Ian Hillis - Worldpay (00:01)
I'm Ian Hillis, I lead growth at Worldpay for platforms and I've oversight over our big bet ventures from a product lens, oversee commercial strategy and private equity channel partnerships. I've in the software led payments industry for about 10 years now.
Don Apgar - Javelin Strategy (00:47)
I'm Don Apgar. I lead the merchant practice here at the Javelin Strategy. And we focus on not only what's important to merchants, but what's important to the supply chain that brings payment services into the merchant community.
Ian Hillis - Worldpay (01:07)
Yeah, I think, I think about there are two lenses first, the SMB business in the U S and then vertical software. So if we actually start with vertical software, if you go back, we've had software that have been addressing vertical needs for some time now, typically started in the largest TAM opportunities or restaurant, retail, hospitality across all of that. But with the immersion of cloud and the ease of starting to build software platforms at a more efficient route. You've really seen vertical software start to address more and more niche verticals and really speak the language of the underlying SMB. So as a result, we've watched those SMBs follow that explosion of vertical specific software and start to adopt it. So in 2018, we did a study and came back. With about 34 % adoption in the US for SMBs leveraging vertical specific software to run their business. You fast forward to 2022, that jumped up to 48%. And if you fast forward even further to 2024.
It's not nearly 64%, which is incremental in explosive growth in a short time period across all of that. So you've got SMBs that are using vertical specific software to run their business with a lot of trust. And that software platform sitting on a lot of data, employee data, customer data, they speak the language of that vertical. It's a very trusted resource. So a natural evolution of that is for the SMB to look to that trusted relationship in a high traffic area.
For expansion of additional products and services, many of which are financial in nature. They've already typically integrated or embedded payments. I don't have to do that to run a business. Now the question is what's next? And that's really what is embedded finance and driving the rise of it. Really exciting time right now.
Don Apgar - Javelin Strategy (02:42)
It's really been interesting to watch the evolution of the technology as the cost of delivering SaaS solution continues to drop. mean, the size of the business that's too small to utilize software is now zero, right? So, it's delivering a tremendous amount of efficiency. And as you said, payments are still not a hundred percent adopted through software. But rising very quickly. it's, you know, it's quite frankly, it's an opportunity. It's a win-win for both the SaaS company that can use payments as a revenue driver and also for the user, right? Because it's easy to consume the service in the application rather than have to go source that service separately and find one that works with your application. And if you don't do payments through the SaaS solution that you're paying for as a business, you know, you're not really getting a lot of the value that you're buying a SaaS solution for in the first place.
Ian Hillis - Worldpay (03:45)
Yeah, great question. We're really excited. In September, we went GA with our embedded finance engine. And quite simply what that does is makes it ridiculously simple for software platforms to offer embedded financial products to their customers. So ultimately what it is, is it's a very easily embeddable and white labelable, you could call it a super widget or a container that's placed inside the software platform. So again, leveraging that high trust, high traffic environment can be done in a single sprint without having to push anything else from the roadmap. It's really simple, but that widget contains multiple embedded finance products that the software platforms can then decide to activate.
Each product is provided by a best in class partner who wakes up every day thinking about that experience with deep expertise, service, support, risk are all taken on behalf of the software platform so they don't have to take away resources from their current focus. And that helps reduce time to market and operational complexity while unlocking new revenue streams. So we're really excited about that offer.
Don Apgar - Javelin Strategy (04:43)
Really, it's just an extension of payments, right? As businesses start to realize the benefits of using or consuming a payment service right through their SaaS application, right? That's extendable into business banking, right? Small business lending is a very, very ⁓ good spot for finance being embedded in software. that, you know, we're just now scratching the surface. If you consider all of the different financial needs of a small business, I mean, we're just picking up the low-hanging fruit right now.
