Since the inception Etsy has allowed Etsy sellers to choose what payment options they want to accept. PayPal was the most popular option, among other services. But back in 2012 they launched Direct Checkout, which was the first step in integrating payments experience directly into Etsy itself.
In the yearly financial report Etsy noted that during 2016, 45.5 percent of active sellers used Direct Checkout. So more than a half of sellers still continued to rely on personal PayPal accounts. Yet Etsy seller services revenue, which Direct Checkout contributes to, has been growing faster than other revenue sources.
While during the launch in 2012 Etsy has mentioned it multiple times that Direct Checkout was only optional, there was no doubt that this is not going to last. Over the years they have expanded and improved the service, but also have started to erode the "optional" notion.
Then in April 11th 2017 Etsy wrote, to a surprise of many Etsy sellers:
"Starting today, Direct Checkout has a new look and a new name. Etsy Payments allows you to accept multiple payment methods, including credit and debit cards, PayPal, and gift cards. It’s also more flexible, stable, and secure than ever.
Because we want buyers to have a consistent experience when they check out on Etsy, we’re requiring that all sellers in eligible countries set up Etsy Payments by May 17, 2017. If you don’t set up Etsy Payments, your selling privileges will be suspended on May 18."
From the customer point of view this is an improvement, since few e-commerce websites are still offloading payments to external websites (eBay is one of them). Creating a cohesive experience inside of Etsy is better, since it allows introducing features like Apple Pay, and Google Wallet, and have them available across all sellers.
This has caused a big uproar among sellers, some of which felt like they were being forced to use a lesser option. There were many concerns, like the time it takes for funds to be available, lost access to PayPal lending, etc. This change, and some other changes on Etsy only add to their continuing struggles.
Etsy has extended the deadline beyond May 18th a few times, but starting June 1st any shop without Etsy Payments enabled was suspended (shops started to appear as "Taking a Vacation"). It took a few weeks to get all the shops processed, but at the time of writing we counted 1,300,000 suspended shops because of this.
That is 1.3 million shops.
We arrived at this figure because we noticed that on June 1st, before Etsy started suspending sellers, were there 170,000 shops taking a vacation. Now there are over 1.47 million. We think it is safe to assume that all of them were because of this change.
However many of the suspended shops were no longer active, so this wasn't as big of a change in terms of Etsy's catalog size. But this did affect active sellers too - roughly 65,000 previously active shops are no longer available. At any given point Etsy has close to 1 million active shops (those with products available), so that's a 7 percent drop.
This change was years in the making, and is correct. Etsy needs to have all services under their control - both for increased revenue, and for better user experience. However it has shown how hard it is to implement drastic changes to features sellers are already used to.