oftware-as-a-service is overtaking the industry. Whether it's payment processing, website development, or restaurant management apps, there's a SaaS tool that can manage it. The "vertical SaaS" sector, which has tripled in the last decade, is particularly significant. Vertical SaaS products give a comprehensive set of functions to firms in a certain industry, allowing them to scale quickly and efficiently. They do not require licenses in order to be more accessible and simpler to introduce.
Big IT businesses have mostly ignored (SaaS) Software-as-a-Service companies, anticipating that the returns would be insufficient to justify the required capital investment. As a result, these specialist businesses are forced to assemble a diverse set of SaaS solutions for general use in order to meet their business demands. In these specialized markets, there is a huge possibility to develop vertical software services that combine many business tasks into a single solution.
Everything began with the SaaS revolution.
In the 1960s, computers were both large and expensive. In actuality, few small businesses could afford a powerful machine, and "cloud computing" or "SaaS" (Software as a Service) was established. Back then, it was known as a "time-sharing plan," and it allowed firms to obtain processing power, according to literature.
Today, we see widespread adoption of SaaS models across a variety of verticals and sectors, with CRM being the most frequent type of SaaS. CRMs were probably first introduced around 2001, and this company had to overcome a number of challenges in order to prosper at the time. While data protection was a major concern, the "time-sharing scheme" was able to pass the risk aversion assessment of CFOs and CEOs because the data provided did not contain financial details.
We'll look at why fintech is powering the next development of vertical SaaS, why it's creating new vertical markets, and where and how different business models may be applied to fintech in this post.
Fintech changes the CAC and LTV equation
What is the LTV/CAC Ratio?
The terms "lifetime value" and "customer acquisition cost" refer to the value of a customer over time. The LTV / CAC ratio compares a client's value over the course of their lifetime to the cost of purchasing them.
This eCommerce statistic compares the cost of acquiring a new client to the worth of that customer during their lifetime. If the LTV / CAC ratio is less than 1.0, the firm destroys value; if the ratio is larger than 1.0, the business generates value, although more study is required. A ratio of greater than 3.0 is often regarded as "healthy," but this is not always the case.
Fintech models: Payments and Beyond
When you think about Fintech, you probably think of digital payments and loans. Though Paytm and PhonePe are the most popular digital payment apps, IndiaLends and Capital Float have increased consumer and small company loan access. Furthermore, traditional banks generally conduct business through loans.
FinTech can increase income per customer by 2-5 times, to the point where direct sales become cost-effective, allowing SaaS companies to serve more / new customers and enter markets that would otherwise be considered too small.
FinTech goes far beyond payments - vertical software companies should consider:
The potential for loans varies greatly depending on the type of loan, but it appears to be most successful in sectors that require a large upfront working capital investment and unequal investment, such as logistics/supply chain, transportation, consumer goods, food/agriculture, manufacturing, telecommunications, and advanced customers of industrial equipment.
Many vertical markets, however, may profit from virtual or actual cards. This is especially true in industries with a high number of contractors and employees that travel frequently or have unique spending requirements. For example, we're going to see a boom in card fintech for construction in vertical SaaS, allowing subcontractors to buy materials and equipment in the field rather than paying out of pocket or waiting for the general contractor to deliver them.
Vertical SaaS firms should also offer insurance to their customers. For example, a SaaS company that serves restaurants could give general liability protection insurance and employee benefits to its restaurant owners.
End users will benefit from having a place to keep track of their cash if they receive and make regular payments through the platform. Instead of making constant bank transfers, they will have a place to keep track of their money.
Background checks also are a possible approach. This could be perfect for regularly employed industries (e.g., retail, restaurants, health/fitness/cosmetics, construction) or for agents who really need to check certifications on a regular basis (e.g. insurance). KYC checks are another strategy for enforcing the law (know-your-customer).
Payroll & Benefits
This particularly persuasive in areas where employment or pay is irregular, such as contracting or project-related work, where payment is based on % finished rather than a fixed income.
The banking industry is evolving due to the adoption of new technology and players, as well as a favorable regulatory environment (the PSD2 Directive). FinTechs and TechFins have facilitated the introduction of new services and altered the way clients interact with financial institutions to satisfy their demands. FinTech's landscape is always shifting in the industry. Various business value ideas are making their way into the financial services industry, ranging from improving customer experience to providing a time-to-market structure for banks to innovate goods, procedures, and platforms, increasing cost efficiency and finding a "partnering on order" to ease banks' regulatory burdens. Many banks' businesses are shifting their value chains, and bank business models should adapt as well.
Jumping to the Conclusion:
We worked with Glimpse, a software business that analyzes millions of internet signals to discover emerging trends, to figure out what has changed in the financial realm — as well as weird and remarkable patterns of consumer behavior in general. We used to track engagement, retention, and financial indicators to assess growth at a16z; in this post, we look at growth potential through a different lens: public online activity. Clicking, reviewing, discussing, commenting, searching, tagging, downloading, sharing, and purchasing are all things that people do. When we examine these acts using all keywords, we can better understand how the pattern is progressing.
And this is just the start. As more firms integrate financial services into their SaaS offerings, we look forward to seeing additional markets open and assisting the next generation of entrepreneurs to reach even greater heights. We're excited to utilize our SaaS and fintech knowledge to help the next generation of vertical software firms fulfill their huge potential as investors.