How Embedded Finance Can Help Your Vertical SaaS Company During a Recession
The dreaded “R” word is making the rounds as the stock market and consumer spending plummet. Recently, Citigroup, Deutsche Bank, and Wells Fargo put the odds of a recession at about 50%. If you’re a B2B SaaS company, how do you minimize the shocks from a possible recession and proactively secure new revenue streams for the long-term?
An Accenture survey identified embedded finance as an area of opportunity for B2B digital platforms, as 41% of small and medium-sized businesses (SMEs) reported they would be interested in using banking services from a digital service provider, and 44% would prefer it in partnership with a traditional bank, and not only that, they would be willing to pay more for those services.
B2B SaaS companies stand to reap benefits. Research finds that when SaaS companies embed financial services at the point-of-need by removing payment friction and inefficiencies, they can increase their revenue 2 to 5-fold and lower the cost of customer acquisition (CAC), while increasing the customer lifetime value (LTV).
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Why does Vertical SaaS need BaaS?
Banking as a service (BaaS) brings digital platforms and banks together to offer tools that can help protect a business from the inside out. BaaS providers help non-banking businesses to embed financial products into their apps. This is done through API software, which connects the enterprise with a partner bank. The BaaS API is integrated directly onto bank cores, and allows enterprise partners to plug in on the other end.
Without an API, or “application programming interface” integrating with a bank would be very difficult. Many banks operate on antiquated systems that can make the launch of financial services very slow and cumbersome without the help of a BaaS provider.
“It’s capital and resource-intensive to work directly with the bank. Using a BaaS provider really eliminates that concern and it allows you to also scale your product over time.” Remy Carole, chief operating officer at Treasury Prime explained.
“If you're working with a BaaS provider, and with Treasury Prime specifically, you're comparing two weeks of an engineer or a team of engineers’ time versus what traditionally takes six months to 18 months by going and doing a direct bank integration.” - Remy Carole
Here’s how a B2B company can leverage BaaS to add new features to bolster your revenue in any economic climate.
What is vertical SaaS?
Vertical SaaS companies are industry-specific software-as-a-service companies. Think accounting software targeted at small and medium-sized businesses, a cloud system built for insurance providers, or a management platform for contractors and construction companies.
In contrast, horizontal SaaS is much wider reaching and caters to a broader audience. For example, an online checkout widget that can be integrated into any e-commerce brand’s website or a general human resources platform designed for any type of business.
Due to the nature of vertical SaaS, the market share opportunity is smaller than horizontal SaaS. However, there are benefits to being a vertical SaaS provider:
- Full compliance and adherence to industry-specific requirements can translate to a stronger customer loyalty
- Lower spend on marketing due to smaller target market
What’s in it for vertical SaaS companies
The opportunity for vertical SaaS providers when it comes to BaaS and embedded finance is in leveraging financial services to meet end-users at their point of need and scaling with the businesses that use your platform.
“BaaS really helps create a more seamless experience for SaaS customers, whether it's creating a world where they don't have to switch context to make a payment, or use some other older technology that is more related to banking.” Carole explained. “If they can do everything in-app, it creates an experience for those customers that's far more pleasant and that is also stickier.”
Properly partnering with a BaaS provider like Treasury Prime affords vertical SaaS companies the ability to further own a micro-segment, innovate their services and products at an unprecedented speed, and potentially convert customers who currently use a more generalized horizontal SaaS product.
1. Reduce payment friction
Just as consumer behavior changes, by proxy, so do business operations. Take that construction company platform for instance. Originally, that platform may have provided a way for general contractors to bid on jobs, process invoices, develop budgets, etc. With a BaaS provider, this platform could offer their customers white-labeled debit cards and individual wallets to act as an ad hoc bank. Contractors could get paid faster, have a dedicated card tied to a rewards system.
To get an idea of what embedded finance could look like for a business, check our our video:
With Treasury Prime as your BaaS provider, vertical SaaS would have the ability to embed financial services like account opening, card issuing, ACH wire payments, mobile check deposit, and more.
And Treasury Prime’s growing network of banks (the largest of any BaaS provider) means that these financial services can be launched with a handpicked partner, which is something not to be overlooked especially if you work in an emerging industry like cannabis or crypto.
“Banking-as-a-service providers bring not only expertise on the technology they provide, but also on the suite of other products that a SaaS company may need to implement to gain the competitive edge,” said Nick Berman, head of embedded finance sales at Treasury Prime.
2. Gain and leverage data
Working with a BaaS provider makes it easy to delve into customer data for product usage insights. With a BaaS provider like Treasury Prime, our customers can look into money movement and transactions in real-time for their end-users to understand how they’re using your products.
Why does this matter? Data allows a SaaS vendor to be predictive and proactive in how they interact with their customers and can inform how to evolve their product and service offerings.
Shopify provides a great example. By tracking transactions of the vendors who use its e-commerce platform, it can tell if a business is in a position to grow. With its Shopify Capital offering, it can provide a cash advance to qualifying businesses for a 10% remittance rate from future gross sales. This is done without the traditional need for filling out formal applications or meeting with a loan officer. Without insight into their data, Shopify may not have known this was a service fitting the needs of their growing customers or may have launched the service without proper lending parameters (that is, lending to customers who may be high risk at paying back the advance). Since launching Shopify Capital, shops that received cash advances increased sales by an average of 36%.