Ian Hillis - Worldpay (05:14)
Yeah, it's really interesting, Don, you talked a little bit about just the various data sources that sit inside all of that. And if we were to rewind 10 years ago, I think we might all be seeing you're saying that bank might be the most trusted relationship in a underlying SMB customer's life. But you've got customer data, you've got the consumer data and their trends across the light, you have the employee data, just this emergent, trust, high traffic environment really is driving all of these pieces that offers right to win to the increasing suite of products that you're talking about. I fully agree, Don. I think we're early innings on embedded finance. There's a lot of theoretical things you could do. We're just starting to see the threshold be crossed on some core products across all of that. It's been exciting to watch those get adopted and we've got lots more runway to go.
Don Apgar - Javelin Strategy (05:59)
Well, you know, you're spot on with the the data. And that again is another example of a win win.
Because we've seen some research recently where small businesses will spend 20 to 25 hours per week just reconciling data between applications, between their merchant statement, their bank statement, their financial needs, supplier invoices, right? All these things are basically taking a number from one application and inserting it to another application so the business owner can run their business, right? So, there's a tremendous need to have a shared data set.
Right, that can drive all the financial needs, especially of a small business. And then if you look upstream from a supply chain perspective, especially when you get into credit products, having access to all that data on the SaaS platform gives the lender real-time visibility into the borrower's business, right? What the sales look like, what are the peaks and valleys, how do the sales run on a monthly basis?
A quarterly basis. And so the business then gets access to better products because the entity providing the products, the financial services company, has access to better data.
Ian Hillis - Worldpay (07:03)
I love that insight a lot. It's something we see a lot with our underlying SMB customers is just time, time, time. How do I save more time? I need more time in the day. But when you pair that with the vertical specific software platform who speaks the language more so than anyone else. I think if you talk the nuances of, Don, if you and I wanted to go start storage unit business together tomorrow, we'd go get the land.
Probably go get a loan, but then we'd have to have software to run that business. The software that's powering that speaks the language, knows the underlying re-up cycles of a storage unit management complexity, all of that. Like, so when you can speak that language and be the filter that says this is going to be a relevant product or this is not, and I can leverage that data to best position that product, that's a really compelling value product from that software platform. I love that.
Don Apgar - Javelin Strategy (07:45)
Yeah, it's very true. very true. mean, business has struggled for years having to use generic software to run their business, whether it was e-commerce or a storefront. In the case of, you you mentioned storage, you've got recurring transactions, you've got in-person transactions, you've got different payment types, different timing modalities, and having a platform that is already tailored to the unique needs of your business is such a huge win for the business owner. And then being able to layer financial services and products on top of that is really a game changer.
Ian Hillis - Worldpay (08:16)
And then you layer that with if you were to walk into a bank as a storage unit owner and say, own a storage unit business, you may get lucky. And that person may understand the nuances of the storage unit business alongside the 500 other verticals that that bank happens to serve. But if you're dealing with someone that can leverage the data and you see that it's cyclical on a monthly basis, first of the month, all your payments are coming through there. You can see what the typical life cycle adoption curve is from a nascent versus more mature offering across all of that creates better contextualization within that data and much more likelihood of the right capital offer being presented at the right amount at the right time for all of that.
Don Apgar - Javelin Strategy (08:50)
Yeah, yeah, 90%.
Ian Hillis - Worldpay (09:01)
Yeah, I think about it through two lenses related. I think the first is the experience and the second's more on the commercial side. So, from the experience perspective, that underlying customer now has a one-stop shop for their needs. And you can talk about broader than financial needs, but let's start with the financial pieces. If I have an embedded bank account sitting in there and I have a loan with my platform, and then I move into a commercial charge card, I may expand into payroll. That becomes the spot where I have to no longer have to start swivel-chairing between all of these different offerings and I log into my vertical specific software platform. So that's not just retention, that's 360-value coverage on their financial health offering across all of that. That really helps transform the software platform into the everything platform. That's a key mission for us here at Worldpay. How do we help power that evolution to the everything platform across all of that? I have a great anecdote from one of our embedded finance customers who's been using the capital product.
