TechCrunch: Shopify Facilitates Merchants’ Access to Funding with Machine Learning

May 05, 2021

(Image source: TechCrunch)

Shopify is one of the biggest e-commerce platforms in the world. Independent business owners can easily create an online shop and start selling. The e-commerce platform has been developing Shopify Capital over the last 5 years and has since given $2 billion in funding to over 10,000 merchants using their platform.

Instead of manual tracking of who requires a loan, minimizing any applications for loans, Shopify has applied machine learning models to this lending system.  The machine learning models will identify potential borrowers based on their past sales performance, “to make sure offers are based on factors different from any other in the financial industry”, Solmaz Shahalizadeh, vice president of data science and engineering, commerce intelligence said.

Shopify tries to eliminate human bias on educational background, ethnicity, race, or gender at this stage. If the entrepreneur accepts the offer, they will receive the fund as soon as in 2-5 business days. The amount of funding ranges from $200 to $1 million. 

There are 2 available types of funding: merchant cash advances and loans. Merchants taking up a loan will be charged a fixed fee by Shopify Capital. 

The cash advance mechanism is quite simple: the merchants will borrow a certain amount of money and pay it back along with a financing fee. The advance will be repaid by the merchant’s daily remittances on the days they make sales.

Shopify benefits from the financing fee, “by charging a fixed fee, a merchant is able to understand exactly how much they’ll be expected to repay, before they take financing from Shopify Capital. These amounts don’t change over the life of a financing,” said Shopify. 

Source: How Shopify aims to level the playing field with its machine learning-driven model of lending

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