Vertical SaaS is bifurcating into two distinct approaches – and one approach will dominate.
Joshua Silver (Founder & CEO of Rainforest) is joined by Ari Myers, Head of Commercial Strategy at Kanmon, to talk about the synergy between embedded payments and embedded lending, why the next generation of SaaS platforms will need to be fintech-first to stay competitive, and how to avoid the most common fintech fails.
They covered:
- Two types of SaaS companies that are emerging, and how to be on the winning side.
- The non-negotiable prerequisite for embedded fintech success (hint: it’s not the product)
- How to activate your GTM org with sales incentives, quota retirement, new demo patterns, and more
- The “trifecta” of execution: executive sponsorship, cross-functional ownership, and departmental accountability
- Why aligned incentives between fintech providers and platforms create a win-win-win for SaaS companies, partners, and their end users
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Joshua: Hey everyone, and welcome to another episode of the Payments Strategy Show. I’m Joshua Silver, founder and CEO of Rainforest. We help software platforms embed payment processing into their application to increase profitability and improve customer retention. I’m here today with Ari Myers, who is the head of commercial strategy at the embedded lending provider, Kanmon. Welcome to the show, Ari.
Ari: Thanks Joshua, great to be here, looking forward to it.
Joshua: Well, let’s jump right in. Tell us a little bit about your background. How did you get into embedded fintech? Bear in mind, on this show, we talk a lot about payments. Lending and finances is certainly really closely related to payments. So I’d love to hear how you got into this and how you think about fintech from an embedded perspective and lending as it relates to payments as well.
Ari: Yeah, so I got into embedded fintech very intentionally. I actually watched the trend. Coming from an operator background in SaaS, about 15 years ago, it was all about solving the point solution for your customer. There’s been an evolution over time into the vertical SaaS world, where you’re thinking more comprehensively about the customer. What are they accomplishing? What business are they running? And as a result, it sort of seemed like a no-brainer to me for it.
Fintech and particularly embedded fintech solutions to be part of the picture going forward. My strong thesis is that within the next three to five years, the surviving vertical SaaS platforms are all going to be fintech businesses as well.
Joshua: Yeah, that’s interesting. I know, a lot of guests I have on the show and a lot of folks I know kind of fell into payments. Maybe they worked, you know, in a first job in support or sales for payments. You know, you really were pretty intentional. What are some of the other things that you saw that led you to double down and say, this is where I want to be?
Ari: Yeah, so my big step coming out of a, so let me back up a little bit. So my first exposure to payments was really transacting tickets as part of a event management platform. And in that context, we actually had to build additional integrations to legacy payments providers, which was very difficult for our engineering team to accomplish. So that was kind of my first exposure to payments.
But along the way, we also became kind of a hardware company as well because we needed to launch point of sale solutions as well as scanning solutions. And there weren’t good options in the market at the time. And so that was my first kind of exposure to payments and how payment flows and gateways and rails worked in the United States. From there, I went to Recurly and that was in the subscription management space. And that was really an intentional move on my part because I saw that subscriptions and subscription management was the future.
Frankly, it’s how SaaS gets paid for, right? In most cases. And there we were a bring your own like payments provider model, which gave us a ton of exposure to the emerging payments providers at the time, not just the legacy ones for all of our enterprise customers, but everybody was launching with Stripe, for example, at the time. And then Adyen got into the mix as well. And so that was kind of really where I learned and did a lot of partnership conversations with those payments companies. And that’s where I learned the value of what they were providing that was different than the legacy providers. From there, it’s an easy step to see how you would start to embed payments directly into your platform as a SaaS provider.
Joshua: Yep. Clearly, you’ve got a lot of experience. You’ve been doing this for a while. How has your perspective evolved, and what changes have you seen over the last two years? You Ari, you’ve been a SaaS operator. You’re now working at a fintech selling to SaaS companies. So you’ve really been, I think, on both sides of the table. What’s changed?
Ari: Yeah, so what I’ve seen is there really are kind of, there’s a bifurcation of sort of two breeds now of SaaS provider, even in the vertical SaaS space. I had a conversation with a vertical SaaS provider that does warehouse logistics just a short while ago. They’ve been in business for 20 years. They’re not in the flow of funds. They have no interest in being in the flow of funds. They have no payments integration in the future. They’re not going to do integrated finance. And that’s just what they’re going to be.
