I joined the venture capital world from fintech unicorn Tink just as the 2022–2023 fintech winter started. I was Inventure’s new expert on fintech, and the sector went from Hot to Not faster than interest rates could jump.
But to tell the truth, it was perfect timing. Rather than chasing the next overhyped deal, it forced me to think deeply about where value can be captured in fintech. Now I’m proud to announce my first fintech investment at Inventure, getpaid.
The Vertical Fintech Thesis
Early this year, I laid out my thesis in a post, Vertical Fintech is the new Vertical SaaS. In short: the growth in financial services has been a boom for some fintech companies, but it’s also commoditized certain darlings like embedded payments. As Stripe became as interchangeable as Adyen, the real winners were the SaaS platforms that went vertical and leveraged innovation to solve unique problems, not the payment providers behind them.
The lesson following the past decade in SaaS is that specialisation matters. The broader your product ambition and the less focused your go-to-market orientation, the less sustainable the business model. Verticalized SaaS platforms replaced traditional SaaS by entering traditional, manual B2B verticals and digitised them by offering a very tailored service that solves the most critical inhibitors of growth. ServiceTitan is an excellent case in point.
But payments can also play that same game. Therefore, we set out to look for B2B payments that offer true financial innovation to specific verticals.
Fintech winter? Some climates are getting hotter.
There has been a boom in B2B payments, but value-added services are still desperately needed. Much of the innovation today has been focused on the United States, where, according to The Paypers and Flagship Advisory, B2B payments have created $75 billion in shareholder value.
A similar wave of value creation is now coming to European B2B payments. You can see in McKinsey’s chart below that consumer payments in EMEA have created significant value. But what’s truly exciting as a VC is that commercial payments revenue in EMEA (domestic and cross-border) significantly surpasses that of the consumer industry, and these payments are, for the most part, untapped by digital offerings. These payments are people in offices, sending invoices back and forth to each other and updating databases themselves.
But going back to the thesis — it’s not enough to find a large, growing market — specialization matters. Merchants today are willing to spend a more significant percentage of revenue on unique software and less on transaction fees. These merchants have grown savvy fast and will increasingly claw back power and demand specialised services rather than merely ‘follow’ the generic payment roadmap as presented by horizontal players.
Digging into B2B payments, the verticals that are large enough to shoulder a billion-dollar specialized payment solution are the ones that have high-frequency transactions and a massive market with similar needs that span across all continents.
Where can we find these volumes? Vertical SaaS companies and marketplaces have grown significantly over the past decade, primarily fueled by VC dry powder. Again, McKinsey’s 2020 payments report identified that digital e-commerce payments will increase by 22% annually. Even more relevant to our case is that marketplace and platforms will increase their market share dramatically within this already growing segment.
5–10 years from now, the multi-billion dollar payment companies will be the ones who cater to the needs of this segment.
At the center of it all: getpaid
Inventure’s new portfolio company, getpaid, is at the epicenter of this growing market by solving genuine needs for its customers.
Imagine that you are a verticalised SaaS platform or marketplace, and you onboard a customer. This customer, in turn, has their own customers, meaning you immediately have hierarchy complexities. Those customers need programming and timing of payments (pay-ins & pay-outs) and conducting and tracking reversals of transactions. They must find compliant ways to split paid-in funds amongst involved parties without manual operational efforts. Not to mention that they will want to customize their monetization of these payments. This sounds complicated, but it isn’t a one-off case. These are the standard needs for this vertical!
To solve these needs today, platforms either build in-house teams or add a patchwork of existing tools that create workarounds in multiple layers of a payment stack. These layers increase complexity, but they don’t provide the transparency needed to scale, nor do they address the regulatory challenges. As proof, 80% of platforms experience difficulties integrating payments and subsequently running them with their existing infrastructure, and 90% of platforms and marketplaces struggle with pricing and revenue management after incorporating payments. And virtually every platform fails to scale rapidly business across their multiparty set-up of buyers, sellers, and platforms that represent high complexity from an end-to-end payment operations angle.
We believe that the players that win this segment are the ones who abstract away complexities within multiparty payments, shoulder the regulatory requirements, and give back control to the platform provider, enabling them to focus on doing what they do well — such as operating a marketplace or running a vertical SaaS. It seems to be a strategic bet on scaling with financial services rather than just adding another service for their platform customers.
As current solutions, such as status quo PSPs, cannot cater to the specific vertical needs of platforms, we are thrilled to back one that does.
Solving real problems in payments
Cyrosch and Gonzalo are the best-positioned team to conquer this market. Cyrosch and I are former colleagues from Tink, where we witnessed the rise of marketplaces with specific demands for payments, which current solutions couldn’t solve. Cyrosch’s team delivered exceptional results with their commercial prowess and relentless focus on pipeline rigor, quick activation, and volume growth. As CTO, Gonzalo, with his experience from Amex, Google, and Microsoft, has built a team with incredible global payment expertise and a bar-none payments platform.
With contracts representing over $600M in GMV, getpaid has quickly proven their ability to capitalise on this market. Inventure is thrilled to be along for the ride, and I am delighted to work shoulder to shoulder with the strongest commercial leaders within the European payment industry today. After a year of searching, I finally found the team to back and with them, and have completed my first fintech investment.
