The opportunity to monetize fintech within a Vertical SaaS platform is clear and established. Venture capital has leaned into this value thesis, and there are a few clear success stories from platforms that execute it well.

For a majority of Vertical SaaS platforms today, payments are the starting point on their fintech journey. Reasons can include a high monetization potential, capturing your customers' transaction patterns, and offering embedded fintech value-adds like BNPL and insurance at checkout. One reason platforms often miss is the ownership and orchestration of KYB and KYC data.

Payment Data Defined: When referring to payment data, we specifically mean the data required to underwrite merchants from your payment service providers (PSPs), as well as the transaction data associated with each merchant. Owning your data doesn’t necessarily mean taking on compliance scope.

In our experience, the argument for owning your payment data is underpinned by several key topics: Vertical specificity, optionality, and implications for valuation and investors.

Vertical Specificity

If you're like most platforms, you probably started by offering payments through a PSP for reasons like easy implementation, potential monetization, and a seamless customer experience. But what if you operate in a high-risk vertical? Or an enterprise client wants to bring a new feature not supported by your PSP?

The needs of specific verticals should dictate a platform's fintech strategy. Often, PSP’s ecosystems may not meet all your needs or limit your flexibility in offering fintech products like embedded lending and BaaS.

Owning your data enables you to break free from these ecosystems and limitations and build the ideal fintech strategy for your vertical.

Optionality

Optionality aims to enhance customer experience, boost fintech adoption, and reduce churn. Owning your payment data enhances optionality by drastically reducing migration and implementation times for new PSPs and other embedded fintech partners.

Let's use a couple of examples to illustrate how owning payment data enhances optionality:

• Payments: Suppose a platform is partnered with PSP A for all current payments but receives an attractive offer from PSP B that includes card-present capabilities and cost savings. They aim to migrate a cohort of 100 customers needing this capability. Despite obtaining tokens from their current processor, the long onboarding process means it could take over a year to switch merchants.

Fortunately, since this platform owns its merchant onboarding data, it already possesses 95% of the data needed to migrate customers to PSP B. They can now make the transition in weeks rather than years, benefiting from price breaks offered by PSP B for speed and volume of migration.

• Embedded Lending: Imagine a platform identifying an opportunity through customer feedback to launch a B2B lending solution. To underwrite this, the lending partner needs much of the same information used by the PSP for merchant payment underwriting. By owning their merchant data, the platform can streamline underwriting and choose the best lending provider for their vertical, rather than being constrained by their current PSP's offerings.

Valuation and Investor Implications

Many platforms, whether backed by venture capital (VC) in growth stages or private equity (PE) later on, can increase their valuation significantly by owning their data.

• Pricing Control: Many PSPs offer an interchange-plus (IC+) rate, meaning your payment fees consist of interchange costs plus a certain number of basis points and a fee per transaction. By owning your data, you can easily switch to a PSP or fintech partner offering the best rates, ensuring more reliable pricing control and protecting margins.

• Top Line vs. Bottom Line: This control over fees affects not only your pricing but also your revenue recognition. With leverage over processing fees, you can recognize the entire processing fee as top-line revenue, rather than just the difference between PSP fees and what you charge customers, potentially leading to healthier margins.

• Investor Preference: Investors, especially those with a strong fintech thesis, likely have a preferred PSP (often with favorable rates). They prefer platforms that can swiftly transition payment volumes. Owning your data reduces migration times from years to months, making your platform more attractive to investors.

• Increase in Revenue Potential: Mature Vertical SaaS platforms often plateau in payment monetization. To boost revenue potential, they need to explore new ways to monetize financial activity, such as lending products or embedded insurance. Owning your payment data grants the flexibility to choose products outside your processor’s ecosystem.

Why Most Platforms Don’t Own This Data Today:

After reading this, you might wonder why most PSPs don’t allow platforms to own their data. Simply put, it’s a feature, not a bug. By creating a barrier between you and your merchant data, PSPs shield you from compliance requirements, while historically, platforms had limited use for this data. This arrangement has a few benefits for the PSP’s including an increase in customer stickiness and negotiating leverage over the platform. 

While there are compelling reasons to own your payment data, there are also considerations and challenges to navigate. Preczn empowers this strategy through its platform and merchant vault, centralizing merchant onboarding and transaction data across PSPs and fintech vendors.

Reach out to our team to learn more about how we unlock these opportunities!