On the other hand, I talked to someone who has launched an up and coming sort of a disruptor 3PL business also in the warehouse logistics space. They have a comprehensive strategy about how they’re going to layer in not just an invoice management, but inventory management, which is core to the space. They’re also going to layer in payments and finance and they’re eating this other business’s lunch. So it’s like seeing how you think about the customer more holistically their entire journey and how to improve their business is better than thinking about just the point problems they have day to day that you’re solving with your legacy solution.
Joshua: Yeah, I couldn’t agree more. You know, having been in the SaaS space myself for a long time, you know, it used to be very much a product and features capability sale. You know, here’s our checkbox, you know, here’s our competitor here, their checkboxes, you know, we have more than they do. I agree. I think it’s evolved now. It’s almost a jobs to be done type approach where you are trying to solve problems more holistically for the SMBs that the SaaS platform is serving. Not only that, when you can deliver dollars each and every day into their bank account, and whether that’s through lending and loan, whether it’s through factoring, whether it’s through just direct payment acceptance. I think there’s such a key shift in how that SMB business owner views the fintech provider or views a SaaS company from hey, this is the tool we use to my entire business is dependent and fully runs off of this SaaS platform. And so I think that’s a really good thing to highlight.
Ari: Yeah, 100%. I think the share of thinking about it as a share of wallet, because those dollars are going to be spent, right? The payments have to be paid for the financing, they’ll go and get that if they need it. But thinking about that approach as sort of a share of wallet to get it all onto your platform is what I would urge any vertical SaaS.
Joshua: One thing we see in embedded payments, I’m guessing it’s true in embedded lending, is looking at when SaaS companies get much higher attach rates if they position the embedded FinTech as part of their core offering rather than a bolt on. I actually talked about this a few episodes ago with one of our guests, Brian Abernathy, and we were talking about what the attach rates is and how many people actually sign up. Curious if you see the same thing in lending as well as payments. And if so, tactically, what are some tangible steps that you recommend SaaS leaders can take to help make that shift and really drive the adoption, the attach rate, the usage metric of embedded payments and lending?
Ari: Yeah, we do see something very similar and it manifests itself in kind of two ways. One, on the one hand, you can, as you say, treat this as it’s a bolt on and launch it kind of alongside product or separate from, and often that even happens outside of the product organization without much involvement of theirs. And we’ve seen that happen in our business, almost never very successful. And if so, it’s accidentally.
The other approach is to really have someone own the outcome, to build a set of goals or criteria that demarks success in any kind of embedded fintech launch, and have that person have some authority to manage the project across all silos of the organization. When that happens, you see a lot of great things, not just will it be coordinated with product and engineering to fit into the roadmap of the right place, it will have the right sort of executive level goals and KPIs attached to it.
But it will also have all the go-to-market enablement that is required to be successful. And so, because you have to message this correctly to your customers, it has to fit into their day-to-day flow on the platform. It has to be intuitive and in context. It has to make sense for them. It has to improve their business, right? All of those things need to be discussed. And so, when our platform partners lean in early in the engagement to have that conversation with us, we know it’s going to launch successfully.
Joshua: Yep, right. Great insights. I am a big believer in what gets measured gets managed from a KPIs perspective. What do you see and feel free if you want to talk about it more from a lending perspective, but what KPIs are you telling your clients that they should be looking at to determine the success of one of these programs that they’re launching?
Ari: Yeah, it’s not unlike a go-to-market sales funnel, honestly, because in our case, what we’re looking for is originations. That’s the bottom of the funnel where someone accepts the offer that has been made for working capital to improve their cash flow. But upstream of that, there’s an entire funnel of actions that have to be taken. Everything from where it sits on the platform to the design of what the buttons look like to engage to is there any educational material available to the operator before they start that process and what does that look like?
How many times have they interacted with it? Those are things that we track right all the way through the funnel, the steps they go through to do the KYC and KYB that needs to be done. We’re tracking all of that and reporting on all of it. And we do have a sort of best in class funnel shape that we communicate to our partners. But the other big piece of this is if you want this to be successful, and if as a vertical SaaS provider, as an example, you have a sales org, you need to also build some incentives on the GTM side. And track engagement there to see, you know, are you moving in the right direction? And those are KPIs that we work with our platform partners on as well.
Joshua: Have you seen any of your platform partners offering sales incentives, quote or retirement, whatever kind of methodology you want to use, but have you seen them kind of tying the performance of embedded FinTech into comp plants?
Ari: We have. In fact, we just launched with a platform partner this week that did exactly that. They had a full court rollout to their sales organization and account management organization. There’s quota retirement and incentives in place because at the end of the day, what we’re delivering them is not just high quality, high margin revenue, right? A very low risk, but we’re also making the customers on their platform today stickier. So it helps them create a bigger moat against competitors. And it also can become a competitive differentiator.
