The world of lending has been evolving rapidly, with fintech leading this shift. As someone who has built businesses from scratch and worked within saturated markets, I’ve always been keenly aware of what it takes to stand out. Diving deeper into the idea of vertical fintech models brought me back to my own entrepreneurial journey, the constant push to create something that’s not just good but irreplaceable.
Let’s start with some context. Generalist lending aims to deliver broad solutions, offering them to as many people as possible. But its one-size-fits-all approach often misses the mark for specific industries. Vertical fintech models, on the other hand, are tailor-made for a niche. They deeply analyze data unique to sectors, providing services that truly resonate with those within the segment they cater to.
Take, for example, restaurant-focused platforms like Toast. Instead of evaluating loans based solely on credit scores, it uses granular workflows like point-of-sale data to determine the financial health of a restaurant’s operations. This deeper understanding of the industry allows lenders to set more accurate repayment structures. You can see how Toast revolutionized restaurant financing on its official site.
Now, let’s get into the numbers. A McKinsey study highlighted how embedded finance and verticalized models are expected to grow 30% annually over the next five years in high-potential markets. The evidence supports the idea that niche lending isn’t a fad, it’s a more strategic direction.
How to Approach Vertical Fintech Models
If you're thinking, ‘Is this something I could use for my business or invest in?’, here’s a guide to understanding its potential:
1. Know Your Specific Industry
The first step is identifying your niche. Lending platforms that specialize in areas like healthcare or hospitality are making waves because they understand every pain point of their target audience. Companies like Cherry, which focuses solely on financing for aesthetic procedures, have tailored loan structures that match the exact cycles of their industry. For more insight into Cherry’s model, explore their BNPL medical solution.
2. Focus on Advanced Data Utilization
Using generic data won’t make your vertical approach successful. Instead, pull insights from payment workflows, social behaviors, or even operational statistics. With tools from platforms like PayPal, which dives deep into merchant-specific data, it’s clear that custom metrics matter for accurate lending decisions. Learn more about merchant-specific fintech approaches from PayPal.
3. Embed Functions into Existing Workflows
To boost efficiency and trust, design seamless repayment models. Embedded finance ensures that loans are paid back in ways that reduce friction, like Toast integrating loan repayment directly into POS transactions. Removing manual processes means businesses can focus on their operations instead of grappling with payments.
4. Offer Automated Risk Assessments
Vertical fintech thrives on automation. Platforms use industry-specific algorithms, making risk assessment significantly quicker and more precise. Using AI to analyze transaction history, seasonality, or behavioral patterns is the future of lending.
Common Mistakes to Avoid
When adopting vertical fintech models, there is a danger of overlooking the challenges or rushing the process. Here are common pitfalls:
1. Relying Solely on Technology for Insights
AI and tech tools are game-changing, but they’re not a substitute for industry expertise. You’ll need a mix of digital data and human judgment.
2. Choosing Too Broad or Small a Niche
A niche needs to be defined enough to stand out, but not limited to the extent that scaling is impossible.
3. Ignoring Trends in Embedded Finance
Without considering how consumers interact with platforms, businesses risk falling behind. Take note of players including Shopify’s Capital, which links lending tightly to e-commerce workflows, as highlighted here.
My Experience and Insights
As an entrepreneur who navigates different verticals like CAD technologies and IP protection, I realized that lending becomes successful when aligned tightly with the specificity of a domain. Any product, service, or loan works better when it operates not universally but exclusively within a frame crafted for its audience. Platforms that directly integrate their offerings into workflows eliminate friction and enhance adoption.
Useful Insights to Act On
- For businesses exploring vertical lending as users, pick providers that get your workflow, like Toast or Shopify.
- Investors should consider these models for their scalability within defined niches.
- Entrepreneurs looking to innovate in this space should embrace data fluidity and integration directly into operations.
Conclusion
Vertical fintech lending is becoming a powerful way to serve industries with precision. It’s no longer enough to simply automate and expand; true success lies in specificity and integration. Whether you’re looking to borrow, invest, or innovate, the next step forward is understanding the unique connections between lending structures and industry-defining workflows. Platforms like Cherry, Toast, and PayPal are showing us that sometimes, getting more narrow is how you get ahead.