3. Lower burn rate
Vertical SaaS companies speak to a very specific audience and need to retain a competitive edge against the broader horizontal SaaS companies that may target the same audience — especially as vertical SaaS companies are equipped with a smaller budget and more limited runway.
To remain competitive, vertical SaaS providers need to operate their business as efficiently as possible to pass on the savings of their services to their end-users.
Partnering with a BaaS provider like Treasury Prime can lower costs significantly in a couple of ways:
- Standing Up Programs: Treasury Prime has dedicated customer success teams that can help launch new products, programs, and services for our customers without the need for the enterprise to increase headcount or dedicate extra resources.
If your platform wants to move forward with launching a card program, Treasury Prime would take care of procuring the required Bank Identification Numbers as well as facilitating card design, testing, and production.
- Scaling with You: Treasury Prime’s pricing is designed to grow alongside its customers. As a company grows, the cost to use Treasury Prime’s software gets less expensive at scale.
“So you can start smaller without having to commit to something that's extremely large and you can slowly pace yourself out to make sure that it's a more controllable expense,” Carole says. “All the benefits of having an embedded finance product in vertical SaaS creates a stickier product and it reduces operational cost. It's really about increasing efficiency as a business.”
4. Lower Account Costs
Embedded finance can also improve the economics of a SaaS provider, reducing the cost to onboard new customers.
Because embedded finance enables financial services to be operated in-house, there’s no added cost of bringing on (and continuing to pay) outside vendors. There’s also no need to hire additional employees to manage these vendor relationships even as the customer base grows. And because these financial services are being facilitated by a BaaS provider like Treasury Prime, accounts can open at a lightning fast pace, growing topline revenue and growing it quickly.
First Dollar, a fintech working with businesses to empower their employees to more easily use their health benefits, reduced their account opening costs by 90%. By using Treasury Prime’s API, First Dollar was able to find a banking partner that allowed them to change the way they stored and moved money, giving them more control over their finances and the services they provided. Taking the financial offerings under their control, First Dollar was able to focus on not only improving the user experience for their customers but cutting down on any operational noise to open accounts quicker and cheaper.
5. Increasing customer lifetime value (LTV)
Vertical SaaS companies’ customers likely use them because they fulfill a specific need. However, SaaS competing companies are innovating all the time. Working with a BaaS provider can mean getting to market sooner with an industry-unique service.
Not only do these new services make a product more engaging and customer-loyal but it makes those customers even more valuable. As a captive audience, a SaaS company enabled by a BaaS provider can sell new offerings to its existing customers at no extra acquisition cost. And that model could take different shapes depending on the needs and operations of that SaaS provider. It could be a freemium model or a subscription model for instance. As your customers grow, so do you.
Integrating with BaaS
Just as vertical SaaS companies have specific markets, they also tend to have specific hindrances that can make it difficult to grow and meet the changing needs of the businesses they serve. Here’s how a BaaS provider like Treasury Prime can navigate each of these potential roadblocks.
An Established Tech Stack
Tech stacks for SaaS companies are subject to change for a variety of reasons, like changing vendors, bringing on new partners, or altering the nature of the service or product. Modifying a tech stack, and essentially the operations of a business as a whole can be a huge undertaking.
The good news is that Treasury Prime is nimble and can fit with existing tech stacks easily. There’s no need to integrate directly with a bank’s antiquated tech. That’s because Treasury Prime’s API software is a layer built on top of an existing product. This means that a SaaS provider’s desired financial services can get to market faster — within weeks instead of months — and even allow for SaaS providers to switch banking partners easily with little to no lag in business operations. Developers will work in tandem with Treasury Prime on the integration, but no overhaul of the stack itself is required.
“Treasury Prime’s modular approach and flexibility allows software companies to turn on the most important financial products given a software company’s customer base and needs,” Berman said.
A world-class API software is only useful if it’s being leveraged properly. That’s why Treasury Prime continues to invest in a team whose main responsibility is the success of our customers.
We understand that vertical SaaS companies target niche markets and may need guidance and advice on how to best find and convert leads (and retain customers in a highly competitive market). What financial services would make a product stickier, what is the timeline for launching a specific service, is there a bank that can provide a financial service we’re looking to launch?
These are all questions that a strong BaaS provider should be able to answer. With Treasury Prime, we not only have a team of banking and finance veterans but direct relationships with many banks.
“SaaS companies should also look to BaaS providers who facilitate a direct bank relationship as the banking partner can bring a lot of value and advice around things related to compliance, fraud mitigation, and program management,” Berman explained.
And because Treasury Prime has direct relationships with the banks that our customers integrate with, it makes planning and developing new financial offerings that much easier for both parties. This relationship also empowers SaaS companies to create a better end-user experience. With expert guidance at the ready, a vertical SaaS provider can innovate and adapt to their specific market’s needs at any speed they want.
Getting Started with Treasury Prime
If you’re interested in learning more, we’d love to hear from you. The process of integrating with Treasury Prime is completely hands-on. Contact our team to get even more on how Treasury Prime can open up your vertical SaaS business’ untapped growth.