Joshua: If you had to pick two or three levers to really move the needle, you know, besides maybe quota retirement or sales incentives are part of it, but what levers do you see really driving that adoption?
Ari: Yeah, go to market enablement is one and there are a number of things in there. Quota retirement can be a piece of that. Incentives can be a piece of that, but even just making sure that the sales org and the marketing org are folding this functionality, right? This option that customers now have into the messaging that they use about the whole value of the platform is really important. So I would say that’s probably number one and it doesn’t have to be quota retirement.
It could just be, hey, here’s our demo pattern now. It now includes a couple of buttons over here. You’re going to talk about payments. You’re going to talk about working capital finance that’s available on the platform. And you’re going to talk about how our competitors don’t do those things today. So that’s my number, that’s sort of like number one. And then the second piece of it is to get there, you have to have someone in charge of making sure that happens internally. it doesn’t have to be a, you don’t need a GM of FinTech or if you’re large enough, maybe you do.
But you do need someone who is enabled, who’s got project management experience, who knows the silos of your business and can reach across them to get things done.
Joshua: Yeah, one of the interesting learnings that we’ve seen in our business at Rainforest when we talk about adoption is when somebody has a revenue number and it doesn’t have to be sales. Could be the success team. Could be a head of payments or fintech. There’s a variety of titles or roles that this person could have, but when they have a specific revenue number that is tied to the adoption, we’ve seen a huge difference because now all of sudden you’ve got someone at the table working cross-functionally between technology and product, between support and success, between go to market that is kind of singularly responsible for carrying that torch through. And as I’m sure you would agree, Ari, this is a very cross-functional initiative.
And in many cases, we’ve actually seen that this is one of the first cross-functional initiatives that a SaaS company has ever undertaken because typically product goes and launches something or go to market goes and rolls out some promotion. You know, it’s typically contained within a department or two. This is one where it touches almost every part of the business, including back office finance and all the other ones we talked about risk. So there’s a lot of collaboration and, you know, collaboration, but also building the runbooks and figuring out how do you hand off the ball seamlessly between those departments, it has to happen. So, you know, it’s definitely something we’ve seen on our side as well.
Ari: It’s analogous in some ways to like the sales enablement or really when that stepped into product marketing as a function, right? That role or that group would have to do some of these similar kinds of jobs, but leveled up because it has a revenue responsibility to your point. And I think when you have that person in place, what we’ve seen also is instead of us going to our partners and asking for updates, they come to us and say, hey, look, how do I get from here to here?
And what does that look like and can you help me do it? Do you have any ideas about new materials or whatever it might be? That’s when people really lean in and that’s when the partnership becomes successful. We also see, which I think is fascinating, when someone has one embedded solution launched, let’s say it’s embedded payments first, which is kind of always my recommendation, and then they launch something like embedded finance, there’s a virtuous cycle that begins to occur because now you can point people at your payments product if they want to get working capital finance solutions.
And also there’s just more gravity around the financial offerings on your platform. So it starts to become a bigger piece of your interaction with your customer base. But that only happens if there’s someone who’s in charge of the strategy for the platform.
Now it can be the CEO, but often that person is way too busy doing CEO stuff, right? So it often, think our best partners are someone below that. They might carry a partnerships title, for example, or a fintech title of some kind.
Joshua: I think the trifecta is when you can get the CEO or C level to champion the effort and say how important it is, then have somebody who’s responsible for all that cross-functional collaboration. And then you have the fifth, you know, all the individual teams all, you know, carrying that torch. I think that what we’ve seen at least at Rainforest is when you get all three of those magic happens, because they know it’s blessed from the executive level, you also have someone doing day to day and then each department has things they need to do. So I couldn’t agree with you more on that. Let’s pivot a little bit. Certainly rosy skies ahead when everything’s working, everybody’s making money, it’s driving revenue, you’re decreasing churn. What are some of the challenges you’ve seen? Because embedded FinTech isn’t easy. I always tell people that if it was easy, everybody would do it. Everyone would be successful.
We just haven’t seen that in the industry. We’re still, I think, in very early innings on the overall adoption curve. When you look at there’s 10,000 plus SaaS companies out there, how many have really gone pretty far down the path of payments, much less multi-fintech products? The answer is still relatively few. So what challenges have you seen and any advice for our listeners on how to overcome them?
