A few years ago, we began to see SaaS companies integrate payment processing into their software.
This push to integrate payments was due to a couple of factors. First, it offers a better user experience – why send somebody off-platform to pay for a product or settle an invoice? Next, adding payments to a platform is very profitable, since the SaaS company gets a cut of the payment revenue. And lastly, products like Stripe and Braintree make it so much easier to add payments to your service.
Shopify is probably the best example of this trend. This year, Shopify’s merchant solutions (which are largely driven by payments revenue) overtook its “core” business (subscription services). But beyond Shopify, virtually any transactional SaaS product out there has added payments – from horizontal solutions like FreshBooks to vertical SaaS products like Clio and Jobber (both V1 portfolio companies).
Software has become the wrapper for a commoditized product and as such, it has turned payments into a much more differentiated product. This fact should scare every undifferentiated payment processor out there.
Now, we’re seeing a second category where software can provide a wrapper for a mostly commoditized product…. and that’s insurance.
Insurance will integrate payments for exactly the same reasons as SaaS: a better user experience and additional revenue stream. I believe this trend will happen first in those (marketplace) settings where standard insurance products aren’t addressing the specific needs of marketplace participants. For example, this could be marketplaces with limited insurance offerings (like rentals). Another potential is short-term insurance needs in a category where insurance is typically much longer term, like car insurance.
So, who will become the Stripe for insurance? Scale is a real advantage for insurance companies, so there’s a strong case to be made for an incumbent. And, some incumbents, like Munich Re, are extremely innovative in this space. However, there’s always the possibility that a start-up will be faster and grab the opportunity.