Afterpay Ltd (ASX:APT) shareholders watch out, a global tech giant is launching a challenge.
Shopify is a Canadian based eCommerce giant which has one million merchants that uses its platform.
Shopify held a conference today. Aside from a number of other Shopify-specific announcements, there was one key thing that Afterpay needs to watch closely.
What did Shopify announce?
The eCommerce global giant is launching 'Shop Pay Installments'. Sounds like Afterpay's instalments right? This could be challenging even though Afterpay is growing strongly.
As part of the announcement, Shopify said:
"It's not just merchants who are struggling with cash flow right now; their buyers are feeling the pinch, too. To help, we're announcing the launch of Shop Pay Installments, coming to merchants and buyers in the U.S. later this year.
Shop Pay Installments allow buyers to pay for purchases in four equal payments over time, with no interest or fees. Merchants will receive the full purchase amount upfront, and Shopify will collect the remaining installment payments, meaning there's no risk to merchants. This flexible payment option will allow buyers to stretch out their payments, making purchases more convenient. This, in turn, will help merchants increase cart sizes and overall sales.
Installments will be fully integrated into the Shop Pay accelerated checkout, meaning merchants can continue to offer buyers a seamless checkout experience."
I think a key part of that is that it seems Shopify will be giving merchants "the full purchase amount upfront". There was no mention of a high merchant fee like the one Afterpay charges.
Why this could hurt the Afterpay share price
The US is a huge growth target for Afterpay. If you were a US merchant are you more likely to want a customer to use Shopify's service (which has a lower merchant fee per transaction) or Afterpay's service?
It could mean Afterpay will have to make a difficult choice in the future between market share and margin. It's this type of announcement which would make me nervous about holding Afterpay shares for the long-term. At a share price of $44, Afterpay doesn't appeal to me at all. I'd actually be thinking about taking profit off the table.