Ari: I mean, the biggest challenges that we encounter are really, helping our potential platform partners understand the trade-offs of time, because at some point you’re to have to divert roadmap resources to get this done. If it’s something that you want to do, it does seem, I think like it depends on the context of the business, but for the most part, the platform partners we’re talking to, it’s a no brainer to get this done. The question really becomes, okay, but when and how and who is going to own it.
Those are internal conversations that have to happen within that organization that we can try to influence or we can offer advice on, but ultimately we can’t make those decisions for them. So I think that’s that from my perspective, at least that’s some of the biggest challenges I’m seeing to adoption in terms of getting this out and into all of the SaaS providers that exist today. There also is an attitude one. I mean, some people, most people, I think get it, they see it, they see the value in delivering more of that share of wallet to their customers, delivering more value, delivering more business benefit. But then there are legacy SaaS providers that are just focused on doing what they’ve always done. And those are a little bit easier to identify.
In terms of driving success once you do go down this road, I think we’ve touched on a lot of the things. And you see them early days. Like, it’s pretty clear upfront if a business is going to just bolt this on.
In which case, until someone does come in and step into that role and really drive outcomes, you’re not going to see broad adoption from your customer base. So in those cases, we just encourage our platform partners to think about really staffing that role and highlight what the value is to their enterprise value if they do staff that role with someone who can, again, has the mandate and the ability to step across the entire org and get things done.
Joshua: Yeah, I love, know, on the lending side, you’re able to create such stickiness, I think, when you have someone that’s not only consuming an SMB, who’s not only consuming the SaaS product, but also is receiving some type of capital, because that’s such a good to use your term virtuous cycle. They’re getting more money to expand their business, they’re going to go up and plan, they’re going to you know, continue to thrive. We see the same thing on payments I think to a different degree.
The other thing I wanted to point out that it’s kind of interesting is both you, Ari and, at Rainforest, I think we are extremely well aligned from an incentives perspective with our clients. We don’t have SaaS fees. It’s not a pay it and use it or not. Right.
Your platforms, correct me if I’m wrong, but they’re making money when loans are originated. Our platforms are making money when payments are processed. We’re making money when payments are processed. You’re making money when loans are originated and paid off, right? So there’s such a good alignment, I think, for really one of the first times in the history of SaaS, because historically it was always monthly subscription fees or paying X dollars per seat license. So there is a very different incentive besides just pure usage and pure alignment of revenue. Have you seen any positive things come out of that kind of native alignment between you and your platform partners?
Ari: We certainly have. I think it goes downstream one more step to their customers, particularly when it comes to lending. But I think that’s true of payments as well. In our case, we’re providing a working capital solution in context that is more convenient to draw on. And in some cases, we’re providing it to the SMBs that would not otherwise have access to you or the attention from a traditional lender like a banking institution.
And so we think we’re helping to, I mean, our whole goal is to drive business growth at the SMB in the US. That’s what we’re here for. And so I think if you think about that, like the incentives are aligned all the way down to the customer’s customer, then everyone can get really excited and feel good about, you know, efforts behind making this type of embedded FinTech solution successful. And so it does seem to be easier to get people aligned inside our partner platforms.
given that we are kind of all in service to their customer, but also delivering immediate value to them as well. So yeah, I think there are a lot of alignment and it’s nice to be in that situation where you’re not just sort of like, here’s your annual fee. I hope you get some value out this. Like those days I think are gone largely from, at least from the way that Fintech works.
Joshua: Yep. Yeah, I agree. Well, we’re almost out of time. What else haven’t we covered? Any other words of wisdom for SaaS leaders out there who may want to earn more revenue and drive other positive benefits from embedded fintech?
Ari: I mean, I would just double down on some of the stuff we’ve said. It has to be strategic. It can’t be an afterthought or something that you slam into a sprint and then don’t look at again. It’s just not a way to think about this successfully. And the other thing is I think that we see that the trend here is overwhelming in the direction of embedding financial products like payments and lending in particular, but you also see things like payroll and insurance are kind of like fast follows.
Some of those things are one way doors and some of them are two way doors. And so that’s one thing to think about when you get into the conversation internally at your organization of whether or not you’re to go down this embedded fintech route. But I will say do it strategically, do it carefully, do it thoughtfully, and reach out to people that you know in the space who have done it before or who have a lot of exposure to it to form that plan.
Joshua: Awesome. Well, thank you so much for joining us. Once again, Ari Myers, who is the head of commercial strategy at Embedded Lending Provider, Canbon. Thanks for being with us.
Ari: Thanks for having me, Joshua.