FAQ
1. What is the difference between generalist lending and vertical fintech models?
Generalist lending provides broad financial solutions to a wide range of industries, often with a one-size-fits-all approach. Vertical fintech models, in contrast, cater to specific industries, using specialized data and tailored financial services to meet niche needs. Read about Vertical AI on NEA
2. How does Toast use vertical fintech to finance restaurants?
Toast uses granular workflows like point-of-sale (POS) data to evaluate a restaurant's financial health and create accurate loan repayment plans directly tied to POS transactions. Learn more about Toast
3. What industries can benefit the most from vertical fintech?
Industries like restaurants, healthcare, and e-commerce benefit greatly due to their unique operational needs and data-specific lending solutions. Platforms such as Cherry focus on healthcare, while Shopify Capital serves e-commerce businesses. Explore BNPL medical solutions with Cherry | Learn about Shopify Capital
4. Why is advanced data utilization important in vertical fintech?
Generic data isn't sufficient for specific needs of industries. Vertical fintech leverages advanced datasets, such as payment workflows, behavioral patterns, and operational statistics, to create more precise risk models and customized lending. Discover insights into Stripe’s fintech lending model
5. How does automation improve risk assessment in vertical fintech?
Automated systems use industry-specific algorithms and AI to quickly analyze data like transaction history and seasonal patterns, leading to faster, more accurate risk evaluations. Understand the use of AI in fintech lending in McKinsey’s report
6. Can embedded finance be applied across industries?
Yes, embedded finance works across industries by integrating financial services directly into daily workflows. Examples include Shopify Capital for e-commerce and Toast for restaurants. Find out more from Shopify Capital’s strategy
7. What are some common pitfalls with vertical fintech?
Common pitfalls include over-reliance on technology without industry expertise, selecting a niche that's too limited to scale, and ignoring user interaction trends like embedded finance workflows. Dive into pitfalls outlined on Finextra’s blog
8. How does PayPal leverage data for lending?
PayPal uses merchant-specific data such as transaction history to offer customized financial solutions and better risk assessments, creating a superior user experience for business owners. Explore merchant-specific fintech approaches from PayPal
9. Why are niche lending platforms like Cherry successful?
By focusing exclusively on healthcare and aesthetic procedures, Cherry aligns its loan structures with the financial flows and cycles unique to that industry, ensuring better outcomes for both lenders and borrowers. Discover Cherry’s financing solutions
10. What is the growth outlook for vertical fintech models?
According to a McKinsey study, embedded finance and vertical fintech are projected to grow 30% annually over the next five years, driven by their scalability and specialized approaches. Understand McKinsey’s insights into this trend
About the Author
Violetta Bonenkamp, also known as MeanCEO, is an experienced startup founder with an impressive educational background including an MBA and four other higher education degrees. She has over 20 years of work experience across multiple countries, including 5 years as a solopreneur and serial entrepreneur. Throughout her startup experience she has applied for multiple startup grants at the EU level, in the Netherlands and Malta, and her startups received quite a few of those. She’s been living, studying and working in many countries around the globe and her extensive multicultural experience has influenced her immensely.
Violetta Bonenkamp's expertise in CAD sector, IP protection and blockchain
Violetta Bonenkamp is recognized as a multidisciplinary expert with significant achievements in the CAD sector, intellectual property (IP) protection, and blockchain technology.
CAD Sector:
- Violetta is the CEO and co-founder of CADChain, a deep tech startup focused on developing IP management software specifically for CAD (Computer-Aided Design) data. CADChain addresses the lack of industry standards for CAD data protection and sharing, using innovative technology to secure and manage design data.
- She has led the company since its inception in 2018, overseeing R&D, PR, and business development, and driving the creation of products for platforms such as Autodesk Inventor, Blender, and SolidWorks.
- Her leadership has been instrumental in scaling CADChain from a small team to a significant player in the deeptech space, with a diverse, international team.
IP Protection:
- Violetta has built deep expertise in intellectual property, combining academic training with practical startup experience. She has taken specialized courses in IP from institutions like WIPO and the EU IPO.
