Johannes Koeppel is CEO and Co-Founder of WeTravel, a U.C. Berkeley MBA graduate, swiss native and experienced, well traveled entrepreneur.
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In 2015, we witnessed the “Unbundling of Craigslist” as disruptor businesses like Etsy and StubHub grabbed the advertisement website’s customers and commanded their business in their specific marketplaces. For the crafters, Etsy provided direct-to-consumer business for local artisans; for ticket sales, StubHub connected concertgoers, sports watchers and theatre attendees with ticket exchange and resale for buyers and sellers and it is now one of the world’s largest ticket marketplaces.
Disruption through tech innovation is nothing new, but as if we’re headed back seven years, I think we’re witnessing the unbundling of traditional payment giants by vertical SaaS (software-as-a-service) companies. For the traditional payment companies such as PayPal or Square—who, at one time, were disruptors to traditional bank models—vertical SaaS in the financial technology (fintech) space is stealing market share of the small to medium-sized businesses that contribute over 50% of GDP in high-income countries worldwide.
I think the reason is simple: Many SMBs don’t want separate payment solutions. They want payments integrated into the software they use to run their business. For the vertical SaaS companies that provide these “all-in-one” software to the SMB, payments are usually the best way to monetize.
For example, in the wellness space, Mindbody provides an integrated booking and payment platform, connecting the world to wellness and businesses to an easier-to-manage booking and payments system. Restaurants are using Toast, an end-to-end platform to process transactions, record purchased items, manage payroll and more. And I am the CEO and cofounder of a vertical SaaS (integrated payment) platform in the travel space.
For vertical SaaS businesses, much of their revenue comes from financial services, unbundling key API providers like PayPal; however, for their users, the simplification is increasing revenue and customer satisfaction beyond payments. Here’s how.
Industry-Specific Concerns
Vertical SaaS often provides solutions tailored to a specific industry, while the large payment providers have to offer solutions that fit a variety of industries (often focused on traditional e-commerce). Expertise in an industry—especially when it comes to end-to-end solutions—are imperative to an SMB’s business success. Complications often arise when traditional payment providers can’t satisfy the exact needs of the niche customers. Vertical SaaS alleviates that pain point.
Improved Operations
Internally, especially during the pandemic, businesses reworked and reduced operational capacities to bear the brunt of economic downturn. Ultimately, many businesses looked to improve operations through SaaS tools that increased productivity and reduced additional need for headcount. While APIs require developers to integrate into existing systems, vertical SaaS platforms offer integration without developers.
Increased Revenue
Not only does vertical SaaS typically charge less per transaction than legacy providers—which can charge about 5% per transaction fee thanks to their market dominance—with the same security and flexibility benefits, but niche vertical SaaS can help businesses reach a tailored audience that is targeted, therefore has a higher conversion rate and scalability prospects. With better customer attraction and retention, plus fewer transaction fees, businesses are able to scale and save to increase revenue.
Better Customer Service
Yes, vertical SaaS can be more complicated than the simple invoices from payment providers; however, the entire process is typically managed through one system, simplifying data, payments collection and payouts. Beyond frictionless check-out experiences and ranging payment options—which, ultimately, is what APIs offer customers—vertical SaaS can reduce inefficiencies beyond payments, including compliance with industry standards, seamless and attractive payment pages and industry-specific materials.
The Takeaways For Business Leaders
Vertical SaaS is highlighting tech's ability to command a niche—but large—market within its expertise. Instead of creating a product that appeals to all, find a market that has depth and maturity, and look for what's missing within that market. Is it operational, like bookings and software? Or is it front-end services? Now, more than ever, even traditional businesses have moved their services online, so finding the "why now" to your product's offering is critical to its success.
For businesses, it’s remarkable to see the plethora of industry-specific vertical SaaS solutions that offer better business and potential for growth and saturation within your market. Looking purely at volume, traditional payment providers will likely still see plenty of growth. But in terms of market share, vertical SaaS companies may give them a run for their money. Ahead in 2022, I expect to see a rise of businesses shifting to vertical SaaS and away from traditional payment providers.
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