5 Ways Fintech is changing Vertical SaaS for the Better



Vertical SaaS is still an area unexplored. While SaaS has been around for almost two decades, most of the most well-known enterprises have used a horizontal distribution strategy until now. Horizontal SaaS is a sort of cloud software solution aimed towards a broad range of users, regardless of their industry. Think Zoho, Freshworks, or Hubspot.

However, there are two drawbacks to this extensive market reach. First, this horizontal approach offers little flexibility for personalizing products and experiences: you must adapt to all. Second, the go-to-market strategy appeals to the masses rather than the individual, resulting in larger budgets and lower conversion rates.

Here is where vertical SaaS comes in.

What is Vertical SaaS?

In contrast to horizontal software, Vertical SaaS solutions comprise software tailored to a certain specialization or industry-specific requirements. The vertical SaaS provider doesn’t try to be everything to everyone or cover a wide range of products. Instead, the vertical approach allows SaaS companies to create a smarter go-to-market strategy and fine-tune their product to meet their customers’ individual needs. However, it does reduce the size of the potential market to particular industry niches.

Even though your target market is smaller, you gain the advantage of focus with the vertical SaaS approach. Your resources are expended on a specific vertical and on a group of customers who share similar interests; consequently allowing them to engage on their own terms as well.

It’s no surprise then that in the last decade, public vertical SaaS companies have clocked a 10x growth

This highlights the incredible robustness of vertical SaaS despite the global epidemic. Now that we’ve figured out the vertical side of the equation, let’s move on to how fintech plays a part in taking vertical SaaS to the next level.

A. Seamless Customer Experience

According to a recent report, we have advanced five years in consumer and commercial digital adoption due to the pandemic in merely eight weeks. Clearly, COVID-19 has been an unanticipated accelerator for technological adoption worldwide, with online interaction for goods and services no longer a luxury but a necessity.

Today, consumers expect the same efficiency and seamless experience from all areas of business. While fintech has had a substantial impact on industries such as banking, insurance, and investing, it also has the potential to expand financial inclusion, enhance people’s daily lives, and promote growth in other sectors.

Realizing this capability, vertical SaaS companies began to embed various financial services straight into their SaaS product, not merely payments.

This helps the company in two ways:

I. It can draw on its own data of the users to tailor its financial services

II. It doesn’t have to resell financial assistance through a third party.

These benefits ultimately transfer to the consumers to provide a more seamless experience in the way of hassle-free payments (among other things) through the same software.

B. Better Conversion Rate

Losing a potential customer is one of the greatest threats to a company’s revenue. And, one thing that can severely affect conversion rates is the user’s impatience with the application experience. Via digital channels, customers seek a product or service that meets their demands while also offering ease, little contact, and quick resolution. Straying from that offering can easily result in a lost sale. In 2020, for example, 69.8% of digital shopping carts and baskets were abandoned without completing the purchase.

With fintech providing the seamless experience it does, making it easier and easier for the user to complete their purchase, companies can enjoy a better conversion rate. For instance, last year, Shopify revealed that checkouts going through their financial services arm, Shopify, have an average checkout-to-order rate of 1.72x times higher than those going through regular checkouts.

C. Lowers CAC and Improves LTV

With better customer experience and higher conversion rates, companies have to expend less on the marketing required to secure more customers, significantly reducing their Customer Acquisition Cost (CAC). Moreover, the additional value offered to the user accelerates the sale and enables retention, increasing the total earnings from a customer and improving the Lifetime Value (LTV).

Because fintech can decrease CAC and drastically enhance LTV, vertical SaaS companies can provide their SaaS product for cheaper (or even for free) to entice customers who may be hesitant to digitize otherwise before piling on fintech services as the primary revenue lever. For example, EngageBay, an all-in-one marketing, sales, and support platform, presently does not charge its users for its live chat software, which has helped it effectively land customers in the typically hostile small and medium business market.

D. Provides Transparency

Historically, the financial services business has been based on a foundation of perplexing transaction fees. Moreover, these fees are frequently misaligned with consumers.

It is becoming clear, that the divide between digital vs. traditional banks is becoming wider and wider & and we can expect this trend to continue, as people have shown on multiple occasions in recent years.

Furthermore, younger generations have witnessed events like the Great Recession and Occupy Wall Street, which has led them to hold a general disdain of credit and distrust in traditional financial institutions. SaaS fintech can provide these customers with greater faith in technology and more equitable value exchanges.

Transparency in the payment sector also entails providing better insight into payment timings and explaining the path a customer’s money will take during the payment journey.

Giving customers visibility into when and how payment will be handled is becoming more familiar with SaaS fintech; with users notified at essential points in the payment process; such as when funds are received or when the user’s payment reaches a beneficiary’s account.

E. Offers Integrated Services

Vertical SaaS companies can enjoy the benefits of adding integrated services like payment processing; replacing the generic third-party service to create their own vertical-specific offering. The beauty of this strategy is that it eliminates the need for consumers to spend money on additional software. Instead, you’re substituting a service that clients already pay for, making the cross-sell feel “free” and lowering sales friction. 

However, these integrated services are not restricted to payment. Vertical SaaS companies can use other modes of financial services that can add to the user experience. Some of these are:

1. Lending:

Udaan Credit, the fintech arm of Udaan, earned INR 14.1 crore from loan interest payments in FY19, which is four times more than it makes from sales of goods, licensing, and cash collection fees.

2. Insurance:

Airbnb offers its hosts insurance policies that cover damage claims made against them by third parties and damage inflicted on their property by guests.

3. Bank Accounts:

Shopify Balance enables entrepreneurs to open a checking account with the same information they provided during the onboarding process for Shopify Payments when creating their own Shopify sites.

4. Payroll:

Cloud-based financial management and human capital management vendor, Workday, makes it possible to pay through its software.  

Fintech SaaS is the Future

Fintech has changed how vertical SaaS providers function; and, it will continue to do so in more impactful ways in the coming years. Fintech’s budding relationship with vertical SaaS makes it possible for companies to explore verticles new to software use, entice consumers previously resistant to software, and retain existing customers with user-friendly, integrated services.

Thanks for the submission.