How Shopify Aims to Level the Playing Field with Its Machine Learning-Driven Model of Lending

Shopify is well known for providing independent merchants with a platform to start, operate, market and manage their businesses. But over the past 5 years, the company has been steadily growing one more part of its own business: Shopify Capital. 

With this arm, Canada’s trade giant revealed today that it has provided $2 billion to thousands of entrepreneurs. As well as being a great milestone, it’s interesting how it works. Merchants do not necessarily have to apply for loans. Shopify’s machine learning models identify qualified merchants based on previous sales history and store performance, according to Solmaz Shahalizadeh, vice president of data science and engineering at Shopify’s commercial science.

If a merchant accepts a pre-approved offer, they can usually accept funds within 2 to 5 business days. Although the milestone is significant, I was particularly interested in the model through which Shopify pays its merchants. “To make sure that the offers are based on any factor other than the financial industry,” said Shahalizadeh, who is intent on using machine learning and AI. “We do not want any business plan. Our models look at the performance of the business and make it possible and make an offer based on its.”

He added, “We use data 70 million data points to understand the larger trends across the platform for traders and we see that they are growing even more before we can offer primitively,” he added. Kaz Nejatian, vice-president of Shopify’s merchant service, stressed that Shopify Capital does not pay interest on traditional loans like traditional banks do.

“Our funds are designed to work off sales. If you don’t sell something, we won’t pay until you sell, “Nejatian said. The organization’s model also aims to remove any bias that exists in the current financial system when it comes to educational background, ethnicity, caste or gender. For Nejatian, it is also personal. His mother is a shoplift merchant who fought for her own capital last year. “Our goal is to reduce barriers to entrepreneurs by offering access to funds,” he said.