular in our offers.”

Many of Shopify Capital’s small business owner clients are new business owners who would not qualify for loans from banks, but need money to expand their businesses.

“Business owners typically spend copious hours putting an application together and funds typically take two to three weeks to receive,” a different Shopify spokesperson said. “Shopify Capital is designed to provide our merchants with timely access to Capital without putting them through additional financial stress…[And] merchants receive financing based on our predictive technology to determine what makes sense for their business in their trajectory.”

Shopify was founded in 2004 and is headquartered in Ottawa, Canada.

Todd Stone was a reporter for deBanked.