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 have a credit card or not and then eventually helping them to better manage their logistics, for which ShopUp partnered with logistics companies like DHL.
For small facebook shop owners who could not afford independent agency to promote their product and often struggle 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 with helping Facebook based entrepreneurs manage their social media presence, digital marketing campaigns, manage orders and logistics, with the rapid growth of its merchants base it was quick to see an even bigger opportunity: finance. It developed an algorithm to assess credit requirement and repayment capacity of its merchants and started to collaborate with financial institutions to help them identify potential businesses and help reduce loan disbursement time and cost. With the ShopUp algorithm, it soon found eager clients in organizations like BRAC that has thousands of micro-credit recipients across the country. ShopUp claims its algorithm analyzes 25 data points of a micro-enterprise and owners to assess their creditworthiness and helps microlender to reduce their lending cost by about 15% on average. Thus from a digital marketing company dedicated to small digital entrepreneurs, ShopUp became a lending company.
In 2018, it raised USD $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 of the integrated expansion of your digital business. ShopUp now aims higher.
Fintech has been a core interest for 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 companies to leverage the data they have on their merchants and run some form of financing program in partnership with lenders. This has 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 to 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 players, logistics companies and offline aggregators such as Shwapno who has 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 is means from its currently integrated model, which helped ShopUp to develop its credit assessment algorithm in 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 acquire merchants beyond ecommerce. In order to a credit business make sense a platform has to have a certain scale of merchants 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 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.