ShopUp is a fascinating company. It started as a social commerce and marketing company enabling small f-commerce companies to streamline their promotion, order management, and delivery.
The first problem ShopUp solved for its customers was allowing small f-commerce entrepreneurs to manage their orders, promote their products regardless of whether they had a credit card, and help them better manage their logistics, for which ShopUp partnered with logistics companies like DHL.
For small Facebook shop owners who could not afford independent agencies to promote their products and often struggled to put together every tiny bit of their operation in an efficient manner, it was a godsend. ShopUp grew quickly, thanks to the rapid growth of Facebook-based f-commerce companies in Dhaka between 2015 and 2018.
Although ShopUp started by helping Facebook-based entrepreneurs manage their social media presence, and digital marketing campaigns, and manage orders and logistics, with the rapid growth of its merchant base, it was quick to see an even bigger opportunity: finance.
It developed an algorithm to assess the credit requirements and repayment capacity of its merchants and started to collaborate with financial institutions to help them identify potential customers and help reduce loan disbursement time and cost. It soon found eager clients in organizations like BRAC, which has thousands of micro-credit recipients across the country. ShopUp claims its algorithm analyzes 25 data points of micro-enterprises and owners to assess their creditworthiness and helps microlenders reduce their lending costs by about 15% on average.
Thus, from a digital marketing company dedicated to small digital entrepreneurs, ShopUp became a fin-tech company.
In 2018, it raised $1.62 million in seed funding led by Omidyar Network, the impact investment firm established by eBay founder Pierre Omidyar. It aims to acquire 100,000 merchants, establish partnerships with e-commerce players, logistics companies, and offline aggregators, and presumably sell or lend its credit assessment algorithm to these platforms in some form.
Time will tell how ShopUp fares on that front, but ShopUp’s microlending play has been a brilliant move.
From a humble beginning, ShopUp has moved on to become an integrated service provider for small digital commerce entrepreneurs, starting from online order management to marketing to logistics and now credit.
There lies an important lesson in ecosystem building and the integrated expansion of your digital business.
ShopUp now aims higher.
Fintech has been a core interest of integrated platform companies such as Alibaba or Amazon and Pathao and Shohoz in the context of Bangladesh. All these companies want to get into fintech.
The advantage all these companies enjoy is data - tons and tons of data about their merchants and users.
Pathao knows almost everything about its drivers - who earns what, and so on. Amazon knows everything about its merchants. At the same time, these platforms have certain control over their merchants.
Data and control together make valuable leverage. That’s why companies like Alibaba and Amazon run some of the fastest-growing and successful lending businesses in the world. This is what Pathao has been trying to do with its agreement with several banks for bike financing. In fact, eCourier, a logistics company in Dhaka, has a financing program where it finances merchants using its data.
ShopUp eyes one step higher. It wants to enable every platform and ecommerce company to leverage the data they have on their merchants and run some form of financing program in partnership with lenders. This strategy has both upsides and downsides.
Essentially, ShopUp would have preferred to control both the finance and data and turn itself into a platform that has its own merchants who take its other services, allowing it to directly access their data. But the possibility of ShopUp scaling its own to that extent is slim because the number of widely successful f-commerce players, who primarily use ShopUp, is not on the rise anymore. Thanks to changes in Facebook algorithm that deprioritized brands’ pages in the newsfeed.
At the same time, it is unlikely that ShopUp would prefer to get into ecommerce in the near future. That’s one of the reasons why ShopUp decided to scale its credit algorithm beyond its own platform and is eager to partner with every other ecommerce player, logistics company, and offline aggregator such as Shwapno which has a large merchants or supplier base.
Ideally, ShopUp plans to convince other ecommerce players and logistics companies to use its credit algorithm and get into a separate financing business. This means from its currently integrated model, which helped ShopUp to develop its credit assessment algorithm in the first place, ShopUp is moving to a distributed model where it will plug its software into the system of other ecommerce companies and build a distributed lending business around it.
Now there will be companies like Amazon and Pathao and Shohoz or Grab or eCourier who will have their own fintech products effectively limiting ShopUp’s business in those places but there will still be enough ecommerce platforms and individual merchants who, together, should make a great business case for ShopUp.
The challenge for ShopUp would be that digital is a different universe and operates very differently. Eventually, the biggest aggregator wins the market in the digital world, which means at some point there will not be many successful ecommerce players and large aggregates, which may limit the long-term potential of ShopUp if it can't find a way around to build its own aggregator model or a system to acquire merchants beyond e-commerce.
For a credit business to make sense, a platform has to have a certain scale of merchant base as well as business for those merchants. While the number of ecommerce companies is high now, not many of them provide meaningful business cases to run a lending business. Again, that is just one side of the coin and does not at all predict the future of ShopUp’s business. ShopUp has already started working with organizations like BRAC in their microcredit program and there is an entire range of businesses to be built there.
ShopUp wrote in its funding announcement in December 2018, “According to the World Bank, the total MSME credit gap stands at USD $2.6 trillion worldwide. The majority of this gap exists in developing and underdeveloped countries such as Bangladesh, where the majority of the 10 million MSMEs remains outside the formal credit system. Right now there are 350,000 MSMEs on Facebook in Bangladesh—growing at a 70 percent rate yearly. This creates a massive potential for algorithm-driven credit models like ShopUp, without high operating costs.”
The challenges for ShopuUp would be to bring all these SMEs online and then find a way to access their data and also, take its business outside of Facebook because platforms with immense power like Facebook seldom behave in a predictable manner. The good thing is that the ShopUp team has proved to be able to see beyond the surface in the past and it is possible for them to strike gold again.
