Financial products have historically been created and distributed as “one-size-fits-all” solutions. This strategy has failed to address the needs of unique customer and business segments. Jillian Williams, partner at Cowboy Ventures, assesses how a new generation of tailored SaaS solutions can wedge into underserved industries and build diversified revenue streams via financial add-ons. This “SaaS-meets-fintech” thesis has the potential to reach across many industries.


Why is this move to verticalized SaaS with fintech an important thesis moving forward?

  • Tech today has failed to tap into market verticals that, while complex, offer immense opportunity for fintech to provide necessary tools for many of these businesses. “More antiquated and complex verticals like construction, healthcare, and SMB have been left behind by technology,” says Williams.“The massive revenue potential of fintech products within each vertical makes the scale of addressable markets even larger than they would be with SaaS business models alone.”
  • Financial services add-ons can create massive, and extremely sticky revenue streams, while software itself may be more susceptible to churn. “Financial products are high-frequency and sticky,” she says. “This can have a big impact on revenue potential — sometimes up to 8x versus the revenue of the software alone. The future potential revenue from fintech add-ons can enable software companies to lower the price of a vertical SaaS product, or even make it free.”
  • Up-and-coming generations of tech-savvy business leaders with unique knowledge of the individual industries will drive continued adoption of vertical fintech. “COVID was a huge accelerant for many fintech products in terms of recognition and adoption, but there is still a lot of room to grow. As consumers who are more technologically native continue to age and lead businesses, we expect B2B fintech adoption to continue and accelerate.”

Financial products are high-frequency and sticky. This can have a big impact on revenue potential — sometimes up to 8x versus the revenue of the software alone.

Jillian Williams~quoteblock

What are the applications and use cases that might be attached to this thesis?

  • "This trend can reach into virtually every sector," says Williams. “We are most excited about innovation in the more ‘unsexy’ industries traditionally overlooked by technology. These include trucking, construction, food and agriculture, and more. These industries tend to have archaic infrastructures, a large number of stakeholders, and a large proportion of unstructured data that often goes to waste.”
  • Two additional examples spotlight how fintech entwined with SaaS, in a B2B context, can have an impact even in categories where consumers are the ultimate end user:

    • The gaming sector can monetize micro-transactions, peer-to-peer payments, and more. “Gaming has evolved beyond GameStop and consoles,” says Williams. “Mobile game revenue is expected to cross $100B in 2023. Video games are both entertainment and social hubs and gamers’ unique spending habits pose a host of opportunities. New companies could offer solutions such as improved gaming rewards, in-platform P2P payments and micro-transactions, which would lead to better engagement with payers and earners within or beyond the gaming platforms.”
    • Fintech products are just beginning to address opportunities in the gig economy and creator ecosystems. “The continued growth of the gig economy and the rise of the creator economy expanded ways for consumers to earn and manage their ‘atypical’ income,” she says. “While companies like Catch, Stir and Creative Juice specifically focused on benefits and managing finances for creatives, under-explored opportunities remain as this segment expands rapidly, including payment infrastructure, underwriting, and financial planning for creators with unsteady incomes. Meanwhile, the growth of the 1099 worker is not a fad, and the trend creates demand for financial services that are not mediated by the traditional employer.”

What are some of the potential roadblocks?

  • Companies that build out revenue-generating products only after offering free software to capture user bases can sometimes get into trouble. “It’s tempting, but dangerous, to offer free SaaS to lower the barrier to adoption, assuming future revenue will come from fintech,” says Williams. “We believe it’s important for customers to show the need for the product by their willingness to pay, and subscription revenue can blend into an attractive revenue mix. For example — today, Toast and Shopify’s subscriptions respectively make up 17% and 29% of overall revenue.”
  • Financial services products can have thinner margins than software. “It’s important to note gross margins for fintech products can be lower than SaaS, depending on the product,” she adds. “For example, Toast and Shopify respectively make 82% and 79% gross margins on their software-subscription businesses but only 20% and 69% on their fintech solutions businesses.”
  • There are always customer-acquisition hurdles to overcome. “Even when financial products or services could save time, money, and headaches, it’s expensive to convince skeptical customers to switch from existing services. Lack of trust, confusion, and cost-to-acquire can sometimes make the whole endeavor seem like it’s not worth it for either side.”


saidbyblock~via email correspondence
Jillian Williams

Each industry is unique. This creates the need for vertical-specific fintech solutions, and vertical SaaS companies with end-to-end offerings have an opportunity to meet that need.

