UPDATE: This article contains analyst comments on how the lawsuit affects Shopify's private-label buy now/pay later provider Affirm.
The buy now/pay later market has been heating up as more consumers turn to the low-cost financing option, so much that it's leading to legal battles as providers fight for market share.
Minneapolis-based BNPL provider Sezzle is suing e-commerce giant Shopify for antitrust practices, according to a
Sezzle alleges that
In addition,
"Even after consumers managed to locate and select Sezzle's BNPL option on a Shopify store's website, Shopify redirected them to a generic form, leading consumers to mistakenly believe the form was associated with Sezzle," according to the complaint.
Sezzle also alleges that Shopify made it disadvantageous for merchants to offer other BNPL options by eliminating Sezzle's ability to offer tools such as sales tracking and reconciliation, as well as real-time inventory locking — a service that allows merchants to prevent over-sales.
"Sezzle remains committed to fostering a competitive, transparent, and consumer-friendly payments ecosystem," Charlie Youakim, Sezzle chairman and CEO, said in a statement. "This action is an important step in ensuring that merchants and consumers have access to diverse and innovative payment solutions of their choice."
A Sezzle spokesperson declined to comment further on the lawsuit. Shopify did not respond to requests for comment by press time.
Sezzle — which was founded in 2016 and claims to be one of the first companies to offer merchants
The company alleged that Shopify's anticompetitive practices cut Sezzle's business with merchants on the Shopify platform in half by 2023 when Shopify's own BNPL product started taking off. Sezzle estimates that Shopify's BNPL product commanded 75% of the pay later market on its platform.
Shopify is an e-commerce platform that allows small- and medium-size businesses to stand up websites and sell goods online through a subscription-based revenue model. It also offers payment services through its merchant services division.
The division primarily generates revenue from payment processing fees and currency conversion fees from Shopify Payments, a fully integrated payment processing service that allows merchants to accept and process payments online and offline. Shopify also generates merchant services revenue through referral fees to third parties, according to the company's May 8
Shopify's buy now/pay later offering, called Shopify Installments, is
The lawsuit should not have any material impact on Affirm and its business relationship with Shopify, according to a research note from JMP Securities.
"Given our understanding that the underlying legal theories and claims of the case are based on far-reaching applications of anti-trust law (and not a narrow payments-focused suit), we expect to see a long and uncertain road ahead for [Sezzle] and do not expect to see an impact to [Affirm's] relationship in the near term or possibly ever," David Scharf said.
Shopify's merchant services division commanded the lion's share of revenue — 74% – in the first quarter, rising 29% year over year to $1.7 billion, according to the 10-Q. Its subscription services revenue, by comparison, amounted to $620 million. Increases to its merchant services revenue was primarily driven by Shopify Payments, which tallied a 64% penetration rate and a gross merchandise value of $47.5 billion during the quarter, 31% higher than the first quarter of 2024.
By comparison, Sezzle logged $105 million in revenue in the first quarter ended March 31, an increase of 123% compared to the same quarter a year ago, according to its earnings report. GMV rose 64% to $809 million.
Sezzle has not seen the same uptake as other BNPL providers. It was the fifth most popular BNPL offering at 14%, behind
Its growth outlook for new-user additions came in at 2%, also behind those same rivals, which all had new-user growth outlooks in the 13% to 32% range, according to Jefferies.
