Passengers will "not have to wait long" before action is taken due to services being "really bad", he said on BBC Breakfast
Office of Rail and Road figures show just 56 per cent of Northern trains arrived at stations within one minute of the timetable in the 12 months to December 7, compared with the average across Britain of 65 per cent.
The chaotic introduction of new timetables in May 2018 saw hundreds of trains a day cancelled.
Punctuality and reliability problems continue to blight the network.
When asked by the PA news agency if Northern should be stripped of its franchise, Mr Shapps replied: "The simple answer to the question is yes, it is going to be brought to an end.
"It's partially a legal process but frustrated commuters will not have to wait long."
But Department for Transport officials later clarified that Northern could continue to operate services through a new, short-term contract.
The other option being considered is nationalising services by putting the Government-controlled Operator of Last Resort (OLR) in charge.
This is what happened on the east coast route in June 2018 following the failure of the Virgin Trains East Coast franchise.
German-based Arriva holds the Northern franchise, which was due to run until March 2025.
Mr Shapps first announced in October 2019 that he had issued a request for proposals, which involved asking Northern and the OLR to outline their plans to improve services.
David Brown, Managing Director at Northern, said: “It’s on record that the Northern franchise has faced several material and unprecedented challenges in the past couple of years, outside the direct control of Northern. The most significant of these is the ongoing, late delivery of major infrastructure upgrades.
“The North West electrification was more than two years late, which meant we could not use electric trains on that route or cascade diesel trains from that route to run more services elsewhere on our network. More recently, new and longer platforms at Leeds stations are delayed, which means we have had to postpone our plans to run longer trains.
“These factors – alongside the damage caused by strike action and lower than expected economic growth – have had a significant effect on the revenue expected in our original franchise business plan agreed with government back in 2015.
“That’s why the Government has asked us to prepare a business plan for a shorter ‘Direct Award’ which will see the completion of our transformation programme.”
Mr Brown added: “Arriva and Northern remain fully committed to delivering the transformation of the North’s railways and improving customers’ experience.
"We are delivering the biggest transformation of local rail for a generation, with 52 of our 101 new trains in service and driver training taking place on dozens more trains right now.
"Alongside 2,000 extra services per week, this is part of a £600 million investment in improving customers’ experience; we are continuing to invest in better stations, better offers for customers and more recruitment.
“These discussions have no impact on rail services for customers. Our job is to continue to provide the best service possible for our customers whilst any discussions are taking place.”
A Department for Transport spokesman said: “As the Secretary of State said, he has started a process which would either strip Northern of its franchise or to issue a short-term contract to them.
“We are taking action to ensure passengers in the North get a better service and we will provide an update in due course.”
Andy McDonald, Shadow Transport Secretary, said: “Arriva Rail North should have been stripped of its franchise years ago following its woeful performance and treatment of passengers.
“The Tories stood by as the company ran the service into the ground. They failed to hold Arriva to the terms of its contract and yet again passengers and taxpayers will pay the price.”
Cllr Judith Blake, Leader of Leeds City Council and West Yorkshire Combined Authority Transport Lead, said: “Passengers have suffered months of failure and disruption as a result of unacceptable poor performance by rail companies across the North.
"Northern leaders have long called for Government action to restore customer confidence, including on the Northern franchise.
“The Government needs to involve Northern Leaders and Transport for the North in urgent talks to get the situation back under control and to deliver the stability and improvements passengers were promised when the franchise was originally awarded.
“However, the North will not get the rail service it needs and deserves until there is significant investment in infrastructure to address the capacity crisis in the network.
“Through the Williams Review and the White Paper it has promised, the Government also has the opportunity to devolve the powers and funding the North so desperately needs.”