They are a bar point of sale system and were able to offer a loan to a long time customer who then expanded into a food truck strategy that he had been dreaming about for some time and has been watching growth associated that would typically see something around the lens of 15 % increase in transaction volume when an underlying SMB takes a loan because they're investing in growth across all that. That software platform has bestowed that value into the life of that SMB. That's a powerful relationship experience driver across that.
The second lens I think about is more on the commercial side across all of that. And there's the famous A16Z analysis that said when you start to embed financial services within the platform, on average, you can see a two to five X increase in ARPU by embedding financial services across all of that. So that's everything from payments to accounts to capital offerings across all of that. Hence the wide range of two to five X across all that.
But that's significant dollars for a software platform when you think about that on average revenue per user basis. And then the second element of that I hinted at earlier, but certainly many of these products create growth that compounds growth. So, if you take a capital offering out and are able to invest in that as an SMB, well, theoretically your revenues then go up. And if you're already monetizing payments to the software platform, you see the benefit of that as well. So you really are delivering both increased value from an experienced lens and then get to enjoy that from the commercial side as well.
Don Apgar - Javelin Strategy (11:17)
Yeah, that's very true. is. There's a lot of value. I imagine in a partner like Worldpay, bringing this to a vertical SaaS company as opposed to the software provided trying to source this on their own through various, you know, cobbling together various solutions with different partners. I mean, it's just there's a scale factor first and foremost, but to your point, this really has to be a to be truly embedded and truly seamless really has to be data driven. You know, it can't be a a marketplace of bank logos. Hey, you know, click here to apply a Bank of America kind of a thing, right? And that's just repackaging what we have or what we had yesterday.
Ian Hillis - Worldpay (11:54)
I'm glad you brought that up, Don. It sparks two things that as we were thinking about our strategy here at Robo, how we address this, there were two things that came to mind sparked by what we know about software platforms. So the first is what we call built to launch. And so we started this conversation by saying embedded finance is still in pretty early endings. And there's been a lot of hype around it for many years, large TAM sizes, just triple digit Kagers and all of this.
But it's the same 12 logos you see discussed at any given moment of here's who's seen success that you've been waiting for this mass enablement or adoption of this. And we just haven't seen it yet. And one of the big learnings on our end was most software platforms are so focused on the central mission of being the best operating system for their specific element of the ⁓ niche vertical that they're focused on. Anything that distracts from that, they simply either don't have the resources or that's something we can think about next year. And so our approach has been this quote unquote built to launch, which is you don't need to go create relationships with three different providers.
You don't have to have a set of strategy that's waking up thinking about embedded finance day in and day out. You don't have to go hire support teams. When you engage with that product that's turned on inside the EF engine, you get access to all of that research that led up to that decision of that best in class provider. And that provider is taking on service and support for that. The risk associated with it is how do you abstract away the resource requirements of embedded finance that I think have put a lot of software platforms on the sideline for many, many years. They're they're resource constrained, they're product roadmap is very sacred.
It's hard to get in across all of that. So that's the build to launch angle that informed the strategy. And then you kind of hinted on the best in class offering. So rather than feel the need to build all these things in-house and start from scratch across all that, there are fantastic providers out there who wake up every day thinking about how they solve the job to be done for the underlying SMB related product. Our strategy has been to go partner with them. But to your point, for that to be successful, has to come together in a very cohesive UI UX that can match the software platform.
And so we white label elements across all that ensure that the different product providers match similar experiences from a flow perspective and brought all that together to leverage the data that's already sitting inside well-paid platforms, bring that together. So no additional integrations or work like that. Very, very important, both in the eyes of the SMB leveraging those products. And then in turn for the software platform who's thinking about making that next step after payments.
