Key Takeaways
- • Andreessen Horowitz argues that adding fintech to vertical SaaS can increase revenue per customer by 2-5x versus a standalone software subscription, according to the firm's analysis of the model.
- • Vertical SaaS markets tend toward winner-take-most dynamics, letting the dominant industry software provider sell both software and financial products to its existing customer base.
- • Embedding financial services directly into software, rather than reselling third-party products, is presented as the route to higher margins, stickier products, and proprietary underwriting data.
- • Payments are the entry point for embedded fintech, with payfac economics typically requiring roughly $50M or more in gross merchandise value to justify the set-up cost.
- • Fintech lowers or holds customer acquisition costs while raising lifetime value, enabling direct inside-sales go-to-market motions that were previously uneconomic.
Summary
Andreessen Horowitz's analysis argues that fintech is driving the next phase of vertical software. The firm notes that about 90% of public SaaS companies and the 2019 Forbes Cloud 100 have subscription-based revenue models, and that new fintech infrastructure now allows SaaS businesses to add financial services alongside their core software. According to the piece, this can increase revenue per customer by 2-5x and open markets that were previously too small or too expensive to acquire customers in.
The firm contends that vertical markets are particularly well suited to this model. Customers in horizontal markets often use multiple vendors, while vertical customers tend to consolidate around one purpose-built solution once it proves its value. Veeva, a pharma CRM, is cited as holding more than 50% market share, and ServiceTitan, which began with software for home services businesses, has since layered on payments and lending. Early vertical SaaS companies such as Mindbody, Toast and Shopify typically began by reselling financial services, primarily payments, but are now embedding loans, cards and insurance directly into their software.
The analysis also argues that fintech changes unit economics. Mindbody is cited as earning roughly $250 per customer per month, with payments meaningfully increasing lifetime value without materially raising acquisition costs. At more than $5,000 average revenue per customer, the firm argues, vertical SaaS companies can afford outbound inside sales teams. Some companies, such as Silo, an operating system for wholesale food distributors, do not charge for software at all and monetize through fintech products instead.
On business models, the piece distinguishes reselling from embedding. Reselling, such as Mindbody's referral arrangement with Lending Club, is easier to launch, but embedding yields higher margins and a more seamless experience, and lets the software provider use proprietary data to underwrite risk. Payments are the most common starting point. Becoming a payment facilitator can capture 0.75-1% of transaction volume, but the firm notes it generally requires around $50-100M in gross merchandise value. Shopify is cited as an example of a company that moved from reselling to a payments integration, leveraging Stripe's API, and later began offering lending using its merchant data.
The firm contends that vertical markets are particularly well suited to this model. Customers in horizontal markets often use multiple vendors, while vertical customers tend to consolidate around one purpose-built solution once it proves its value. Veeva, a pharma CRM, is cited as holding more than 50% market share, and ServiceTitan, which began with software for home services businesses, has since layered on payments and lending. Early vertical SaaS companies such as Mindbody, Toast and Shopify typically began by reselling financial services, primarily payments, but are now embedding loans, cards and insurance directly into their software.
The analysis also argues that fintech changes unit economics. Mindbody is cited as earning roughly $250 per customer per month, with payments meaningfully increasing lifetime value without materially raising acquisition costs. At more than $5,000 average revenue per customer, the firm argues, vertical SaaS companies can afford outbound inside sales teams. Some companies, such as Silo, an operating system for wholesale food distributors, do not charge for software at all and monetize through fintech products instead.
On business models, the piece distinguishes reselling from embedding. Reselling, such as Mindbody's referral arrangement with Lending Club, is easier to launch, but embedding yields higher margins and a more seamless experience, and lets the software provider use proprietary data to underwrite risk. Payments are the most common starting point. Becoming a payment facilitator can capture 0.75-1% of transaction volume, but the firm notes it generally requires around $50-100M in gross merchandise value. Shopify is cited as an example of a company that moved from reselling to a payments integration, leveraging Stripe's API, and later began offering lending using its merchant data.
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