Fintech Integration into SaaS Products: Bigger Markets and Better Margins

Today I want to share with you an article by Andreessen Horowitz venture capital fund on the results and prospects of introducing fintech solutions into SaaS products. Widely popular SaaS solutions will not disappear anywhere in the coming years, but companies can radically change the way they work by implementing fintech solutions into their products. In this blog, I described what the vertical SaaS model is and how companies are building different fintech business models.

Most SaaS revenue today comes from subscription fees, but some players are looking to scale — adding financial services to their products. The next evolution of the software business model is a SaaS subscription and fintech hybrid, which will first happen in a vertical SaaS.

Vertical markets are especially good for the SaaS + fintech business model. While customers in horizontal markets often turn to different software vendors, resulting in numerous winners in the market segment, customers in vertical markets prefer custom-designed software for their specific industry. Once one software solution demonstrates its value, the customer base will rally around that company. So this wave first occurs in vertical markets, or markets of a certain industry, such as construction, restaurant business, etc.

The implementation of financial services, of course, adds cost and complexity, but can pay off with better profit and customer service. As more SaaS companies add fintech, in addition to payments, I expect to see lending, insurance and other financial services. The way software is distributed and sold changes approximately every 10 years. Each evolution has opened up new software markets and increased them in general. Until now, these business models have expanded the market by increasing the user base. But the financial services business model increases the overall software market in two additional ways:

● increases revenue per user 2 to 5x * compared to a standalone software subscription, and as a result,

● opens new verticals where previously the overall market for software was too small and/or the cost of acquiring customers was too high.

Now I will briefly describe the fintech SaaS models that we will see emerge in the coming years:

Payments

What it is: Payment processing (for example, the ability to accept credit and debit card payments from customers).

Referral solution: Turnkey solution for processing payments with a fixed commission +% of the transaction. A SaaS business can cover the costs of its customers with a small extra charge.

Example: Shopify initially launched without direct payments and mainly provided software to help small stores manage their online storefront. When the company realized that merchants needed to process payments and outsource payments — often a difficult and painful process — Shopify decided to use the Stripe API to make it easier for merchants to manage the checkout process.

Lending / Financing

What it is: Loans of various types to SaaS customers (e.g. invoice factoring, loans for 6 to 36 months, etc.)

Referral Solution: Link to another company that offers loans to your customer base.

Example: Toast launched Toast Capital last year to provide $ 5,000 to $ 250,000 in restaurant loans in partnership with WebBank. Loans are processed using data from Toast transactions, which speeds up and simplifies the application process, and redemption is automatic and adjusted based on the restaurant’s incoming cash flow, taking into account the seasonality, which a traditional bank cannot do.

Insurance

What it is: Insurance (e.g. property insurance, workers’ compensation).

Referral solution: link to another company that offers insurance to your customer base; monetize through commission for generating leads.

Example: Vertical SaaS companies can also insure their customers. A SaaS restaurant company can provide general liability insurance for restaurant owners and insurance for its employees. While all companies are required to buy some form of insurance, such as employee insurance, industries (such as construction, manufacturing, healthcare, media, and hospitality) that have a more sophisticated risk assessment are likely to value a vertical SaaS solution the most.

Bank accounts

What it is: End customers can create transaction accounts to hold money.

Built-in solution: use these platforms for better validation and integration with customer experience; You can monetize through a fixed monthly fee and/or distribution of interest.

Example: Bank accounts make sense if end customers are collecting and making frequent payments at the same time through the platform, and it would be useful for them to have a place to maintain the balance of these funds, rather than making continuous bank transfers. Usually, payments come first, and then bank accounts help manage the flow of payments. This works especially well in the service industries (e.g. restaurants, hospitality, health/beauty) and e-commerce. Shopify announced the launch of Balance Bank Accounts earlier this year. A Shopify store will get an account where sellers can get a clear view of cash flows, pay bills, track expenses, and make decisions about the future of their business. This is one of the first companies to offer this product.

This is just the beginning …

Fintech is opening a new era for vertical SaaS, where most of the revenue comes from financial services. As SaaS companies add financial services, they not only increase revenue per customer, but also open up opportunities in markets that were previously considered too small or economically ineffective. Ukraine also has about 130 companies in the industry, but we have yet to see the integration of their financial solutions. As more companies include financial services in their SaaS offerings, we look forward to opening up more markets and supporting the next generation of companies that will grow to even greater heights.

Генеральный директор ФК "Леогейминг Пей" Основатель компании LeoGaming