Shopify is widely known for giving independent merchants a platform to start, run, market and manage their businesses.
But in the last 5 years, the company has been steadily growing another part of its own business: Shopify Capital. Through this arm, the Canadian commerce giant revealed today that it has provided ten billion dollars of funding to thousands of entrepreneurs.
Apart from being a quiet milestone, how it works is interesting. Merchants are not required to apply for a loan. Shopify’s machine learning models identify qualified merchants based on their past sales history and store performance, according to Solmaz Shalizadeh, vice president of data intelligence and commerce intelligence at Shopiz. If a trader accepts a pre-approved offer, they can usually receive the money within 2 to 5 business days.
Despite the milestone being significant, I was particularly attached to the model by which Shopify lends money to its merchants.
It is intentional about machine learning and using AI “to ensure that offers are based on different factors than any other in the financial industry,” Shahlizadeh said. “We do not ask for a business plan. Our model looks at the performance of the business and it is probable and makes proposals based on that. “
“We use 70 million data points for traders to understand the big trends on the platform, and see if they are growing before they can too so that we can offer them preemptively,” he said. .
Kaj Najatian, vice president of merchant services at Shopify, stressed that Shopify Capital does not lend the way traditional banks do by charging interest on loans.
“Our funding is set up for sale. If you do not sell anything, we will not be paid until you sell.The Ijatian said. “its A highly merchant aligned form of money is designed to fund the types of banks and VCS.
The company’s model aims to eliminate any bias present in the current financial system when it comes to educational background, ethnicity, race or gender, he said.
For nIjatian, it is also personal. His mother is a Shopis businessman who struggled to get capital himself last year.
“Our goal is to reduce barriers to entrepreneurship by providing access to wealth,” he said.
As part of that effort, Shopify The capital has raised the maximum amount of financing to $ 2 million. Previously, it gave funds ranging from $ 200 to $ 1 million.
Shopify offers two types of funding – merchant cash advances and loans. Shopify Capital charges a fixed fee (factor rate) on its finances.
For example on a merchant cash advance, it buys a trader’s $ 10,000 of future receivables in exchange for a promise to send $ 10,900 of his future sales. $ 900 is the amount it charges for financing, and is repaid by a merchant’s daily remittances when they make a sale.
On its loans, it also applies a similar fixed fee to get the total payment number, which is repaid through daily payments and milestone payments.
Simply put, this fixed fee is an allegation of how Shopify earns money in exchange for giving money to our merchants. This fee, and the advanced amount, is returned to the company over the life of a financing through daily remittance payments.
The company states: “By charging a fixed fee, a trader is able to understand how much they would expect to pay before they could get financing from Shopify Capital. These amounts do not change over the life of a financing. “
Over time, Shopiz plans to continuously improve the machine learning algorithm behind Capital, making its predictive model “even smarter”, Shalizade said.
“Our model allows us to predict merchants’ minimum sales with 90% accuracy, while helping us make more active, pre-qualified offers as quickly as possible,” she said.
Shopkeeper CUTS founder Steven Borven says that when he was looking for funds as a new business, he ran into the challenge of most traditional banks and the lender wanted to see that he had been in business for many years .
CUTS began with receiving $ 2,000 in financing from Shopify Capital. In the last three years, it has grown to “millions in assets” with sales.
“We found Shopify Capital so valuable that we returned for 10 rounds of funding. Our most recent round of Shopify Capital was $ 1 million, ”he said. “So far we have used the funds to expand our product line and grow our inventory.”