Today, about 90% of public SaaS companies and the 2019 Forbes Cloud 100 have subscription-based revenue models. Now new fintech infrastructure companies have made it possible for SaaS businesses to add financial services alongside their core software product. By adding fintech, SaaS businesses can increase revenue per customer by 2-5x* and open up new SaaS markets that previously may not have been accessible due to a smaller software market or inefficient customer acquisition.
This wave is happening first in vertical markets (meaning the market around a specific industry, such as construction or fitness). Vertical software markets tend to have winner-take-most dynamics, where the vertical SaaS business that can best serve the needs of a specific industry often becomes the dominant vertical solution and can sell both software and financial solutions to their core customer base. Moreover, while early vertical SaaS companies – Mindbody, Toast, Shopify – typically started by reselling financial services (primarily payments), they are now embedding financial products beyond payments – from loans to cards to insurance – directly into their vertical software.
In this post, we will look at why fintech is driving the next evolution of vertical SaaS, why it opens new vertical markets, and where and how different business models for fintech can be applied.