In my blog post "The financial sector boundaries are blurring" (https://bankloch.blogspot.com/2022/11/the-financial-sector-boundaries-are.html) I explored the evolution where traditional financial companies are expanding their offerings with adjacent services, while companies from other sectors are also offering more and more financial services. As a result, the boundaries of the financial sector are blurring.
Although this blog focused primarily on large players striving to become super-apps (or semi super-apps) and providing end-to-end journeys, there is an equally fascinating narrative to explore about SaaS vendors offering solutions for a niche market.
In my other blog "Every neobank its own niche" (https://bankloch.blogspot.com/2022/10/every-neobank-its-own-niche.html), I discussed how certain neo-banks concentrate their efforts on specific customer segments. This deliberate focus enables them to provide highly targeted value-added services to their target audience. As a result, these niche neo-banks naturally extend their offerings to include adjacent services that deliver additional value to their customer base, giving them a competitive advantage on universal banks.
On the other end of the spectrum, we have SaaS (software technology) companies, that offer specialized platforms for specific professions or activities, such as platforms for online courses, eCommerce, 2nd hand goods, catering services, charity services, accounting information exchange… Typically, these SaaS companies begin with a specific feature and gradually evolve into comprehensive Enterprise Resource Planning (ERP) systems tailored for that specific profession or activity, primarily serving small businesses.
Once these SaaS companies achieve a certain level of market penetration and establish a comprehensive service offering, a logical next step is to initiate and accept payments, as the system is ideally positioned for this, i.e.
Having the incoming invoices in the system allows to have a good view of all costs. Once those invoices are in, it is only logical, customers will ask to be able to pay them (e.g. via PSD2 PISP integration).
As the system will manage all professional activities, it is very logical, it also generates the invoices, but then a logical next step is that those invoices can be immediately paid and that the payment status is tracked.
This means payments get integrated in the platform.
Following this integration, the natural progression involves keeping funds directly within the system instead of relying on traditional bank accounts. By having their own bank accounts, these SaaS companies can streamline customer onboarding processes and analyze incoming and outgoing payments more efficiently. This pivotal moment marks the SaaS company’s transition into a banking role. However, since most SaaS companies are not inclined to obtain banking licenses, they typically achieve this through Banking as a Service (BaaS) offerings. In simple terms, the BaaS model empowers SaaS companies to provide banking services without the need to become licensed banks themselves.
Finally, once funds are stored in these accounts, users naturally seek ways to consume them. This necessitates the issuance of payment cards. Moreover, leveraging the detailed business information available, the SaaS company can offer highly competitive and tailored financing products that other entities cannot match. With these pieces in place, the SaaS company effectively transforms into a comprehensive niche neo-bank.
Let us explore a few examples of such SaaS companies:
One prominent example is Shopify, which is offering more and more financial services for their eCommerce customers, which have their webshop built on top of Shopify. Example services are Shopify Balance (a platform that gives merchants an account in which they can manage their cash flow, pay bills and track expenses) or Shop Pay Installments (a buy-now, pay-later option).
Uber, originally a ride-hailing platform, now offers financial services not only for taxi payments but also for the benefit of taxi drivers. Offerings such as Uber Cash and Uber Pro Card exemplify this.
Accounting platforms play a crucial role in facilitating communication between accountants and their customers. Initially, their focus was on enabling the exchange of invoices and expense notes with accountants and providing various financial reports and insights generated by the accountant. A natural evolution for these platforms is to facilitate invoice payments (e.g., via PSD2), automate the retrieval of bank account information for matching cash movements with invoices and expense notes, and exchange real-time financial data with banks to expedite credit origination.
Clearly the financial frontiers are blurring, as financial services become deeply embedded into the customer journey. Moreover, banking services are increasingly accessible to companies of all types, thanks to partnerships with BaaS providers.
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