Shopify Inc. (NYSE:SHOP) recently made two additions to its product offering that may increase customer satisfaction as well as increase sales for the company and its customer base. The company introduced an in house-designed swipe card reader, and created a new option for its customer base in wholesale distribution of products.

What is Shopify?

Shopify describes itself simply as "...the leading cloud-based, multi-channel commerce platform designed for small and medium-sized businesses." 

SHOP Chart

SHOP data by YCharts

Headquartered in Ottawa, Ontario, the company is empowering entrepreneurs of all stripes to focus on their individual businesses and leave the back end and online technology challenges to Shopify. The company's recent rocket-like stock performance can partially be attributed to its focus on delighting its customer base with an affordable solution for those just starting in business all the way up to larger merchants whose businesses have grown using the company's platform and tools.

Shopify new chip and swipe card reader.

Image source: Shopify.

1. Shopify introduces a new card reader

There are two factors that interest me with the new chip and swipe card reader. The first is what has been widely reported -- Shopify can now compete head-to-head with Square by offering merchants its new, internally designed, Shopify chip and swipe card reader. It's free to new customers and $29 for companies that were already shipped one of the older POS devices. The previous versions that Shopify has offered customers are branded Shopify devices but are supplied by another company.

The new Shopify Chip and Swipe card readers can be ordered for iOS or Android devices. Today they are only available for U.S. accounts, taking payments in U.S. dollars. They allow merchants to use the devices in their shops or as an on-the-go mobile POS device.

The swipe or usage fee is determined by the level of Shopify services the user subscribes to, as shown in the table below.

Plan feature Basic Shopify Shopify Advanced Shopify
Monthly price $29 $79 $299
Card reader usage fee 2.7% 2.5% 2.4%

Data source: Shopify. Chart by author.

As a comparison, Square charges a 2.75% swipe fee.

Keep in mind that both Shopify and Square have to pay portions of the usage fees collected from the merchants to the credit card companies whose cards are used. 

It is not clear that Shopify will be able to attract brick-and-mortar merchants away from Square, but there is a second factor around this product introduction that is of great interest. Shopify has a hardware group with internal design capability. The new chip and swipe card reader is the first product ever released by the group.

Shopify has visionary leadership; the company would not put together a hardware engineering team to design a single point product. They must be working on next level hardware. 

A hardware team is a new factor, and may allow the company to move forward in ways we do not expect. Stay tuned for further developments. 

2. Shopify Plus introduces wholesale

Shopify wholesale gives Shopify Plus merchants a new way to sell. It allows a merchant to segment certain customers and offer them volume pricing through a password-protected online storefront unique to each wholesale customer. Suppose you make kites and sell them online to customers at a one-off price. A brick and mortar store likes your wares and wants to buy 50 for resale purposes, and needs a discount or wholesale price. Now a merchant can accommodate that request without exposing the wholesale price to its retail customers. 

Here are points the company highlights about its new wholesale offering.

  • Create a separate, password-protected storefront that offers customer specific discounts, product assortment, and terms
  • Create unique and custom product pricing tiers and catalogs for each customer
  • Invite and manage wholesale customer accounts in bulk
  • Approve orders before they are processed, allowing merchants to review inventory levels and payment details and confirm quantities
  • Send automated notifications to customers alerting them of changes or updates to their orders via a central customer order history page
  • Review and invoice orders for payment by credit card or take payments and handle terms offline

Shopify wholesale is another example of the company building out its suite of products to the next level as it moves upstream to provide more opportunities for its larger customers.

What does it all mean?

The company continues to innovate at a rapid pace. By building out its ecosystem, whether through new integrated hardware solutions or expanded online storefront capability -- now including wholesale -- the company gives merchants two more reasons to choose Shopify as a business partner. Once Shopify is chosen, the ecosystem is very sticky and as a result, every new customer should provide years of revenue for the company, meaning good things for investors who own the stock.