Shopify Uses Machine Learning To Lend $2 Million to Entrepreneurs

Shopify, the major eCommerce platform, is expanding its funding program—Shopify Capital—in an effort to provide adequate funding for merchants.

Shopify Capital was started in 2016 as a lending platform in the US, UK, and Canada. Since its launch, it has provided cash advances and short-term loans worth more than $2 billion to tens of thousands of merchants.

In the past, the funds ranged between $200–$1 million, though Shopify has now raised the lending limit to $2 million to accommodate the growth of lenders.

An Innovative Lending Model

Shopify’s in-house platform has proved very convenient compared to other traditional lending models for getting business loans, such as bank loans or peer-to-peer lending. Instead of going through a tedious approval process with these outside lenders or struggling to impress investors with elaborate business plans, Shopify business owners can apply at Shopify Capital and receive funding in two to five business days.

However, what makes Shopify Capital unique is its machine learning, AI-based model that analyses more than 70 million data points to scout eligible merchants in need of funding. It then proceeds to send offers to them without them even having requested financing beforehand.

Merchants deemed to have excellent growth potential through extra funding are identified through performances of their store as well as sales history. Once Shopify Capital selects a merchant, it sends them a pre-approved offer; all they need to do is accept or deny it.

Another differentiating factor between Shopify Capital and traditional loan models is its sales-dependent funding. Kaz Nejatian, the Vice President of Merchant Services at Shopify, said, “Our funding is designed to work off sales. If you don’t sell anything, we don’t get paid back until you make sales,” adding, “It’s a highly merchant aligned form of funding designed to fund the type of people banks and VCs won’t fund.”

The AI-based algorithm is also said not to have any biases in regards to educational background, ethnicity, race, or gender.

It’s All In The Numbers

eCommerce has been steadily rising through the years, with its growth being catapulted by the pandemic as more people stay home and are inclined to order online. As eCommerce grows, so does the need for funding to keep up with demand.

As a result, during the first quarter of 2021, Shopify Capital provided more than $300 million in funding to their merchants—a 90% increase from 2020. The number of merchants qualified for Shopify Capital funding over the past year also grew by 78%. Their funding increased by 16%, pushing the maximum limit to the previously mentioned $2 million.

However, the true testament to Shopify Capital’s success is the fact that 76% percent of merchants who have used the service since 2016 have returned to request more funding.

ABOUT AUTHOR

My eyes rarely take a break from staring at my laptop's screen—I am Big Brother, scanning the web for news and information worth sharing. Full transparency—a substantial chunk of my screentime is also dedicated to watching TV shows, but balance is key, right? Writing is how I choose to share my findings with the world while keeping my love of language and creativity alive.

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