Will SaaS Companies Become Banks?

Investment Analysis Clubs Saul’s Investing Discussions
1

https://a16z.com/2020/08/04/fintech-scales-vertical-saas/?su…

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.

6 Likes
2

This is exactly what Shopify has done. They have merchant cards, payment processing and small business loans via Shopify Capital: “Simplified, fast funding. In uncertain times, some financial support can go a long way. Shopify Capital is here for you with quick and easy access to funds.”: https://www.shopify.ca/capital

This is one of the many reasons I think Shopify can keep growing fast. There are so many ways they can leverage their platform. They are not a website host or e-commerce marketplace. They a virtual business park with all the services you need to run a business included.

9 Likes
3

Over the years many companies tried to get into finance including Sears, GM, GE, Textron and most ended badly. Personally I will not invest in any business that has credit risk.

As a businessman I have always held the position that until you get paid you have not made the sale.

Denny Schlesinger

5 Likes
4

To a degree they already are:
Shopify, Mercadolibre, Amazon, Square etc

I guess they could do an Ali Baba and spin out the “Ant financial” equivalent for $100bn and remove the credit risk.

You could argue that SaaS companies have so much data they could manage credit risk than any previous era.

Ant