YC Combinator’s Angela Strange’s words turned out prophetic – Every company will be a fintech company.
According to the prolific Silicon Valley venture capitalist, embedded finance has the potential of boosting customer value by 2-5x. Today, about 90% of public SaaS companies have subscription-based revenue models. Embedded finance is an ever-growing trend of SaaS companies embedding financial products beyond payments – from loans to cards to insurance – directly into their vertical software. A trend commonly known as embedded finance, a trend that could unlock a market opportunity worth billions of dollars.
If your live or work in a developed economy, you may have already experienced embedded finance in your day-to-day life. Clubhouse, an audio streaming app, recently announced to embed payments into to the user journey, enabling users to send donations to content creators with the click of a few buttons.
Why would non-finance entities embed financial product offerings?
Let us assume the average vertical SMB customer spends about $1,000/month on software and services. Of that, $200 per month will typically be on traditional software (e.g., ERP, CRM, accounting, marketing), and the rest on other financial services (e.g., payments, payroll, background checks, benefits). In a traditional vertical SaaS business, the only way to capture more revenue from the customer was to upsell software. This left the $800 per month potential revenue from financial services to other vendors.
In our hypothetical above, a vertical SaaS company that adds, or even embeds, financial products, can potentially 5x the revenue per customer from the $200/month software spend to the full $1000/month for software and services. Lowering CAC while increasing LTV makes a direct, inside sales go-to-market possible where it previously wasn’t, meaning SaaS companies can acquire new customers that would otherwise have been too expensive. At >$5,000 average revenue per customer, vertical SaaS companies can afford to hire an outbound inside sales team instead of relying on less costly channels, like word of mouth and paid acquisition.
In practice, embedded finance is still a pipedream for much of the global population.
A recent study by Mastercard reveals an opportunity whereby around 500 million people currently have no access to a mobile phone. In those emerging markets, consumers currently experiencing first time mobile adoption will also be exposed to financial inclusion for the first time, in a mobile first environment.
Traditional financial structures, be it insurance, asset management or loan providers, leave this huge market potential untapped as they simply have no way of reaching people without a bank account. Many of these consumers, however, have been using digital wallets, but these wallets typically don’t have regulatory authority to issue loans or insurance products to their users.
The idea of short-term blockchain-based yield products (DeFi), peer-to-peer lending and borrowing and more may present a viable option but current complexity and perception prevents mass adoption.
Verso solves this ‘three-body’ problem elegantly, enabling various non-financial actors embed financial products on top of their primary product offerings, in a compliant manner. We are a decentralised marketplace for centralised financial services providers.