Shopify (SHOP), the e-commerce platform, is expanding its checkout and payment system to US-based merchants on Facebook (FB) and Instagram, which Facebook owns, in a move that significantly widens its reach among consumers. Its Shop Pay option is available to Instagram users beginning Tuesday, and it will roll out to Facebook in the coming weeks.
Users will see Shop Pay, which stores customers' payment and shipping info, as a payment option on Facebook Pay, in addition to paying with a credit card or via PayPal. Once a purchase is made, consumers can track orders through Shop Pay.
Shopify's stock closed up 7% on the news on Tuesday. The company's stock has nearly tripled in the past year.
For Facebook and Instagram, the partnership comes as they are trying to make a bigger mark on retail. Instagram and Facebook have their own "shops" and offer ways to purchase products directly on the platform. In 2019, Instagram introduced a checkout option that allows customers to purchase products directly off a handful of companies' pages within its app.
Research firm eMarketer predicted in a report this month that sales by people shopping for goods on social media platforms like Instagram, TikTok, Snapchat, Pinterest and others and buying products through social media apps will rise by nearly 35% in the United States this year to $36.4 billion.
"It's fast growing, but it's still a small percentage of retail sales," said Andrew Lipsman, analyst at eMarketer. It's not clear how big it will eventually get in the United States.
Social commerce is much more common in China. In China, social commerce sales will reach $363 billion this year, eMarketer forecasts. Brands such as Facebook are trying to replicate that successful market in the United States.
Lipsman said that Shop Pay would not be a "game changer" to get more consumers to buy products off social media platforms, but it would help speed up checkouts on Facebook and Instagram.
The partnership is significant for Shopify because it is the first time Shop Pay has expanded outside the Shopify platform, giving it wider distribution and the potential to reach more customers, Lipsman said. Shopify, which mainly makes money by selling tools to businesses to help them run their online stores, will likely benefit from purchases that take place through the partnership, as well as growing awareness of its brand among consumers.
Shop Pay launched in 2017 and Shopify said the checkout system has been used to purchase nearly $20 billion worth of goods.