Tuesday August 04, 2020 |Notes

Shop Pay by Shopify acts as a consumer-facing payment service

Shop Pay by Shopify is a service that allows consumers to save payment details to be used across any Shopify store. The service has been around for over 3 years, originally known as Shopify Pay. It was reintroduced as Shop Pay this year as part of the Shop app launch and is much more visible and apparent during the checkout process than previously.

Shopify has promoted the payment service as the "Fastest and Best-Converting Checkout Experience on the Internet", citing a study of the top 10,000 stores using Shop Pay.

Our study showed that checkouts going through Shop Pay have an average checkout-to-order rate of 1.72x times higher than those going through regular checkouts. Why? Because Shop Pay provides a seamless shopping experience. Once a buyer uses Shop Pay for the first time, their information is saved for future purchases—they can then securely speed through checkout with a simple tap.

There are no reports on the number of users for Shop Pay and it's likely there's some selection bias within this group. Certainly someone that has enabled Shop Pay already has proven to be a customer on another Shopify site. The 2nd checkout is thus more trusted and easier because of the previous action.

Shop Pay is Shopify's most obvious consumer facing service. There's little to link Shopify stores in the eyes of consumers. In the most recent issue of ArkDisrupt, Max Friedrich points out that Shopify wants to "open its platform and embed financial services and serve consumers." He makes the case that building a marketplace will be difficult, and that Square may be better positioned to do so.

While Shop Pay will compete directly with PayPal and other more established fintech players trying to match consumers with businesses, Square is differentiated because it already serves consumers with its Cash App and sellers with its point-of-sale (POS) devices. In theory, if it were to migrate all of its sellers online and incorporate additional e-commerce functionality into Cash App, Square should be ahead in creating the marketplace to which Shopify’s ‘Shop’ is aspiring.

While Square serves both sides, it's unclear how much demand Square is producing for merchants. Square is primarily used for in-person payments. While they offer an online store builder, it's nowhere near ready to compete with Shopify's full fledged ecommerce platform. Shopify is strengthened by its huge network of stores that drive demand from consumers. Shop Pay is a serious move to improve the checkout process for consumers, making it incredibly easy to checkout. This will help Shopify develop the effects of a marketplace, without detrimental effects of competition among sellers.

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