Shop Pay is a checkout feature offered as part of the Shopify e-commerce platform, which allows businesses to sell products and services online. Shopify primarily makes money by selling its plans via a subscription model, as well as charging credit card transaction fees.
Shopify markets Shop Pay as a “secure, one-tap checkout experience” that can help businesses boost their online conversion, build brand loyalty, and offer more flexible online selling options. In January 2024, Shopify released a paid Shop Pay integration for businesses that are not selling on Shopify’s e-commerce infrastructure.
Key Takeaways
- Shop Pay is a “one-tap checkout” option available to e-commerce businesses that have a paid subscription to Shopify.
- Shop Pay works with Shopify’s own payment processor, Shopify Payments, but can also use third-party payment processors to facilitate transactions.
- Businesses can benefit from using Shop Pay through increased conversion rates and customer loyalty.
- Shop Pay saves customers’ information in the app, allowing them to check out faster and easily track their order status. They can also collect Shop Cash to earn rewards.
- In January 2024, Shop Pay became available to businesses that are not using Shopify’s e-commerce infrastructure; however, they must pay to integrate it within their commerce platform.
Shop Pay’s Industry
Shop Pay operates within the e-commerce and financial services industries. It is a checkout service created by the e-commerce platform Shopify, which competes with other companies like WooCommerce, PayHip, and BigCommerce. The Shop Pay checkout feature can work in conjunction with payment platforms like Stripe, Square, and PayPal, as well as Shopify’s own payment processor, Shopify Pay.
E-commerce is a rapidly growing industry, as the number of people who shop online increases year after year. In 2024, global e-commerce sales are expected to total $6.33 trillion, and online sales are forecasted to continue rising steadily as a portion of overall sales, potentially rising to $7.96 trillion by 2027.
Shop Pay’s Fundraising and Financials
Shopify, the company that owns Shop Pay, raised over $122 million dollars in funding over four rounds, the most recent being a Series C round on December 11, 2013. It had its IPO on May 21, 2015 and trades under the ticker symbol “SHOP” on the New York and Toronto stock exchanges.
As of April 2024, Shopify has a market cap of over $89.8 billion. In February 2024, Shopify reported that Shop Pay has over 150 million users worldwide and was tied to $18 billion of GMV, up 58% from the previous year.
Shopify made over $7 billion in revenue in 2023, up from $5.6 billion in 2022. It divides its revenues into two streams, “subscription solutions” and “merchant solutions,” although it is not clear whether Shop Pay falls under one or both of these categories.
Subscription solutions are higher margin and include subscription and app sales, domain name registration, and the sale of themes. Merchant solutions are lower margin and include payment processing fees, currency conversion fees, partner referral fees, transaction fees, hardware and shipping label sales, advertising on the Shopify App Store, and Shop Campaigns (previously referred to as Shop Cash Offers).
Shop Pay Services and Solutions
Shop Pay, a checkout feature, is included within paid Shopify subscriptions, which are one means of generating revenue for the company. In January 2024, Shopify released Shop Pay as an integration so that merchants that are not on Shopify’s e-commerce platform can use the checkout service for their online shop; however, pricing details are only available upon contacting Shopify’s sales team.
Shop Pay Payment Processing
Shop Pay is a checkout solution, but not a payment processor. Instead, it relies on Shopify Payments or third-party providers such as Stripe, Square, and PayPal to process transactions.
To make money, payment processors typically charge a fee for every transaction. Shopify Payments charges up to 2.9% + 0¢ per online standard credit card transactions, with exact rates depending on the level of subscription plan purchased and the type of transaction.
Shop Pay Checkout Process
Shop Pay is designed to simplify and streamline the checkout process for consumers purchasing products or services online. In it, customers can save their email address, credit card, and shipping and billing information for future transactions, enabling them to check out with just one tap. Customer information is only shared with a store when an order is placed, and securely saved on Shopify’s PCI-compliant servers.
Shop Pay accepts Visa, Visa Debit, Mastercard, American Express, and other cards supported by the online store where a shopper is making a purchase (usually listed on the payment screen at the time of checkout).
Shop Pay can be used for online stores on and off the Shopify e-commerce platform as well as Facebook and Instagram. The consumer-facing Shop app, available only to Shopify merchants, also uses Shop Pay as its checkout experience.
According to a Shopify-funded study, Shop Pay can improve conversion on online sales by up to 50% vs. the guest checkout experience, as it reduces friction in the buying process.
Customers who use Shop Pay and the Shop app can earn Shop Cash rewards to use towards future purchases. However, Shop Cash can only be redeemed at merchant stores that have activated a Shop store and are paying for a Shopify plan.
Monetization Opportunities with Shop Pay
Shopify markets Shop Pay as a solution for businesses to increase their conversion rates at checkout as well as their customer retention. Merchants that create an online store with Shopify can list their business on the Shop app, a platform that uses Shop Pay as its checkout experience and which Shopify advertises as having over 100 million “engaged shoppers.”
History of Shop Pay
The Shop app originally started as an app called Arrive, which enabled package tracking from Shopify merchants and other retailers. It was then updated and rebranded into Shop, a consumer app where users can browse a recommended products feed from merchants that are on the platform and purchase from them using the Shop Pay checkout.
Shopify, the company that created Shop Pay, was co-founded by Tobias Lütke, Scott Lake, and Daniel Weinand in 2004, originally as a solution to sell snowboards online. Lütke was the CTO from 2004 to 2008 and has served as Shopify’s CEO since 2008.
Recent Developments
One of Shop Pay’s more recent developments has been introducing more flexibility to its Shop Pay Installments feature. Launched in 2021, Shop Pay Installments is a buy now, pay later service. A year after its launch, it added new installment options for merchants to allow consumers to pay in four interest-free biweekly payments, or in monthly installments up to 12 months, on orders between $50 and $17,500.
Shopify reports that using Shop Pay Installments has increased merchants’ average order value (AOV) by up to 50%.
How Much Does Shop Pay Charge Merchants?
Shop Pay is a free feature included within Shopify subscriptions, which vary in price according to the type of plan selected.
Is Shop Pay the Same as PayPal?
No. PayPal is a financial services company and digital payments platform, while Shop Pay is a “one-tap checkout” and order tracking feature created by the Shopify e-commerce platform.
Is Shop Pay the Same as Shopify Payments?
No. Although they are both add-ons to Shopify’s e-commerce platforms, Shopify Payments is a payment processing service that is available as a paid subscription, whereas Shop Pay is a free checkout service that can also be used even if businesses are not on Shopify.
In addition, merchants that set up Shopify Payments automatically get access to Shop Pay.
What Are Shop Pay Installments?
Shop Pay Installments is a feature offered in partnership with financial services company Affirm. It allows customers to buy products and services in flexible installment plans.
Can I Buy Shares in Shopify?
Yes. Shopify is a public company that trades on the New York Stock Exchange and the Toronto Stock Exchange under the ticker symbol “SHOP.”
The Bottom Line
Shop Pay is an online checkout solution that saves consumers’ credit card and billing information so that they can complete a transaction with one click or tap and easily track their order status. As part of Shopify’s suite of e-commerce solutions, Shop Pay can work in tandem with Shopify’s payment processor, Shopify Payments, as well as third-party payment processors.
One of Shopify’s central products, Shop Pay is offered for free to merchants that pay for a Shopify subscription, but is also available as a paid integration for businesses that are not on Shopify’s platform. Both options aim to attract more share of the rapidly growing e-commerce industry to use Shopify’s software solutions.