Consumers bought US$27 billion worth of custom T-shirts, home furnishings and Kylie Jenner’s cosmetics from more than 600,000 stores using Shopify’s e-commerce platform in the first nine months of 2018. A substantial chunk of those purchases flowed through the company’s secret weapon: payments processor Stripe.

The two companies signed a deal five years ago that’s helped each grow into a market leader worth around $20 billion, employing more than 4,300 people between them.

Ahead of Shopify’s fourth quarter earnings call next month, The Logic conducted an analysis of four years of Shopify financial statements and found that the Stripe partnership has helped turn payments into one of Shopify’s fastest-growing businesses. But as with any marriage of convenience, that relationship comes with some long-term risks.

The two companies have similar origin stories, both starting as side projects. The Shopify platform was originally built for CEO Tobi Lütke’s snowboarding store, while brothers Patrick and John Collison wrote Stripe’s core seven lines of code while working on iPhone apps.

Understanding how Stripe fits into Shopify’s revenue picture requires a walkthrough of the Ottawa company’s overall business.

Storefronts running Shopify’s platform sold US$9.99 billion worth of merchandise in the third quarter of last year alone. The company itself brought in revenues of US$270 million over that time.

Shopify now makes more revenue from add-ons to its online storefronts—like payments, shipping and point-of-sale hardware—than from the subscription fee it charges merchants to use its e-commerce platform.

The company reports all those extra services as “merchant solutions revenue,” which made up more than half of total revenues—or US$149.5 million of the US$270 million—in the last reported quarter. Shopify Payments, its own system, made up the bulk of merchant solutions revenue, and 41 per cent of that US$9.99 billion of merchandise was sold through the service.

The processing of all those Shopify Payments transactions is done by Stripe, according to the terms of the 2013 deal. When it was launched in August that year, Shopify Payments logo included the words “Powered by Stripe,” but the website for the service no longer mentions the fintech firm.

“For all practical purposes, Shopify is a reseller of Stripe,” said Penny Gillespie, an e-commerce expert and vice-president at Gartner, a technology research and advisory firm.

Shopify Payments lets merchants accept debit and credit cards online or via Shopify’s point-of-sale hardware, for a small percentage of the sale. The platform supports other providers for an additional transaction fee. And for small sellers, which most Shopify merchants are, it’s convenient to use the out-of-the-box payment service.

Shopify is “almost religious about their devotion to merchant success,” said Nikhil Thadani, an analyst who covers technology stocks at Mackie Research, adding that merchant solutions revenue is a good way to gauge that success—more fees for services means more stuff is being sold. And that revenue has grown faster than subscription revenue every year since at least 2014.

So how much of that revenue does Stripe get?

Neither Stripe nor Shopify responded to multiple requests for comment on how fees from Shopify Payments are split.

But a copy of the agreement between the two companies—which Shopify filed with the U.S. Securities and Exchange Commission when it went public in 2015—suggests the e-commerce company was to pay Stripe a monthly sum based on volume as well as a cut of transaction revenue; the specific amounts are redacted.

The agreement covered an initial 24 months, converting to a rolling 12-month term after that. The 2013 contract stated that either company could end the deal with 60 days’ notice, although Shopify’s 2018 annual report puts the exit clause at 180 days.

The success of Shopify’s merchants may give the company leverage to get Stripe to drop its take of fees in the future. “As their volumes grow, they become very attractive to other players who might want to offer them a better deal,” said R “Ray” Wang, CEO of Silicon Valley-based Constellation Research.

Shopify Payments originally launched in Canada and the U.S. in August 2013, and is now also available in Australia, New Zealand, Ireland, the U.K., Singapore and Germany.

As it expands internationally, Shopify may need to look beyond Stripe, which is currently available in 26 mostly advanced economies. For example, PayPal-owned Braintree—used by large tech companies like StubHub, Casper and TaskRabbit—is active in 46 countries. But the reach of both is tiny compared to traditional payment providers like First Data, which processes transactions in 118 markets.

Gillespie said e-commerce platforms entering new markets need to be able to accept regionally-popular ways of paying—like cash-on-delivery in India, AliPay in China or bank transfers in the Netherlands.

In January 2018, eBay picked Ayden to replace PayPal as its primary payments processor.

A partnership with Ayden would give Shopify more localized payment options in emerging markets. The Amsterdam-headquartered company processed US$82 billion in transactions in the first half of 2018 (Stripe doesn’t reveal its figures), and has offices in Brazil, Mexico, the Philippines and Indonesia.

Shopify did not respond to questions about whether it had negotiated with payment processors other than Stripe since launching its service in 2013.

The partnership has also been beneficial for Shopify from an engineering perspective.

Moving money between a customer and an online store is a complex process, involving the financial institutions that issue cards, the networks that clear transactions and a host of other intermediaries. Suthan Sukumar, a principal for technology research at Toronto’s Eight Capital, said it’s less risky for Shopify to use Stripe’s “very robust technology that’s been able to scale really quickly” than build its own payments system from scratch.

But those technology benefits could also become an albatross.

If Stripe were to cancel their agreement with only the required 180 days’ notice, Shopify would have to scramble to find a replacement to continue one of its fastest-growing lines of business. As Shopify acknowledged in their 2018 annual report, this could lead to “substantial delays and expense,” and the “quality and reliability” of the new payment service “may not be comparable.”

Changes to the partnership “could alter the revenue growth trajectory of the company,” said Thadani, and that would make for a “bumpy ride” for the stock, which trades at a high valuation.

There’s also the risk that Stripe moves up the e-commerce chain from payments to sales, competing directly against Shopify for storefront business. Included in the 2013 partnership agreement was the sharing of data between the two parties, “to ensure a seamless end user merchant experience.”

Processing all those payments for Shopify will have taught Stripe a lot about the business of its merchants and the habits of the consumers who buy from them.

While Gillespie said she hasn’t seen any payment providers get into commerce, it wouldn’t be Stripe’s first foray into helping online businesses start up. In 2016, the Collison brothers’ firm launched Stripe Atlas, a service that allows entrepreneurs anywhere in the world to register a company in the state of Delaware and set up an account with Silicon Valley Bank.

In spite of its growth and its Stripe partnership, investors are mixed on Shopify’s merchant solutions business, according to analysts.

The increase in that revenue is a positive sign, because “you want to see more payments adoption,” said Sukumar, although he expects the income stream to diversify as other “value-added” services introduced more recently like shipping and funding advances take off.

But Shopify’s profit on merchant solutions revenue—particularly Shopify Payments—is significantly lower than on subscriptions, so it’s overall margin trails that of a typical publicly-traded software-as-a-service company.

That makes some investors wary of the add-ons, but Thadani doesn’t share their view. He said merchant solutions revenue is a good way to gauge the success of stores on Shopify.

Shopify’s fourth-quarter earnings call is on February 12.