When you buy a pair of shoes and get a piece of shoe napkin to brush your footwear, it feels good, doesn’t it? Because the shoe brand cared about your wearing experience: you definitely need to clean your shoes from time to time. The napkin will come in handy, and you won’t have to make extra effort to find how and with what you can clean your shoes before you put them on.
If you have an industry-focused and vertical market niche software-as-a-service (a so-called vertical SaaS) company, your clients have their own tasks similar to cleaning shoes. But these activities are much more bothersome. Payments and financial operations are one of the most challenging, important, and often painful tasks B2B SaaS users have to deal with. Shopify, Toast, Silo and other B2B SaaS giants already aid their B2B customers with integrated financial solutions.
In fact, the integrated financial services market will be worth $3.6 trillion by 2030. Large SaaS enterprises integrate financial products in their ecosystems without making much noise around, and customers don’t feel surprised because they already perceive embedded financial services as a must. That is why today the JatApp team is going to tell you how fintech scales vertical SaaS, so you can take the best out of this opportunity as well.
Why embedded finance is a blessing upon vertical SaaS heads
Vertical SaaS businesses share one natural problem: the growth gets visibly slow because of a narrow-specific industry focus of a SaaS company. The revenue earned from subscriptions becomes insufficient to make any further scaling possible.
Also, acquisition of new customers and the product upselling becomes more and more expensive at the late growth stages. SaaS verticals usually work with small and medium businesses (SMBs), but these companies don’t want to pay a lot and churn as easily as B2C users.
And that’s a watershed moment when embedded finance comes into play as a blessing to vertical SaaS platforms that get stuck in the growth process. In addition to upselling extra app functionality, SaaS verticals can provide their clients with financial services that they obviously need in one way or another.
In fact, SMBs comprise 50% of gross domestic product in high-income countries, which means that money flows back and forth throughout these companies. But payment processing is annoyingly ill-equipped very often. You can help SMBs break this levee and make money flow frictionless.
For instance, let’s assume an average small business spends around $1,000 on software and digital services each month. Let’s say $200 is spent on various SaaS subscriptions such as an accounting app, marketing and sales tools, customer relationship management, and so on. The rest of $800 go to various financial products and services such as payroll, payment processing, credit scoring, taxes, and employee benefits.
By providing all these financial services with your SaaS platform, you’ll be able to earn this extra $800 from each client, thereby increasing your revenue from $200 to $1000, which is 5 times more than you used to earn without embedding financial products into your SaaS platform.
The fintech blessing is not just about making SaaS revenue juices flow. There are several benefits that pop up on the radar as well. Let’s discuss them in detail.
Improved customer experience and operations
Small and medium companies rely heavily on the power of SaaS to make their operations automated, faster, and cost-effective. Providing your clients with out-of-the-box payments and other financial services means that they can easily process payments, take loans, or pay taxes without leaving your SaaS ecosystem.
In the same vein, embedding financial products into your vertical SaaS simply means that you can offer advanced customer experiences. When your clients have all solutions rolled into one platform, they feel comfortable because they don’t have to make any extra efforts to complete their daily tasks and can get rid of the chronic stress when making another payment transfer.
ZenBusiness is a SaaS vertical that helps SMBs to manage all legal and administrative issues from the moment of inception and throughout the whole life-cycle. Their clients wanted to connect their commercial bank accounts to ZenBusiness platform to simplify the process payments, accept wire transfers, and cash paychecks, and the company heard them.
Together with these financial services, the company integrated an expense management system, credit card payments, invoices, and other products that are linked to the clients’ bank accounts. As a result, ZenBusiness customers don’t have to worry about making payments through a third-party service and then transfer this data to the SaaS application.
ZenBusiness payments dashboard
New data acquisition and transparency
An opportunity to pool and leverage customer data for their benefit is a delicious icing on the integrated finance cake. Since your clients integrate deeply with your SaaS platform, you have enough data to provide them with personalized financial solutions such as credit score checks, loans, and payrolls.
For example, the above-mentioned Toast integrated loan service in its platform to help their clients increase cash flows and expand operations. The embedded lending service offers loans from $5,000 to $250,000, and the app uses customer data as information for the credit underwriting process.
Business loan application process in Toast
The company also provides customers with point-of-sale hardware and marketing tools, so it was possible to automate loan repayments according to a client’s current state of cash flows. The integration of the loan service made the credit scoring and repayment process faster and accessible for every customer at Toast platform.
Lower burn rate and account costs
When you integrate financial products into your SaaS ecosystem, you create numerous opportunities for your customers at minimal cost. You don’t need to spend any extra money on acquisition of users for your embedded fintech solutions as your target audience is already using your platform.
In such a way, First Dollar, a vertical SaaS providing health and check savings accounts for businesses employees, used a Treasury Prime application programming interface to provide their clients with virtual bank accounts for employees. The company takes the brunt of controlling, storing, and transferring money on its platform’s shoulders. An improved product experience and optimized operations helped First Dollar to beat incumbent rivals and cut their account opening costs by 90%.
