It's important to watch the payments space because it is the monetization engine of most eCommerce platforms. That's why Paypal partnering with Commercetools this week (announced at the CT Elevate event) makes you pay attention.

Stop me if you've heard of a product like this before:

* transforms the guest checkout experience

* confirms buyer payment data with an SMS code

* consumers save their information with as little as one tap

This Paypal "innovation" (which was launched January 2024) is called Paypal Fastlane, and it is a legit straight copy of Shop Pay. And in turn, this gives Commercetools a widely distributed "guest checkout accelerator" (which is essentially what Shop Pay is).

Since the introduction of Shop Pay in 2017, it only stands to reason that the percentage of Paypal adoption on the Shopify platform has been declining, and that decline continues to accelerate.

With the announcement of the "Shop Pay component" for Enterprise, Shopify officially entered the Enterprise market, sure. But what they REALLY did was enter Paypal's primary market. This allowed Shopify to take Paypal's share of large accounts (not just Shopify).

The announcement of Paypal Fastlane in January was a defensive move by Paypal: how do we stop the bleeding? Short answer is to copy Shop Pay, using Paypal resources.

This development is actually great for merchants.

* Price competition between Shopify and Paypal should reduce prices.

* Service levels could go up for everyone as Paypal realizes they need to up their game.

What's next for Paypal? Ensuring the Shop App does not also rise. The Paypal app is becoming copies of many of the features of Shopify's Shop App:

* cashback offers in the Paypal app

* helping consumers what to buy next

* smart receipts to track purchases

sound familiar?

The bad news for Shopify in this case is that Paypal has more history working with consumers than Shopify does. Paypal has many more merchant relationships than Shopify.

The good news for Shopify is that from a merchant point of view, Paypal is an extremely difficult company to work with from literally dozens/hundreds of conversations I've had over my career. The merchant tools are hard to use, limiting, have a dizzying array of changing rules, and your funds can be kept at any time if you leave it there. Paypal is legit almost as hard to work with as Amazon.

This is Shopify's advantage as a known merchant-friendly company, and could be helpful to them in the coming payment wars. The bad news for Shopify is the number of relationships they have.

I believe in the next two years, expanding merchant relationships could prompt Shopify to merge with Stripe -- perhaps even as part of Stripe's eventual IPO. Two companies fighting Paypal, even in a coordinated manner, would not be as efficient as one together. Eventually, Shopify cannot leave their primary monetization engine to chance.