Don Apgar - Javelin Strategy (14:13)
Well, you highlighted a very key point Ian about, you know, the popular thinking in the, the SaaS markets was, you know, we have to, we're a software company and we have to stick to our knitting. just, you know, let's focus on making the software the best servant of the business, if you will, that we can. But I think now SaaS companies are starting to realize that, you know what, when, users look at your software, they're looking for services like this, not just actual software to ⁓ keep track of inventory and menu items. And overlay on top of that, the fact that banks, traditional slow moving, sleepy banks are not standing idly by either. So you've got a lot of software applications, third party software applications being brought to market by banks for the purpose of delivering financial services.
So the banks are realizing that the software is the way to engage the small business customer that they want to attract to the bank. So there's a lot of things I think coming together that making this, don't want to say the perfect storm, but we actually, our research on this shows that we're really at a tipping point as we go into 2026 in terms of both delivery capabilities and adoption.
Ian Hillis - Worldpay (15:34)
Yeah, so I think the next frontier of fintech isn't going to be just about payments. It's really about this participation, the broader financial lifestyle that we've been talking about over the course of this conversation. I think that could probably manifest in two ways. The first is around new products. So strong demonstration of success pretty horizontally from a vertical perspective around capital, so flex loans or MCAs, embedded accounts, or commercial charge cards. Those have reasonably been viewed as mainstream embedded financial offerings.
Of course, payments on top of all those pieces. I think people are still starting to better understand that next frontier. So things like accounting, a snapshot of my financial health, payroll, business insurance, whether that's general business insurance, big three, when you start a new business or more bespoke to the unique vertical that they're in. So I think you'll see an expansion of the product suite that people are comfortable with using and an embedded experience across all of that.
We're excited about our strategy because each time one of those is demonstrated, we can go find the best in class partner, but that through the EF engine, that's simply activated inside our software platforms environment with no additional work on their end. But at the same time, I think we're likely to see a consolidation of data and create more automated experiences. So the more financial products you have, the broader the surface area of data across all of that. If it's all bespoke and sitting in central silos from a product by product lens.
That's one thing. The next exciting thing is how do you have intelligent data-driven orchestration across all of that? So we can get into things like agentic actions that you can take. see that typically based on your payments data, your revenue spiked during the holidays. So you're very reliant on that. You're probably needing inventory in advance of that. Here's a loan to prepare you for that. I see that you're trending towards being short for payroll. Here's a loan where you could do front that.
And then we'll do payroll and pay that out combined as one product together. So there's various automated actions that allow them to see the health across all of that. And I'm very excited for that consolidation of data into one single corpus of data that can be actioned upon.
Don Apgar - Javelin Strategy (17:31)
Yep, very true. And I would add to that, that I think we're going to see more work in the supply chain area as it relates to merchants, right? So one of the other big tasks around merchant time, spent on financial services, I mean, obviously credit products, card products, loan products are important, but there's a lot of moving parts in the whole supplier chain, right? I have to order, I have to get product delivered, have to verify that I got what I ordered. Then I have to pay the invoice, right? According to my cashflow, right? I have to track that inventory as it sells and replenish at key points. So don't have too much inventory, but I don't run out, especially for restaurants, right? Who are trying to build menus off of raw ingredients. So there's a lot of room for the data that's in that vertical SaaS application to connect the small business users to suppliers.
Right. And, and take some of the workload out of that supplier invoicing payment thing. And I know this is, this has been talked about in the enterprise world, right. Commercial payments for, for eons. But I think that that from a small business perspective, that this is, this is not about, you know, controlling, ⁓ when I pay or paying late or leveraging that it's just more about the connecting the dots from a reconciliation and a bookkeeping standpoint. Right. It's pretty basic.
Ian Hillis - Worldpay (18:44)
It's exciting. We talked about all the hats that everyone has to wear in each stage of these value chains and the more we can consolidate that and automate that and give people time to focus on their core mission. Exciting and the underlying data will power all of these pieces. So I agree with you, John, a really, really exciting time and lots more to come.