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Why every vertical software company should launch a capital offering

Yas Moaven explores the advantages of capital offerings in vertical software, emphasizing customer growth, and efficient financial solutions

Tools and ResourcesBusinessFinancing

By Yas Moaven  January 29, 2024

Why every vertical software company should launch a capital offering

This article was originally published on Fintech Nexus on August 30, 2023

Building trust is hard but absolutely worth it. Across b2b and b2c, decisions are made by human beings who want to do business with people they trust and who they believe truly understand them. It's just human nature. 

This is the reason community banks endure, even in the face of tough regulations and in competition with huge global banks. It’s why local small businesses can hold onto customers while competing with major chains. And it’s why software providers benefit from serving a specific industry. 

When you’ve built trust and a deep understanding of your customer’s industry, it only makes sense to find more and better ways to serve those customers and leverage your existing relationship with them. Right now, there’s no better way to do that than to expand your offering by adding financing.

Here are four major reasons you should be offering capital to your customers and a couple of things to keep in mind that will make the process go a whole lot smoother.

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You can grow faster by helping your customers grow 

By embedding financial services in your platform, you can help accelerate the growth of your customer base, increasing top-line revenue while adding a new, high-margin revenue stream. This is not only a great way to increase your GPV, but it also further grows the trust you’ve built.

Today’s merchants are incredibly busy. Anything you can do to streamline their lives is likely to be well-received. Traditional access to capital is slow and full of friction, and you can help them eliminate that problem. Embedded financing not only allows them to access capital without ever leaving your platform (which saves them time), but it also allows them to work with someone they already know and trust, eliminating the need to vet a new vendor and decide which one to go with. 

You can provide better terms through industry insight and live data

Traditional financing providers, like banks, lack familiarity with many newer industries and business models. It’s not that they don’t understand them, but their underwriting systems are old-fashioned and require years of data to feel comfortable offering financing. Other business models are just not considered a good fit for investors or lenders, and can struggle with financial access. 

As a payments provider, you have unique data and insights into your industry, allowing you to deliver financial access to your merchants based on real-time hard numbers, not years of history and outdated models. The closer you are to your industry, the more true this is. Your understanding of revenue trends for your merchants makes it possible for you to offer better terms and customized offers that perfectly suit your merchants' needs.  

Embedded finance can help Improve customer stickiness

Vertical ISPs are in the fortunate position to have a very sticky product. Once someone is using your platform, it’s easier to stick around than it is to switch. Embedded finance takes that one step further. By allowing your merchants to take care of more of their business within your app, you get key decision-makers on the platform more frequently and encourage companies to migrate all their payments to your platform if they currently use you and one of your competitors. 

Super-apps like Stripe, Adyen, and even Shopify make it easy for their merchants to get everything they need in one place, and they’ve benefited from it tremendously. Within your unique industry, you have the opportunity to be the go-to, but there is one hurdle. Chances are, you’re not Stripe, Adyen, or Shopify. But don’t worry, you’re not alone.    

Seamless integration and minimal risk 

While you may not have expertise in capital markets or resources to spare building a capital product of your own, there’s a simple way to overcome these hurdles. By partnering with a company that’s built trust in the finance space, you can create a capital solution that’s greater than the sum of its parts. 

There’s a reason so many super-apps–like those I mentioned earlier–are built on top of payments and digital transactions. As a payments provider, you have all the data necessary to fuel a capital product, delivering capital to your merchants based on their transactions rather than years of financials and credit scores. By partnering with an embedded capital provider like Pipe, you can easily launch and test new offerings with minimal up-front investment and risk.  

Conclusion

With trust, industry insights, and deep, real-time data, you’re perfectly positioned to become the go-to app for your vertical, and an embedded capital offering is the perfect next step. Now it’s time to decide which services to offer, choose a partner, and take that step! 

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Yas Moaven Yasmin Moaven has over a decade of experience running marketing, operations, and investor relations. She helps guide a remote global team expanding access to capital for business owners as COO and CMO of Pipe.

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