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US buy now, pay later (BNPL) firm Sezzle has accused ecommerce platform Shopify of “monopolistic and anticompetitive business practices” in a lawsuit filed in the Minnesota federal court.
Sezzle alleges that the Canadian online shopping giant breached anti-trust laws and cost it significant profits by charging unfair fees and manipulating consumers to use Shopify’s online payment services instead of competing services.
In the lawsuit, filed on June 9, Sezzle claims it was after it successfully launched and grew its BNPL service on Shopify’s drag-and-drop e-commerce platform that the anti-competitive practice commenced.
Shopify dominates the market for drag-and-drop e-commerce platforms, allowing small to medium-sized businesses (SMBs) to build and maintain online storefronts and sell products to consumers online.
It launched its BNPL service, Shop Pay Installments, in partnership with US lender Affirm in 2021.
Copycat claim
According to Sezzle, Shopify “intentionally abused” its “stranglehold” on the market by copying Sezzle’s own BNPL service and prevented merchants and consumers from using any other BNPL providers, including Sezzle.
The lawsuit also alleges that Shopify rigged the checkout process on merchants’ websites to make it difficult for consumers to use any alternative BNPL providers, such as Sezzle, by hiding them as a checkout option on merchants’ websites so consumers could not easily find them.
It adds that 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.
This enabled Shopify to intercept consumers by capturing their information and then offering them Shopify’s Shop Pay payment processing services.
Additionally, Shopify imposed technological barriers that decreased the functionality and consumer appeal of Sezzle’s service, such as by taking away Sezzle’s ability to offer merchants real-time inventory locking.
Anti-competitive
“Shopify’s intentionally anticompetitive efforts have caused harm to consumers and merchants, and that harm has flowed down to Sezzle,” Sezzle claimed.
Sezzle’s lawsuit is a high-profile challenge to Shopify’s market pre-eminence and comes as the American company enjoyed solid performance in the first quarter of the year.
Sezzle’s quarterly revenue saw a 123 percent year on year increase to $104.9m, while its net income climbed by 286 percent compared with the same period last year to $36.2m.
The BNPL market has boomed in recent years, prompting concern among regulators that it could add to problem debt accumulation with high risk borrowers.
In January, a US Consumer Financial Protection Bureau (CFPB) report warned of increasing reliance on BNPL services among consumers, particularly those with high unsecured debt balances and subprime credit scores.
Sezzle suffered a setback in 2022, when, as covered by Vixio, Australian BNPL company, Zip, pulled out of a $330m merger agreement with its US rival, citing macroeconomic and market conditions as a reason.
The US firm is seeking an injunction preventing Shopify from continuing the practices claimed as well as threefold damages, costs and expenses. Shopify did not respond to a request for comment on the lawsuit.