The best vertical SaaS companies build on deep customer knowledge, solve a quantifiable pain point, deliver quick time-to-value, and over time become a trusted ‘system of record’ embedded in daily or weekly business processes for key employees of a specific type of business. These companies are also often built by insiders with a unique perspective on a vertical’s inefficiencies and opportunities for improvement. These SaaS platforms become deeply integrated into businesses and get access to invaluable insights and data.

In our view, the best vertical SaaS companies will continue to build their offerings upon this deep customer-knowledge and data moat, and increasingly that product suite will include fintech products.

Upselling financial products via vertical SaaS platforms circumvents the high friction and high customer acquisition costs that typically characterize fintech sales.

Today, most of these SaaS companies start by offering a payments solution and often stop at working capital or invoice-financing products. However, the types of fintech products offered can scale far beyond that. This can include additional financing products, credit cards, insurance, etc. There is flexibility based on what the customer needs are and what each product can contribute, from a revenue perspective, for each specific SaaS business.

Toast and Shopify are model success stories in this space. They both began as SaaS companies and increasingly developed into fintech companies. Based on their success, some SaaS companies planning to monetize through fintech are starting to add key fintech-experienced hires early on, given the massive revenue potential from fintech.

We are excited about vertical SaaS that becomes a one-stop-shop in an industry, and is then monetized by fintech. These platforms require deep sector knowledge and often solve several challenges for businesses at once, growing to become effective systems of record for specific day-to-day workflows. Being indispensable in this way will be especially important as in the coming years businesses will look to cut back on SaaS spending and reduce the fragmentation of their spend across multiple vendors.


Q: How does the recent downturn in technology investing impact this thesis?

A: Fintech is a massive industry that has implications in almost every sector. In many B2B contexts, customer awareness of fintech’s potential is still in the early innings. Financial services for businesses remain antiquated, and legacy rails are continually improved on and, in some cases, are already being replaced.

While markets may be rocky, we still see a ton of room for new products in the fintech landscape. There is still a lot of space for innovation, despite the uphill climb suggested by some macro perspectives.

Q: If public-market investors have fallen out of love with public fintech companies, what does that mean for startups and founders interested in fintech?

A: We think it’s a great time to be building in fintech, especially for founders with more pragmatic valuation, raise, and burn-rate expectations. Two aspects of company building will be more crucial than ever for fintech founders in the coming year. These are: finding a wedge into a market and overall distribution.

Two aspects of company building will be more crucial than ever for fintech founders in the coming year. These are: finding a wedge into a market and overall distribution.

Jillian Williams~quoteblock

One thing we’ve learned in fintech is, it is hard to compete with traditional financial institutions who have built brand and trust for decades and have massive marketing budgets. That’s why a smart distribution strategy has been and will remain key for successful fintech companies. You’re not going to outspend GEICO. We like companies that find a unique wedge for customer acquisition, like Affirm’s success via point-of-sale merchant partnerships, versus direct-to-consumer acquisition.

Others, like Shopify and Toast, have used traditional vertical software to address a pain point and then upsell and monetize via financial services. This distribution model is extremely sticky and enables revenue expansion without massive marketing dollars.

Brand and trust are even more crucial in fintech than in other sectors because you are dealing with a consumer’s or a business’s money. Being recognizable and synonymous with trust can make or break a company.


An adjacent opportunity is embedded fintech in non-tech businesses. Look for non-tech companies to announce and embed consumer-oriented financial products. “We will continue to see the integration of consumer finance into other industries that provide high value and a better experience for consumers,” says Williams. “This allows the underlying businesses to access additional revenue streams and use alternative customer-acquisition methods. Non-fintech companies — like retailers, education, or healthcare companies — will integrate financial functionality into their offerings.”

In Web3, models that integrate DeFi with traditional finance are worth watching. “DeFi UX leaves a lot to be desired and creates many barriers for user adoption,” says Williams. “As the future of Web3 continues to evolve, we are currently most bullish on areas that connect traditional finance and DeFi. With the new wave of traders, there are also opportunities around tools to better serve them, such as solutions that help track the impact of trades — crypto and traditional trading— on taxes.”

In the background, there’s a growing need for innovative solutions addressing rising consumer debt. “The pandemic has changed financial dynamics unexpectedly,” she adds. “With lower consumer spending, compounded with expanded unemployment benefits, stimulus checks, along with paused student loan, mortgage, and rent payments, many Americans had more disposable income and a higher personal savings rate than in the previous 60 years. Subsequently, consumers have started paying down costly debt, especially credit cards, at a higher rate than usual. As more solutions arise giving consumers access to credit, we need solutions that better guide consumers and help them navigate growing sources and amounts of consumer debt.”


The 2022 EVC List honors the top 50 rising starts in venture capital. Terra Nova’s Thesis Brief series showcases each investor’s insights and category expertise.

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