Savings account in FirstDollar
Higher customer lifetime value
As embedded finance decreases customer acquisition costs, it automatically means that customer lifetime value (LTV) grows respectively. You already have a large customer pool and upsell integrated financials services to them, which means you earn more from each customer.
A vertical SaaS company Mindbody, integrated payments system to enable fitness clubs and spa resorts to pay for inventory directly from the app. Today, half of the application’s revenue comes from payments fees, which increases revenue and customer LTV as well.
Payments in Mindbody
Integrated fintech blessing in action: SaaS use cases
Integrated fintech solutions for vertical SaaS is a decisive trend, and more innovations are around the corner. But we can already see plenty of cases of what and how you can embed in your B2B SaaS platform.
Payment processing is the most basic yet vital fintech product that all SMBs need. You can integrate the payments system as a starting point of your fintech package and then expand on more sophisticated solutions. Your platform will earn extra revenue from charging a flat transaction fee plus percentage from every payment made within your system.
There are two ways to embed payments into your SaaS platform: cross-sell a third party service or build your own payment gateway. We highly recommend you to follow the example of our client, a SaaS development company, that decided to develop their own payment processor with us.
By integrating your custom payment gateway, you reduce transaction costs for your clients and fully control the security of payments as no external party interferes with your platform. And of course, you don’t have to share transaction fee earnings with anyone.
This practice is also pretty straightforward: you integrate a loan service provided by a third party or, if you have resources, build your own embedded loan product. Having enough customer data, you can run fast and little-hassle credit eligibility evaluations and, as a result, earn additional revenue from the interest paid by your clients.
If you use a third party loan service, you can monetize from this cooperation by charging this loan company a fee for bringing them your customer. Again, the case of Toast makes a perfect example of how integration of loan services can work with a vertical SaaS app.
Your customers have employees and may involve contractors and subcontractors in their daily operations. In any case, your software business can white-label virtual and physical banking cards for your clients’ staff.
You supply your customers with banking cards and earn from referrals and interchange fees while your clients enjoy simple and fast transfer of funds for various purposes such as inventory purchases, investments, employee benefits payments, and to name a few. For instance, a startup Synapse works as a white-lable card issuer to supply businesses with custom banking cards. It’s no wonder that vertical SaaS companies are one of their targets.
White-label card issuer startup Synapse
It’s quite possible that your clients need general insurance for their businesses and basic plans for their employees. Again, you can integrate these services into your SaaS platform by cooperating with insurance providers and earn money from charging the insurance company for every customer you bring them throughout your SaaS platform.
There are many companies like Kayna that already offer insurance products for integration into your platform, so you can expand your fintech offer with such third-party service with a little hassle involved. Your clients don’t bother themselves with looking for insurance providers, while you diversify your revenue streams.
In case your clients make payments and transfer money often, it makes sense to offer them virtual bank accounts embedded in your SaaS application. This financial product will be more complex than just a payment processor, once you have to lay groundwork for the whole infrastructure of core banking services.
For that reason, we suggest you integrating virtual bank accounts with the help of a Banking-as-a-service (BaaS) provider that will do all the boring work for you. You’ll earn from flat interchange fees plus percentage from a transaction’s amount.
Regulations and compliance
You can help your clients ditch legacy processes related to reporting and compliance with various regulatory policies. This type of financial product is relatively new, but already tamed with artificial intelligence (AI) and machine learning (ML) technologies to make background check, know-your-customer (KYC) authentication, and policy compliance automation fast and effortless.
You should be ready to spend a lot of money on such a solution. But the buzz around use of AI like ChatGPT is getting to a deafening volume today, which means you can actively upsell your core SaaS offer with an AI-powered regulations compliance product. Charge a fee for using these services or even create an additional subscription tier for customers who are likely to use policy compliance automation products often.
Payroll and taxes
If you have customers that don’t provide their employees and contractors with regular salaries or have remote teams, embedding a payroll product is another use case of embedded fintech in vertical SaaS. Making irregular payments or paying to employees who reside across the globe is a nightmare that tortures many businesses and their accountants.
On top of that, rewards, employee benefits, tax deductions, bonuses, and payslips are a piece of legwork that can be done under the umbrella of one payroll product. Integrate a payroll system (third-party or your own) into your SaaS application and earn extra income from transaction fees or upselling payroll features as an additional subscription tier.
Harness the opportunity with the trusted tech provider
Embedded finance is becoming the lifeblood of any vertical SaaS today. So it’s high time you take care of integrating financial services into your SaaS platform. And in case you already have a brilliant idea in mind, it’s the best moment to take it from a whiteboard and bring it to life.
You don’t have to worry about the technical aspect of financial service integration as you can always ask JatApp for help. Our company has been developing fintech solutions for various businesses since 2015, and only 1% of our clients don’t leave positive feedback about cooperation with us (but not negative, still).
Grab the opportunity of embedding fintech into your SaaS product in one click. We’ll get in touch with you to discuss the details of your project.