March 6, 2024

Financial services are the new wedge

Pay now, SaaS later

After interviewing nearly 100 property managers and 50 Airbnb hosts, Jonathan Sukhia identified a universal problem across these businesses: tracking expenses and managing payments across multiple credit cards, bank accounts, properties, owners, and business entities. Jon, a hospitality veteran who held leadership positions at Airbnb, HotelTonight, and Starwood—was deeply familiar with the challenges within the industry. He knew there was a demand if he could build a company providing specific tools for vacation rental hospitality property managers. 

“Before we wrote a line of code, we first needed customer buy-in. After speaking to a hundred property managers, it became apparent that existing expense management solutions were lacking, mainly because they failed to tackle the biggest pain points,” explains Jon. “There wasn’t any way to capture and assign transactions back to properties in real-time that could also sync those transactions effortlessly to their ERP and PMS software.”

But Jon needed a unique "wedge" to gain a toehold from which he could expand and upsell additional software. He chose an unlikely path: charge cards. 

Typically, vertical software companies create their wedges through tackling a specific, but high-value pain point unique to their industry, often one that horizontal solutions address poorly. By owning this strategic real estate, they earn the right to expand. Shopify started by enabling businesses to set up and run online retail stores. Mindbody started with appointment scheduling and business management for yoga and pilates studios. Veeva started by offering a vertically-focused CRM for the life sciences industry. ServiceTitan started as scheduling and dispatching software for residential plumbing companies (and as a summer project to help their parents, no less!). But they all eventually expanded their product offerings into financial services, including payment processing, payroll, loans, banking services, and more. 

Shopify, as an example, has become a fintech juggernaut. In 2023, Merchant Solutions Revenue, primarily driven by payment processing and currency conversion fees from Shopify Payments, grew 27% YoY to $5.2 billion1. This accounted for over 73% of their $7.1 billion in total revenue. An astounding $137 billion of gross payments volume (GPV) was facilitated through Shopify Payments last year, accounting for 58% of total GMV processed on the platform. Layering in financial services as an additional revenue stream on top of a vertically-focused software solution has become a standard, go-to playbook.

Today, innovations in fintech infrastructure have made it such that financial services products are an equally powerful wedge for new vertical software companies. Historically, building and maintaining a lot of these services was a substantial investment, so having an existing customer base to efficiently upsell into was important. Many horizontal solutions already existed that had broader market applicability at the expense of more tailored, industry-specific offerings. Yet, changes to fintech infrastructure over the last decade and the abundance of third-party APIs have made it easier, cheaper, and faster to build and launch financial services focused on a particular vertical. Now, it’s feasible for fintech tools to serve as the initial wedge. For Jon, this new infrastructure enabled him to launch Topkey, a banking, credit card, and expense management solution specifically for hospitality providers.  

“Once we understood that pain point, we went back and built some mock-ups for an initial expense management product. We signed 55 LOIs soon after. This helped us build a perfect foundation for a suite of financial software tools. We have since added on credit cards, a high-yield banking product, an AP bill product, and a number of accounting and PMS integrations.” 

Using fintech as a wedge isn't, by any stretch, a hospitality-specific approach, either. Across industries, including healthcare, real estate, construction, logistics, manufacturing, healthcare services, and others, these businesses tend to settle on technical solutions for the long haul. Their owners don't have the time or energy to try the latest software and often default to legacy solutions because the marginal improvement isn’t worth the switching costs or friction. The finances of a hospital vary significantly from the finances of a retail business, just as the payroll requirements for a property management company differ greatly from those of a construction company.

“In many ways, the solid upfront service we delivered helped us open the door to deeper conversations about more comprehensive services we might offer"
— Jonathan Sukhia, CEO of Topkey

Now, we’re seeing a trend of startups gaining inroads into large, underserved markets by offering tailored financial solutions that are significantly better than legacy options. Sometimes, these initial products are offered for free to end customers, while monetizing interchange or spreads on interest on the backend, creating an even more effective wedge. Once they land a customer, these startups then offer additional vertical financial and software products, increasing wallet share and revenue per account, while reducing previously high acquisition costs. 

“In many ways, the solid upfront service we delivered helped us open the door to deeper conversations about more comprehensive services we might offer,” said Jon. “We’re just getting started, but we’re already building out things like an inventory module, a full vendor tax portal, detailed accounting and owner reports, and very specific workflows built for multi-stakeholder real estate management companies”.

As an existing approved vendor with distribution, every upsell becomes easier, sales cycles compress, and customer references and referrals compound within a given industry. This is a significant and necessary shift that we anticipate will continue as new specialized financial products break apart the remaining multi-billion (or trillion) dollar markets that predominantly rely on legacy software across ERPs, payroll, AR/AP, accounting, banking and more. 

Lastly, owning the data layer creates a critical toehold for the future. Companies immediately have the data to develop AI tools and services based on applying the right models to their datasets. We're seeing this shift already, with Brex launching an AI tool that automates manual expense management and accounting workflows. It's a great convergence: AI with fintech. No matter what wedge companies use today to gain traction, a greenfield awaits those entrepreneurs leveraging creative models to help underserved businesses manage their dollars and cents.

There are many industries we’re interested in, and see a lot of opportunities in reinventing through various financial wedges. Here are some that are on our radar:

We’re actively excited about the following trends that are now possible in this new age of fintech-supported vertical SaaS:

  1. Software for every niche. This era of one-size-fits-all software is coming to an end. The ways that specific industries can leverage their data (with AI, reporting, etc.) will continue to become more specialized and impactful. Verticalized approaches to payments, payroll, accounting, and expense management are powerful wedges to broader platforms. A lot of the software spending tied up in legacy horizontal players (the ADPs and Oracles of the world) will become unlocked by vertical approaches.
  2. AI-enhanced back offices and services. As AI becomes easier than ever to integrate, we expect many verticalized software companies to automate services and back office workflows that were previously done manually by teams of people. This will be another catalyst for adoption. 
  3. Communities coming together. The companies that succeed in each vertical will be the ones that can successfully embed within a community in a way that supports their go-to-market motion. Significant moats can be built here.
  4. Partnerships and rewards that make sense. Partnerships and rewards for businesses should adapt based on the industry. If you’re in manufacturing, you might need partnerships with shipping companies. If you’re in healthcare, you might care more about the incentives to integrate with different health systems. These partnerships will be avenues for growth, and founders with a holistic understanding of their ICP and market will be the ones that flourish.

We’re actively looking for companies that take this “Pay Now, SaaS Later” approach, as well as fintech companies that support this new structure. Please reach out to us at!

1 Other merchant solutions revenue sources include: transaction fees outside of Shopify Payments, Shopify Shipping, Shopify Capital, advertising on the Shopify App Store, buyer acquisition for merchants (Shop Campaigns), referral fees from partners, and POS hardware sales. They don’t break out the amount per revenue source. (Shopify)