Extracted from Law360
As embedded payments and alternative financing tools continue to grow across online platforms, an antitrust suit filed by Sezzle Inc. targeting Shopify Inc.'s buy now, pay later practices will be key to monitor for platforms and their counsel alike. The outcome could have important implications for how courts will apply antitrust laws to platforms' integration of embedded products and availability of access to alternative sources of products, among other things.
The fate of the lawsuit, Sezzle Inc. v. Shopify Inc., is now in the hands of the U.S. District Court for the District of Minnesota, which held a hearing on Dec. 8 on a motion to dismiss the lawsuit. Sezzle filed the suit against Shopify on June 9, alleging that Shopify engaged in monopolistic and anticompetitive practices by limiting competition for buy now, pay later options within its checkout system.
Buy now, pay later is a rapidly growing form of consumer payment, recognized by both the Consumer Financial Protection Bureau and the Federal Reserve Board, that allows consumers to pay for purchases in a specific number of installments. It's particularly popular on e-commerce platforms, where retailers offer buy now, pay later loans at checkout for specific transactions.
Because retailers decide which buy now, pay later options appear to consumers, they play a central role in determining which buy now, pay later lenders consumers can access.
Shopify operates an e-commerce platform that allows merchants to create online storefronts and process payments. Its system includes a payment checkout tool, Shop Pay, and its own buy now, pay later service, Shop Pay Installments.
Sezzle alleges a classic tying claim. According to the complaint, Shopify used its market power to favor its own Shop Pay Installments over competing platforms such as Sezzle.
The complaint says Shopify made Shop Pay Installments the default buy now, pay later option for consumers at checkout. Sezzle alleges that even when consumers selected Sezzle or another provider, Shopify redirected them to a form not associated with Sezzle, allowing it to "intercept," as the complaint stated, consumers and have them pay through Shop Pay Installments instead.
Sezzle alleges that within three years of Shopify launching Shop Pay Installments, the service processed 75% of all buy now, pay later transactions for Shopify merchants. Over that period, Sezzle claims its business volume was cut in half.
Sezzle also claims Shopify pressured merchants into contracts by charging a fee for using third-party, non-Shopify buy now, pay later providers. The complaint alleges that the fee penalized merchants for offering competing buy now, pay later services.
The lawsuit asserts claims for monopolization, attempted monopolization, illegal tying and unlawful contracts in restraint of trade under the Sherman Act.
Sezzle also asserts violations of Minnesota's antitrust and unfair competition laws. Sezzle also seeks an injunction to block Shopify from continuing this allegedly anticompetitive conduct and is asking for monetary damages and attorney fees.
Shopify moved to dismiss the complaint on Sept. 18. It argues that Sezzle defined the relevant market too narrowly and that the proper market, according to Shopify, is the entire U.S. e-commerce sector, not just the portion that occurs on Shopify's platform.
Shopify also contends that Sezzle has not alleged harm to competition, only harm to itself. It notes that Sezzle is one of 16 buy now, pay later options offered to customers at checkout, and only one of those options is Shopify's own service, Shop Pay Installments.
In addition, Shopify argues that Sezzle's Minnesota unfair competition claims fail because the statute can only provide injunctive relief, and Sezzle has an adequate remedy at law. Shopify denies that its conduct is anticompetitive.
The dispute comes as embedded payments and alternative financing tools continue to grow across online platforms. Buy now, pay later services allow consumers to split purchases into installment payments, and platforms increasingly integrate this technology into their checkout processes.
Sezzle points to Shopify's alleged default settings and redirection practices as evidence that Shopify leveraged platform control to promote its own buy now, pay later product. Shopify maintains that consumers and merchants have meaningful choices and that the platform's checkout design reflects the company's product decisions, not exclusionary conduct.
The case is one of the earliest lawsuits focused on buy now, pay later involving platform design and online checkout processes. Much of the buy now, pay later focus thus far has centered on policy questions related to credit reporting, fees and interest.
But given the relationship between the merchant and consumer access to buy now, pay later products, this case could play a particularly informative role for how buy now, pay later offerings and the broader market develop.
Buy now, pay later is not the first area where tech product integration has raised antitrust questions. Alphabet recently prevailed in a lawsuit, United States v. Google, in the U.S. District Court for the District of Columbia, with comparable legal issues, in which its $20 billion annual payments to Apple to make Google the Safari browser's default search engine were largely upheld.
The ruling in the Apple case left tech companies with room to select product integration based on factors determined by the companies themselves.
Notably, the Apple-Google case involved the integration of products owned by two separate companies. The Shopify facts instead spotlight how antitrust laws will apply to the integration of platform-owned products and access to alternative sources of products.
As buy now, pay later grows, e-commerce platforms may see benefits to developing their own alternative lending solutions for purchases. A ruling on Sezzle's claims in Shopify could protect nonplatform buy now, pay later lenders from being excluded from such platforms.
A ruling could also affect the emergence of buy now, pay later credit cards, which some such lenders are developing to enable consumers to use buy now, pay later at brick-and-mortar retail locations or with merchants that don't offer buy now, pay later options. The economic incentives for those products could shift depending on the outcome of this case.
A decision is expected in the first half of this year. The court's ruling will determine whether Sezzle's tying, monopolization and state law claims will survive the pleading stage and move into discovery.