- She is known for sharing actionable strategies for startup IP protection, leveraging both legal and technological approaches, and has published guides and content on this topic for the entrepreneurial community.
- Her work at CADChain directly addresses the need for robust IP protection in the engineering and design industries, integrating cybersecurity and compliance measures to safeguard digital assets.
Blockchain:
- Violetta’s entry into the blockchain sector began with the founding of CADChain, which uses blockchain as a core technology for securing and managing CAD data.
- She holds several certifications in blockchain and has participated in major hackathons and policy forums, such as the OECD Global Blockchain Policy Forum.
- Her expertise extends to applying blockchain for IP management, ensuring data integrity, traceability, and secure sharing in the CAD industry.
Violetta is a true multiple specialist who has built expertise in Linguistics, Education, Business Management, Blockchain, Entrepreneurship, Intellectual Property, Game Design, AI, SEO, Digital Marketing, cyber security and zero code automations. Her extensive educational journey includes a Master of Arts in Linguistics and Education, an Advanced Master in Linguistics from Belgium (2006-2007), an MBA from Blekinge Institute of Technology in Sweden (2006-2008), and an Erasmus Mundus joint program European Master of Higher Education from universities in Norway, Finland, and Portugal (2009).
She is the founder of Fe/male Switch, a startup game that encourages women to enter STEM fields, and also leads CADChain, and multiple other projects like the Directory of 1,000 Startup Cities with a proprietary MeanCEO Index that ranks cities for female entrepreneurs. Violetta created the "gamepreneurship" methodology, which forms the scientific basis of her startup game. She also builds a lot of SEO tools for startups. Her achievements include being named one of the top 100 women in Europe by EU Startups in 2022 and being nominated for Impact Person of the year at the Dutch Blockchain Week. She is an author with Sifted and a speaker at different Universities. Recently she published a book on Startup Idea Validation the right way: from zero to first customers and beyond, launched a Directory of 1,500+ websites for startups to list themselves in order to gain traction and build backlinks and is building MELA AI to help local restaurants in Malta get more visibility online.
For the past several years Violetta has been living between the Netherlands and Malta, while also regularly traveling to different destinations around the globe, usually due to her entrepreneurial activities. This has led her to start writing about different locations and amenities from the POV of an entrepreneur. Here’s her recent article about the best hotels in Italy to work from.
About the Publication
Fe/male Switch is an innovative startup platform designed to empower women entrepreneurs through an immersive, game-like experience. Founded in 2020 during the pandemic "without any funding and without any code," this non-profit initiative has evolved into a comprehensive educational tool for aspiring female entrepreneurs.The platform was co-founded by Violetta Shishkina-Bonenkamp, who serves as CEO and one of the lead authors of the Startup News branch.
Mission and Purpose
Fe/male Switch Foundation was created to address the gender gap in the tech and entrepreneurship space. The platform aims to skill-up future female tech leaders and empower them to create resilient and innovative tech startups through what they call "gamepreneurship". By putting players in a virtual startup village where they must survive and thrive, the startup game allows women to test their entrepreneurial abilities without financial risk.
Key Features
The platform offers a unique blend of news, resources,learning, networking, and practical application within a supportive, female-focused environment:
- Skill Lab: Micro-modules covering essential startup skills
- Virtual Startup Building: Create or join startups and tackle real-world challenges
- AI Co-founder (PlayPal): Guides users through the startup process
- SANDBOX: A testing environment for idea validation before launch
- Wellness Integration: Virtual activities to balance work and self-care
- Marketplace: Buy or sell expert sessions and tutorials
Impact and Growth
Since its inception, Fe/male Switch has shown impressive growth:
- 5,000+ female entrepreneurs in the community
- 100+ startup tools built
- 5,000+ pieces of articles and news written
- 1,000 unique business ideas for women created
Partnerships
Fe/male Switch has formed strategic partnerships to enhance its offerings. In January 2022, it teamed up with global website builder Tilda to provide free access to website building tools and mentorship services for Fe/male Switch participants.
Recognition
Fe/male Switch has received media attention for its innovative approach to closing the gender gap in tech entrepreneurship. The platform has been featured in various publications highlighting its unique "play to learn and earn" model.
